WA defense contractors have record year. Potential cuts ahead.

Adam Ashton of the News Tribune reports that Washington state's defense contractors had a banner year in 2011, bringing home record revenue even as Congress prepared to scale down military spending. Industry representatives say they're grateful for the big year, but they're looking ahead to possible cuts that could signal leaner times. They're particularly worried about mandatory spending reductions that could be enforced if Congress fails to reach a deficit-reduction compromise."We go into next year with some of the uncertainty about the 2013 budget, but in the short term things are good," said Sean Murphy, executive director of the Pacific Northwest Defense Coalition. The Pentagon sent $6.5 billion worth of work to the state in the federal government's 2011 fiscal year, up from $5.1 billion in 2010. The total was $700 million greater than the previous peak of $5.8 billion in 2008, according to government data compiled by usaspending.gov. Two major Boeing projects account for much of the increase. One came with the Defense Department's decision to award a $35 billion contract to Boeing to build the Air Force's next refueling tanker as it phases out a model in service for five decades. The other project represented additional work the Navy awarded to Boeing for work on its P8-A anti-submarine jet. The Navy work was worth $1.5 billion in 2011, while the start of the Air Force contract brought in $388 million. The tanker project signals years of steady work for Boeing in the Puget Sound, and it's expected to bring as many as 11,000 jobs to the state."The big driver was the tanker win, and that's going to be playing out over time," said Boeing defense programs spokesman Daniel Beck. The boost in revenue reversed two consecutive years of declining defense spending on military contracts here. It ran counter to expectations that the drawdown of forces in Iraq would lead to less defense spending at home."That's what you call a surprise in a good direction," said Egils Milbergs, executive director of the Washington Economic Development Commission. Boeing's multibillion dollar contracts from 2011 in some ways represent pent-up spending on long-awaited defense priorities. The KC-46A refueling tanker contract, for example, capped 10 years of dramatic competition between Boeing and competitor European Aeronautic Defense and Space Co. The contract calls for 179 jets built at a rate of 14 a year in Everett. A Kansas congressman last week said Boeing could steer some tanker work it had planned for its Wichita plant back to the Puget Sound, though Boeing has declined to comment on his remarks. Washington also secured good news from the Pentagon two weeks ago when Congress passed a $662 billion defense budget for 2012 that included $519 million for military construction work in the state. It includes $296 million for Joint Base Lewis-McChord and a start on $700 million worth of long-term improvements to Naval Base Kitsap's port for Trident ballistic-missile class submarines."Having the first phase of (the Kitsap project) funded is huge," said Murphy of the Northwest defense lobbying group. "Now we need to make sure those local subcontracts go to local subcontractors."The money for Lewis-McChord in 2012 is well above the $171.8 million that the Pentagon planned to spend at the base south of Tacoma in 2011. But lawmakers could deal a setback to the industry over the next year if they cannot find an alternative to the $500 billion of mandatory defense cuts that stemmed from the congressional supercommittee's failure to craft a deficit-reduction compromise this fall. It's not clear yet how the Pentagon would implement those cuts, and Defense Secretary Leon Panetta has called them potentially devastating."Such a large cut, applied in such an indiscriminate manner, would render most of our ship and construction projects unexecutable – you cannot buy three-quarters of a ship or a building – and seriously damage our modernization efforts," Panetta wrote to Congress last month. Beck, the Boeing spokesman, said the company is diversifying its production and seeking to control costs as it looks ahead to likely defense cuts. He said the company is looking to increase international sales while building up hot programs related to cyber-security and unmanned aircraft.