Long Island defense firms sound alarm as shutdown drags on

Long Island’s defense contractors have so far mitigated the worst effects of the federal government shutdown but won’t be able to do so for much longer. 

The manufacturers, who number about 125 and employ 12,000 people as a group, supply parts for submarines, fighter jets, tanks and other military equipment, according to the Uniondale-based trade group Aerospace & Defense Diversification Alliance in Peacetime Transition or ADDAPT.

Negotiations to end the longest shutdown in U.S. history gained momentum Sunday night after some Democrats in the Senate agreed to join their Republican colleagues in backing legislation that would fund many federal agencies through January.

But a resolution is far from certain. The House of Representatives and President Donald Trump both must approve the Senate compromise, which includes a promised vote next month on extending insurance premium subsidies for Obamacare.

Since the shutdown started on Oct. 1, defense contractors have been conserving cash and relying on lines of credit to pay employees and suppliers because payments have slowed to a trickle, executives said in interviews last week.

They also said they're contending with delayed responses from government engineers to questions about product design and an inability to have in-person meetings with buyers from the Navy, Army and other service branches to secure new orders.

“If the slow pay continues, then it’s going to start getting uncomfortable,” said Anne D. Shybunko-Moore, owner and CEO of GSE Dynamics Inc. in Hauppauge.

“A 30-to-60-day contingency plan is what I set up” before the shutdown began, she said in an interview last week. “Anything beyond that is going to have a longer-term ripple effect that’s broader than just my company.”

In September, Shybunko-Moore met with GSE’s bank to secure a temporary increase in the company’s borrowing to ensure that the pay of about 90 employees wouldn’t be interrupted. She also spoke with key suppliers to ensure there would be no interruption in the flow of materials that GSE needs to make parts for submarines, fighter jets and tanks should the company have to pay for shipments in installments. 

“Shipments and production haven’t changed with this shutdown, which is unlike any other that I’ve experienced,” said Shybunko-Moore, who went to work with her late father, GSE founder Daniel J. Shybunko, in 2001. “Decisions were made this time to ensure military readiness," such as continuing to pay the federal employees who inspect the quality of parts before they leave the factory, she said.  

End shutdown now, industry trade groups say

Still, trade groups like ADDAPT and the Aerospace Industries Association, where Shybunko-Moore serves on the executive committee, are calling for an immediate end to the government shutdown.

Margaret Boatner, AIA's vice president of national security policy, said on Oct. 30, “As this shutdown extends beyond a month, the strain is becoming more pronounced … [with defense contractors] experiencing growing challenges, including delayed payments, stalled contract awards and slower approval processes due to the reduced availability of federal personnel.”

That’s been the experience of Long Island’s defense contractors.

John Spiezio, board chair of ADDAPT and a consultant to aerospace giant Lockheed Martin Corp., said the shutdown puts at risk $4 billion in local economic activity each year.

“People’s livelihoods are on the line, and small businesses will go out of business if this drags on long enough,” he said last week. “And once those jobs and businesses are lost, they’re unlikely to be replaced in New York. The new businesses and jobs will probably be in other states.”

Spiezio said he’d spoken with an executive at a local contractor that had its $800,000 line of credit reduced to $80,000 and was forced to seek alternative financing at a high cost to keep operating. Executives at another contractor are weighing whether to forgo their salaries so production workers aren't laid off.

Northrop Grumman CEO warns of financial impact

Lockheed Martin, Northrop Grumman, Boeing and other public companies in the defense sector have warned investors in recent earnings reports about the consequences of a prolonged shutdown.

If Washington doesn't reopen by the middle of this month, Northrop Grumman, which has operations in Bethpage and Ronkonkoma, expects its finances to be affected.

“We may start to see some additional delays in getting funding on contracts or even delays in receiving payment before year-end that could impact our cash flows for the year,” CEO Kathy J. Warden told stock analysts on Oct. 21.

For other companies, the shutdown has meant an end to important in-person meetings with Department of Defense procurement officers.

At East/West Industries Inc. in Ronkonkoma, there’s been no impact on production, inspections and payments. The company, which has 84 employees, has even been awarded government contracts with 2026 funding for its aircraft seats and crew life-support systems.

But military buyers are no longer attending the trade shows where East/West has a booth touting its products and salespeople to answer questions.

“We’re spending $10,000 to $30,000 for the booth, attendance at the show, on [airplane] flights — and then your audience is not there,” Teresa Ferraro, the company’s president and CEO, said on Thursday. “It’s really just foreign military [buyers] at the shows right now.”