Sequestration had less impact than suggested
By Jim McElhatton
This time a year ago, Lockheed Martin officials warned of impending layoffs, furloughs and a devastating impact to its massive supplier base as sequestration hit across the federal government.
But in the end, things didn’t turn out so bad for the government’s top contractor.
Bethesda-based Lockheed saw a $7 billion increase in contracts from federal agencies in 2013, posting $44.1 billion last year compared to about $38 billion in 2012. The company’s stock closed Tuesday near its 52-week high at $163.71, up nearly 75 percent from the beginning of April 2013.
What’s more, the contractor easily retained its spot as the top federal contractor in 2013, more than doubling No. 2 Boeing’s $21.2 million, according to government procurement figures.
Lockheed’s big haul, including billions in new orders from the Navy for its F-35 Joint Strike Fighter, came at a time when the company’s new chief executive, Marillyn Hewson, warned of a new era of hiring freezes, furloughs and layoffs. The company cut thousands of jobs last year as the government’s sequestration budget cuts targeted defense and non-defense programs alike.
“I think they did cry wolf to a significant extent because they had a large backlog, so they should’ve had a sense of that,” said William Hartung, director of the Arms and Security Project at the Center for International Policy, who wrote a book about the company. “I think that their credibility took a hit on Capitol Hill.”
“But I think they obviously did a good job of riding the wave,” he added.
Last April, Lockheed announced that the across-the-board sequestration cuts to federal spending could reduce its sales revenue by $825 million. One month earlier, the company issued a statement saying sequestration “will lead to furlough in some situations and could trigger layoffs resulting in [layoff] notices to thousands of our current employees”
Lockheed officials declined to comment on the latest contract figures, which were compiled by the federal procurement data system, an automated government-wide repository on contracting actions.
However, a spokeswoman pointed to previous statements from company officials discussing the sequester, including an October investor conference call in which Ms. Hewson called the $825 million estimate “significantly muted due to our large backlog of work remaining” that was unaffected by fiscal 2013 budget cuts.
In February, Lockheed’s chief financial officer, Bruce Tanner, told the Barclays Industrial Select Conference that gauging sequestration’s impact wasn’t just a matter of looking at yearly sales figures.
“I think one thing that gets lost when we talk about sequestration is people look at the numbers that we are showing and they are saying, gee, it’s not as bad as you thought it was going to be, obviously, because you don’t see quite as much reduction down there or you are staying flat between 2014 and 2015,” Mr. Tanner said.
“I think the piece that people miss is [that], pre-sequestration, we had expected to grow from 2013 to 2014 and from 2014 to 2015. And so sequestration had the effect of knocking us back down to where we now see flat levels.”
Most other big defense contractors saw contract obligations drop or hold relatively steady, figures show. Booz Allen, the company that employed National Security Agency leaker Edward Snowden, won about $3.1 billion last year. That’s down from $4 billion obligated by agencies in 2012, but the company still ranked No. 17 among all government contractors.