With Congressional battles over government spending likely to continue into the foreseeable future, Connecticut’s defense contractors will need to evolve their businesses to remain successful, a Pratt & Whitney executive told a business forum Friday.
Jay DeFrank, vice president of communication and government relations for Pratt & Whitney, was one of three speakers at a panel discussion of the defense industry at the Connecticut Business and Industry Association and MetroHartford Alliance’s annual Economic Summit.
This week, Congress brushed up against a deadline of their own making that’s been referred to as the “fiscal cliff.” In hopes of hammering out meaningful deficit reduction measures, they imposed tax increases and across-the-board spending cuts meant to serve as motivation to work together to eliminate some of the federal deficit.
Late Tuesday night they passed legislation that shielded most Americans from the tax increases, but they pushed out the deadline for spending cuts by a few months. That leaves Connecticut’s defense industry in an uncomfortable position, wondering whether the Defense Department will be hit with harsh, across-the-board cuts or targeted cuts likely to be less damaging.
At the CBIA forum, DeFrank said Connecticut companies should get accustomed to the uncertainty because the budget battles are likely to get worse.
“I would project that they’re going to intensify. And those of us who are suppliers to the Department of Defense, we can expect relentless pressure on keeping our costs low,” he said.
In Connecticut, a state with notoriously high costs, that’s pretty ominous news, DeFrank said.
But Bob Ross, executive director of the state Office of Military Affairs, said it’s not all bad news for the state. Though Ross said to expect a 10 percent cut in defense spending over the next five or six years, he said it might not impact Connecticut as hard as other states.
“That sounds like bad news, but relative to other states, it’s very good news. That’s the lowest number of any state,” he said.
Ross said that other top defense contracting states likely will see around a 20 percent cut, twice as much as Connecticut. He said the state’s advantage comes from building things the Defense Department is interested in continuing to buy. The Pentagon’s national defense strategy calls for many of its products to be manufactured in Connecticut.
“Great jet engines, helicopters, attack submarines, ballistic missile submarines. We’re building the right things at the right time in history,” he said.
But that advantage only helps Connecticut if Congress can avoid automatic, across-the-board spending cuts and the Defense Department is allowed to choose where to cut.
Ross said he was confident Congress would resolve its current issues within the next few months. But in the meantime, it’s causing uncertainty and delaying planning or employment decisions.
However, DeFrank said these types of budget battles have become normal for Congress, and defense contractors in Connecticut must take the opportunity to adapt how they do business.
“We need to recognize that we’re facing a long-term, challenging trend with the budget environment we’re in. This trend will dictate major changes in how companies in Connecticut that depend on defense and government spending do business,” DeFrank said.
He said the Defense Department already has been putting downward pressure on costs in every transaction it has with Pratt & Whitney. While the trend is concerning, DeFrank said Connecticut’s defense industry should capitalize on its strengths and minimize its weaknesses rather than give up and “bemoan our fate.”
Some of Connecticut’s advantages are good schools, and a highly trained workforce in a state with high-tech manufacturing companies, he said. But it also faces the challenges of high costs for energy and labor.
DeFrank said state government can try to project a business friendly environment by being stable and predictable. The state should also support businesses when they make tough decisions in order to stay competitive, he said. For high tech manufacturing companies, it makes sense to keep technically sophisticated jobs in Connecticut while moving lower-skill jobs to states with more competitive labor costs, he said.
The state’s defense industry will need to decide whether to collaborate on difficult long term challenges and work to position itself for the future or react to fights in Washington every year and hope for the best, DeFrank said. He suggested the former.
“We cannot be captives of how we did things in the last century. No one moves forward looking in the rearview mirror,” he said.