LI's defense industries battle federal cuts

Long Island's once mighty defense and aerospace industry is under renewed pressure because of across-the-board federal budget cuts.

The spending reductions, known as the sequester, are likely to have the most severe impact on small manufacturers.

The cuts, totaling $41 billion in U.S. military spending this year and possibly $51 billion next year, come hard on the heels of Northrop Grumman's announcement March 4 that it would shift 850 of its 1,400 Long Island jobs from Bethpage to Florida and California.

"The defense department is taking a big hit with the sequester," said executive director Bill Wahlig of the Long Island Forum for Technology, a group formed to help technology-driven businesses like aerospace grow and prosper. The sequester is taking place because Congress hasn't reached a deal to reduce the deficit.

Among the small players endangered by the cuts, metal fabricators producing parts are particularly at risk, Wahlig said.

Even some small and midsized public companies are feeling the impact. Four local companies that do defense work blamed the sequester in financial reports last week for declines in revenues or profits: parts makers CPI Aerostructures, with 200 workers in Edgewood; Air Industries Group, with 250 in Bay Shore; and communications components producers Aeroflex Holding Corp. Inc. of Plainview, with 358 employees on the Island, and Globecomm Systems Inc. of Hauppauge, with about 500 local employees.

Analysts and company executives say larger companies, including, Northrop Grumman and Telephonics Corp., may fare better.

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LI's central role in aviation

The Island had been a center of American aviation since early balloonists in the late 19th century and pioneers of powered flight in the early 20th century found its flat, treeless plains made a natural airfield, according to the Cradle of Aviation Museum in Garden City. By 1910 there were three airports on the Hempstead Plains, and between 1918 and 1939 about 20 aircraft manufacturers opened, including Grumman, Curtiss, Sikorsky, Sperry and Republic.

The demand for fighter planes in World War II sparked tremendous growth in the Island's aircraft industry, and by 1945 more than 100,000 people worked for local aircraft makers, especially Grumman and Republic, later Fairchild-Republic. Both companies would continue to produce planes for the Korean, Vietnam and Cold wars.

At the peak of the Reagan administration military buildup in the 1980s, the defense sector employed as many as 80,000 people here, including more than 20,000 working at Grumman alone.

Since then, consolidation has taken a toll on local defense jobs, including the mergers of Lockheed, Martin Marietta and the aerospace division of General Dynamics; and Northrop, Grumman, the defense operations of Westinghouse and Litton Industries, now Northrop Grumman. Those deals caused a similar consolidation among suppliers.

Jobs also have shifted to other locales as Long Island-based programs like the Navy F-14 fighter ended and were replaced by others based off the Island.

The most recent rigorous data on the defense industry's presence on Long Island come from a study done in 2008 for the state Department of Labor. In that study, the Long Island Forum for Technology found 830 companies, employing an estimated 30,000 people, that do at least some work for the defense, aerospace or homeland security markets.

Wahlig says there's probably been more shrinkage since then.

Defense industry executives say some small companies have left the Island for the lower costs of doing business in other regions.

Small companies suffer

Now small companies are feeling the pinch from automatic military spending cuts.

At Central Machining Specialties in West Babylon, president Nick Lore says he had to let two people go recently, leaving 13, as orders slowed from the sequester. "On a lot of the projects, they either cut back the quantities or put them on hold," he said. "We used to work overtime. Now we've cut back on that."

The company makes metal and plastic composite parts for ships, planes, missiles and tanks and also produces some medical equipment.

At B & B Precision Components in Brentwood, chief executive August Bricker says, "My backlog is a lot thinner than it was six months ago, before the sequestration took effect." He still has enough work that he's not anticipating cuts in his five-member workforce. The company makes metal and plastic spare parts for a variety of aircraft.

Larger companies prosper

At Telephonics Corp., which likely will become the Island's largest defense employer when Northrop Grumman shifts the 850 jobs, chief executive Joseph Battaglia says he thinks his company's electronic communications systems for warplanes and air-traffic-control radar systems for ships will remain in demand -- if not for new aircraft and ships, to retrofit old ones. Telephonics employs 1,100 in three plants in Farmingdale and Huntington.

"We happen to be in some very lucrative niche markets that are not going to be impacted as severely from the sequestration," Battaglia said.

At ITT Exelis Inc., the Virginia-based defense and aerospace company whose Electronic Systems Division employs about 600 at plants in Amityville and Bohemia, division president Richard Sorelle said, "One of our key strengths is that our portfolio is aligned around the Department of Defense and what its priorities are."

At the Lexington Institute, an Arlington, Va., conservative think tank, defense analyst Loren B. Thompson said it could take years for companies to feel the full impact of the sequester because of how defense money is spent.

But he says local companies working on high-priority hardware such as electronic warfare systems are justified in their confidence that they will see a relatively low impact. "The most important items won't be cut at all," he said.

On the move

Northrop Grumman didn't cite the sequester in its March 4 announcement on the 850 jobs but said it acted in the face of steadily declining Pentagon budgets. Its manned-aircraft design work in Bethpage will be consolidated in Melbourne, Fla. That includes design of the new E-2D Hawkeye Navy surveillance aircraft and of upgrades to earlier E-2 versions. Grumman no longer builds any airplanes on Long Island.

Work in Bethpage on the MQ-4C Triton, a Navy high-altitude surveillance aircraft, will be relocated in San Diego. The company said Bethpage would become an "Electronic Attack Center of Excellence," to employ 550 people.

Local defense and aerospace jobs tend to require high skills and pay well. Local business leaders wonder what, if anything, will replace those paychecks as they depart.

Homeland security, increasingly important in the post-9/11 environment, shows some promise, Wahlig said, as do the biomedical field and generic drug production.

"I would love to see that we have the next Northrop Grumman," Wahlig said, "but I don't think we're going to produce the magnitude of the companies we did during the post-World War II era."