Arizona defense industry looks warily toward cuts

MESA, Ariz. — It’s a typical day along Boeing Co.’s production line turning out Apache AH-64D helicopters, new and remanufactured.

Kelley Miles hammers rivets above the cockpit of a stripped-down helicopter getting a refit. Ronald Young builds the pylons that hold missiles and rockets. Pat Chi puts together a streamlined exhaust vent.

Outside, finished helicopters roar above the desert.

Miles, Young, Chi and close to 5,000 co-workers are among an estimated 40,000 Arizonans working in aerospace and defense, a sector that contributed roughly $300 million to state and local tax revenues in 2009, according to the Arizona Commerce Authority.

Those depending on Arizona’s defense contractors and subcontractors, as well as its military installations, are looking warily toward year’s end, when automatic spending cuts will occur unless the White House and Congress agree on an alternative plan for reducing the federal deficit.

U.S. Sen. John McCain calls it a “fiscal cliff.”

“If you’re going to enact savings, and we need to enact savings, you do it with a scalpel,” McCain said at an August appearance with West Valley leaders. “You don’t want to do it with a meat ax.”

McCain cited a George Mason University study predicting that Arizona would lose more than 35,000 jobs and suffer a $3 billion loss in gross domestic product.

President Barack Obama and GOP leaders in Congress are at odds over the $1.2 trillion in automatic reductions over 10 years called for by the Budget Control Act of 2011. Under the current plan, about half of the cuts would come from defense.

In a letter last Friday, Obama, who wants a revised plan that increases taxes on those with higher incomes, called sequestration a “blunt and indiscriminate instrument” that was never intended to happen.

Phoenix Mayor Greg Stanton, who heads a U.S. Conference of Mayors defense transition task force, said sequestration would harm Arizona’s many subcontractors in addition to major military contractors.

“It would be greatly damaging to our small-business economy, not just the big ones,” Stanton said in a telephone interview. “Massive cuts will affect mainstream America.”

Boeing’s operations could be harmed by losing second- and third-tier suppliers, such as those providing one specific part, spokesman Dan Beck said in a telephone interview.

“If you lose that you lose the capability to produce these products in the future,” he said.

The primary business of Prescott Aerospace, one of Boeing’s 578 suppliers and vendors in Arizona, is precision parts for the Apache program, said Michael Daley, president of Prescott Aerospace.

“We’re not expanding or doing much of anything,” he said.

The sequestration cuts would cost Maricopa County firms more than $1.37 billion in annual revenue from 2013 to 2021, according to the Center for Security Policy, a conservative think tank based in Washington. Pima County firms would lose an estimated $740.4 million over this same period, the group said.

Tucson Mayor Jonathan Rothschild said one of the concerns for his city is that its economy relies heavily on Davis-Monthan Air Force Base and Raytheon Missile Systems.

“We don’t want to see what’s a slow recovery take another hit,” Rothschild said.

But Arizona is in a much better position than most of the nation when it comes to defense spending and commitments, said Werner Dahm, director of the Security & Defense Systems Initiative at Arizona State University and former chief scientist of the U.S. Air Force.

Dahm pointed to the decision to base three squadrons of F-35 jet fighters at Luke Air Force Base as well as Marine Corps Air Station Yuma awaiting the arrival of the first F-35B Joint Strike Fighter jets this winter.

“If we weren’t talking about sequestration the net positive impact of that on the state would be enormous,” Dahm said. “Sequestration will offset some of those wins, but that’s huge.”

Mark Muro, director of policy for the Metropolitan Policy Program at Brookings Institution, said military budgets are likely to decline long-term regardless of whether sequestration occurs.

“The great challenge now is for these government-related industries and firms to begin moving to ‘get off the dole’ of U.S. military contracting and seek new, more commercial business opportunities,” Muro said in an email.

Boeing is focusing on growth in its commercial business and international sales, said Beck, the company’s spokesman.

“There are a number of things that will be a hedge,” he said. “But we don’t want to overstate that because [sequestration] will have an effect.”