Military business slows to a trickle; now a matter of how hard things will get

Posted by John Keller

We've been hearing for a long time about hard times coming for the military and aerospace business. In fact, I've been hearing about a defense downturn since long before President Obama even took office.

Still, the beginning of federal fiscal year 2013, which was the first of this month, has left me with little doubt that the hard times no longer are coming.

They're here.

I pay fairly close attention to the Pentagon's contract solicitations and awards. Everything was proceeding normally until the end of September. Then at the end of the month and the beginning of October we had a flurry of activity -- particularly in contract awards. That's to be expected, as program managers try to use their annual allotments.

Then a couple of days into the new fiscal, the Pentagon's money spigot slowed to a trickle. I don't have numbers of contracts and dollar amounts to cite. What I have is anecdotal evidence and a gut feel, but military business activity felt like it dropped off a cliff somewhere around the fourth or fifth of this month.

At first I thought the dropoff in military contracts and solicitations was some sort of anomaly -- it still may turn out to be so -- but with each passing day I see more of the same.

It's not just that contracting has dropped off; it's the kind of awards and solicitations being announced. Most of it involves maintenance, services, and small research projects. Even many of the technology upgrade programs have disappeared. Those that remain are intended to keep hold on the status-quo, not to make substantial improvements in capability.

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It's a clear indication that the military is shrinking at an accelerating pace. In fact, the trends indicate that the Pentagon right now is hard-pressed to keep what they already have in acceptable working order. In short, our military structure is being placed in mothballs, that is, until more money becomes available, or until some military crisis hits.

I wish I had some good news, but things could get even tougher, as we face a congressionally mandated "fiscal cliff" of sequestration in January if lawmakers can't agree on controlled cuts. Make no mistake, we're in for a rough go for at least the next six months to a year.

Things to look for: the results of the presidential election; whether or not Congress heads off sequestration; and the Pentagon's fiscal year 2014 budget request next February.

If Mitt Romney wins, it's better for the defense industry, but it won't represent an immediate turnaround. Government money is tight, and is likely to remain so.

Congress could do something about sequestration in a lame-duck session, but I'm not optimistic. Even if sequestration is avoided, defense still faces cuts. It will simply be a question of horrible, or merely miserable.

The Department of Defense budget request in February will be an important indicator, not only for how much money the Pentagon plans to spend, but also where that money will go if Congress approves.

So if you're in the defense business, cross you fingers. It's not a question of whether things will get more difficult, but a matter of just how difficult things will get.