Sequestration is now in effect. While it remains to be seen whether the budget-cutting measure leads to meaningful reductions in federal spending, defense and aerospace manufacturers say the threat of disruptions to research and development, procurement, and programs is greater than the economic impact estimates. 

Manufacturers in the aerospace and defense sectors estimate that sequestration could result in the loss of 2 million jobs and result in supply-chain instability, the postponement or cancellation of key programs, and compromised national security.

The initial phase of sequestration involves $85 billion in spending cuts evenly divided between defense and other federal programs, excluding select entitlements. While $85 billion is only 2.3 percent of what the federal government will spend in fiscal 2013 and barely registers when compared to the $16.6 trillion U.S. debt, the long-term effect on defense and aerospace could be far more serious, sources told Industry Market Trends.

Cutbacks and delays or cancellations of programs will affect work in research and development, as well as product manufacturing, distribution, and maintenance. Companies could be forced to make layoffs and close facilities if funding is cut. The cuts would, in turn, affect smaller manufacturers and service providers that work as subcontractors. In the end, gaps would appear in supply chains that could result in severe economic losses.

"The decision about how to reduce defense spending must be made carefully, taking into account the strategic and tactical implications it will have... and the need to preserve a strong industrial base that supports the equipment, technologies, and services our forces need," Kristin Gossel, a spokesperson for defense contractor BAE Systems, told IMT. "Compared to the thoughtful defense spending reductions of nearly half-a-trillion dollars [in the next decade] that have been realized over the past two years, the indiscriminate nature of sequestration would have a devastating impact on the defense industry."

Click here to read the full article at Industry Market Trends' website