Sequester squeezing contractors

“It is safe to say that there will be job losses associated with sequestration nationally and in Colorado,” said Vicki Lea, executive director of the Colorado Space Coalition at the Denver Metro Economic Development Corp. “Our feeling is that, no, it’s not happening, yet. The immediate action is that companies are not hiring. Programs are being put on hold. The expectation is that in the next year or so, job losses will follow.”

Sequestration is the formal term for mandatory cuts to federal programs — the process of cordoning off money that may have been authorized by Congress but now is prohibited from being spent. Literally, the money is being “sequestered” — taken away from the federal agencies affected. President Obama issued the sequestration order March 1 after Congress was unable to reach a budget agreement, leaving Colorado’s large aerospace industry in limbo. Defense agencies are losing 7.8 percent of their fiscal year 2013 funding, and nondefense agencies such as NASA are losing 5 percent.

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Colorado’s aerospace industry is ranked third in the nation in terms of civil space programs that will be most negatively impacted, according to a study released in December by researcher Stephen S. Fuller, professor and director for regional analysis at George Mason University.

Commissioned by the Aerospace Industries Association, Fuller found 11 “impact clusters” where effects will be greatest. The only states to bear a heavier burden in terms of income and jobs are Texas and California. The study forecasts that more than 2,000 Colorado jobs could be lost this year in the civil space industry alone. The impacts are not just to the aerospace and defense companies; the flow-down effect to its supply chain is significant, given the high rate of subcontracted work.

Clif Harald, executive director of the Boulder Economic Council, said the budget cuts do not just affect aerospace companies. “There is a significant multiplier effect and the potential to affect many sectors of the economy,” Harald said.

The cuts have the potential to affect many sectors of the economy, from academic institutions and research laboratories such as the Boulder-based National Center for Atmospheric Research and National Oceanic and Atmospheric Administration to bioscience companies and the community’s industrial base — all engines of growth and job creation for the Boulder area, Harald said.

The impact on larger companies so far is less significant than that on small companies, said Diane Dimeff, executive director of eSpace, a partnership of the University of Colorado and Nevada-based Sierra Nevada Corp., an aerospace company employing 230 people locally, mostly in Louisville. eSpace is a collaboration of industry, government and academia working to accelerate commercial space technologies.

“What’s sad is that the sequester doesn’t impact just large companies,” Dimeff said. “It impacts the entire chain, including companies relying on research grants. This puts small companies at risk. Larger companies can absorb the (budget cuts), but some smaller companies cannot.”

Blue Canyon Technologies LLC in Boulder is one such company feeling the impacts and facing uncertainty about its future. Blue Canyon, which specializes in small-spacecraft component design and development, is one of 13 companies incubated by eSpace.

“The level of uncertainty is higher than it’s been before,” said George Stafford, company president. “The major effect (the sequester) has had on us is the amount of proposal efforts this year. All the proposals we have submitted have been delayed. Some of the programs have been canceled.”

Stafford said $3 million to $4 million in pending work has been delayed. That’s a lot of money to a company with projected annual revenue of $600,000.

So far, the company has not had to lay off any of its 10 employees. “We haven’t gotten to that, yet,” he said. However, if the funding does not materialize by the end of the year, layoffs are a real possibility, Stafford said.

On the other end of the spectrum, Ball Aerospace & Technologies Corp., The largest aerospace company in Boulder with more than 2,200 employees and annual revenue of $876.8 million in 2012, is not yet feeling the effects of the sequester, said company spokeswoman Roz Brown.

“We are very early into the sequester — but to date we have no immediate plans for layoffs,” Brown said. “To date, there are no projects at Ball Aerospace that have been put on hold due to budget uncertainty.”

Debra Facktor Lepore, Ball’s vice president and general manager for strategic operations, said the company has not been notified of “anything that would cause us concern. We are watching and waiting along with everyone else to learn what the full effects of sequestration will be; we look forward to the government issuing the (fiscal year 2014) budget later this month.”

With much of Ball’s funding coming from the federal government for civilian and defense projects, Ball is exploring potential growth opportunities that are not dependent upon federal funding such as building satellites for private companies and foreign countries. New changes in export regulations could lead to growth of the latter market.

Colorado’s congressional delegation is focused on changing export regulations to benefit aerospace companies.

“The aerospace industry is an integral part of Colorado’s economy, and Washington should not be impeding growth and innovation with poor policies like sequestration,” said Sen. Michael Bennet, D-Colo., a member of the Senate Finance Committee.

Bennet and Rep. Mike Coffman, R-Colo., recently announced a bipartisan working group to evaluate current aerospace export regulations and recommend how to make them more efficient while still protecting national security interests. This builds upon the delegation’s work that led to Obama signing into law reforms giving greater flexibility to aerospace companies to export their satellites abroad.

“This effort is critical to enabling Boulder County’s companies, with decades of aerospace expertise, to export commercially overseas,” said Kristin Lynch, Bennet’s press secretary.

Bennet also helped secure a satellite patent office in Denver, which will help aerospace companies patent their new ideas and inventions more efficiently.