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December 31, 2012

Defense spending: 10% cut on Jan. 1?

It appears that sudden doom won’t occur for the defense industry if sequestration take place on New Year’s Day, according to some aerospace analysts and policy researchers.

The sequestration law would inflict 10 percent acrosss-the-board cuts to defense industry contractors and suppliers. But those cuts would not be automatic, policy researchers have said. In the first year, 2013, the trim could be in the range of 4.5 percent, according to the Center for Strategic and Budgetary Assessment in Washington D.C.

So if industry officials receive a letter from the Office of Management and Budget to cut 10 percent, it will take weeks or months before the 10 percent “formula” is implemented. That will give them time to figure out a way to address that, and also give Congress a snapshot of whether it needs to roll back some of these “sequestration” consequences, policy analysts say.

On the other hand, says Richard Aboulafia, an aerospace analyst with The Teal Group in D.C., the 10 percent across-the-board cuts will mean that defense industry budgets will reflect levels prior to 2006 when defense spending took off as a result of wars in Iraq and Afghanistan.

“The worse case scenario is that everything gets hit to the tune of about 10 percent,” Aboulafia told the Star-Telegram, “which is bad but it’s still higher than the numbers the industry saw before 2006. “It wouldn’t be pleasant,’’ he said. “But it wouldn’t be the end of the world.”

Yamil Berard

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