Interesting sequester reactions

People would never know administrative terms. Last time was TARP, now it is sequester or sequestration. A sequestration is automatic, indiscriminate, across-the-board budget cuts. The cuts will be lasting in a decade to offset a $1.2 trillion deficit. They're set to take effect Jan. 2, 2013 but March 1, 2013 is the hard line due to lagging.

The most obvious impact will appear on defense contractors. Regardless of the outcome over sequester fight, defense contractors expect more uncertainty in securing future contracts and renewal of current contracts. Agencies may award contracts with available money at a faster pace to contractors before the sequester kicks in. After the sequester, agencies may shift more to time-and-material contracts from fixed-price contracts.

But is the defense industry really fearful of the sequester?

Again and again, GOP said they won't budge over the sequester. The administrative government needs to cut spending instead of asking for more funding. Last time GOP made compromise on tax cuts on middle class tax payers. This time they said no, no more tax topics on the table. The president, on the other hand, seems very confident the sequester can be averted, may be armed with the tax cut victory before the new year. He ordered the defense industry not to issue workforce reduction plan recently.

The defense industry seems agree with the president. Major defense contracting company CEOs aren't fretting performance in 2013. According to the Washington Post,

• Northrop Grumman chief executive Wes Bush said Wednesday that his company’s outlook for the year projects “the sequestration is not triggered” and that Congress barely touches federal contract spending levels for 2013.
• General Dynamics chief Phebe Novakovic said last week that she had developed a “realistic” risk assessment for the company’s bottom line — and it, too, assumes no sequestration.
• Lockheed Martin chief executive Marillyn A. Hewson warned analysts last week that the automatic cuts would hurt her company and the country’s defense capabilities. But Lockheed’s projections, like its competitors, excluded the possibility of the sequester going through. In her remarks, Hewson noted “encouraging action” taken by President Obama and Congress to delay the sequester in December, and she promised that “in the weeks ahead, we’ll continue to work with our government leaders to encourage a more effective solution to our nation’s fiscal challenges.”

Is the industry overly optimistic about the situation or do they intentionally underweight the outcome? We haven't seen the heat of this debate until the last two weeks before March 1. The fight not only tells if the CEOs are right or not, more importantly, it tells political dynamics in DC has shifted significantly if GOP losses the fight with the White House in a row. Now that congressmen have sworn in, unlike last tax battle, would GOP take a much firmer stance?

In all, the defense industry would see a storm coming. If they underestimate it, people had better fasten their belts.