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Defense Cuts: Small Business Feels It

Wednesday, 16 Nov 2011 | 12:09 PM ET

There are still some things made in America. Inside a massive building in Niles, Ohio, furnaces burning at temperatures of up to 4,000 degrees are melting titanium, a lightweight but strong metal which goes into airplanes, tanks, and artillery.

RTI Corporate Headquarters, Pittsburgh, PA
Source:
RTI Corporate Headquarters, Pittsburgh, PA

This facility, nearly a million square feet, is the largest owned by RTI International Metals , a global company that provides titanium to both the commercial and defense markets. A third of its business goes to Pentagon suppliers, and RTI is waiting to see what the Super Committee does, or doesn't do, with defense spending.

"I think the biggest concern for us, frankly, is the uncertainty," says President and CEO Dawne Hickton. "We are the contracted supplier for the titanium for the Joint Strike Fighter program. So that's certainly one of the programs we are watching."

Whatever the decision the Super Committee makes, it will affect contractors large and small around the country, including RTI's plant in Niles.

"The impact of that decision will be felt here, whatever it is," says Rich Vandegrift, RTI's head of capital programs and engineering. The Niles plant employs 575 people and has an annual gross payroll of $35 million. It is one of the largest employers in a Rust Belt community that has yet to recover from the collapse of the steel and auto industries.

Defense Cuts Coming?
With a week to go before the Super Committee's deadlines, defense is expected to take a big hit, reports CNBC's Jane Wells.

The fighter is the most expensive defense program in history. Aviation Week reports the CEO of the prime contractor, Lockheed Martin , says the government has yet to reimburse it for over $1 billion in work done on the jet.

"Those bills may not be paid until the company agrees to negotiate what (CEO Bob) Stevens says is an 'unprecedented' contract provision." That provision, says Stevens, would force Lockheed to pay the cost of any changes to the JSF necessitated by the results of flight testing.

A report from George Mason University commissioned by the aerospace industry claims that in the worst case scenario—if the Super Committee fails to reach a deal and triggers kick in—the military may face $1 trillion in cuts over ten years. The study claims this could mean the loss of 1 million jobs, with a trickle down effect of $2.64 in lost sales in the general economy for every $1 in defense cuts.

If the defense cuts come, and they will, RTI will retool and move on to other markets, other customers. "Once you make that change," he says, "it's not that easy to revert back to what we're doing for defense. So the people that make the decisions have to keep that in mind."

Ironically, RTI would actually like to add jobs, not cut them. They've built a brand new plant in Virginia, but management is holding back hiring until the company knows the future.

"We've spent hundreds of millions of dollars on it, it's ready to start production," says CEO Hickton, "but we've barely started hiring, so it's a lost opportunity for future jobs."



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