Category Archives: Defense

Pratt To Machinists Union In Contract Talks: Give Up 252 Factory Jobs

by Categorized: Aerospace, Defense, Labor, Management Date:

In an opening salvo of contract talks, Pratt & Whitney management is asking the Machinist union to give up 252 jobs at the East Hartford and Middletown plants, clearing the way for the company to bring in outside contractors for materials handling work on the shop floors.

The number is included in a one-page flier (PDF here) that the union is giving to its members Thursday, based on negotiations Tuesday and Wednesday.

The flier also said the union was told by Bennett Croswell, the Pratt military engines chief, that the ramp-up for the f135 engine for the F-35 Joint Strike Fighter will not happen until 2016, rather than 2015 as planned. That engine is already in production in Connecticut and it’s unclear what the delay, or the ramp-up, will mean for jobs.

Pratt said in a memo to its employees that the number of f135 engines it will produce between 2013 and 2020 is 400 fewer than was anticipated in 2009.

Although the 252-job figure is just a starting point in talks that will intensify as the Dec. 8 contract expiration approaches, the proposal shows the direction Pratt plans to take. As the company moves deeper into the next-generation geared turbofan commercial engines and the f135 military work, its goal is to further outsource work to contractors that isn’t a core function, and to disperse company work to more sites around the world.

Both of these trends have been happening for years, angering union leaders in Connecticut, the most expensive place where Pratt has regular production.

Pratt’s hourly ranks have steadily thinned, mostly through retirements but with some layoffs, to about 2,700, divided equally in Middletown and East Hartford. The number is down from 3,400 three years ago, when the current contract was sealed, and is down from about 27,000 25 years ago, before a crushing series of cuts in the 1990-93 recession.

With those numbers in mind, the Machinist union has made job security far and away the primary issue in the talks. The union has already posted a strike picket assignment schedule starting Dec. 9, complete with names and shifts — a common tactic in contract negotiations.

Pratt has also taken pre-strike measures, preparing salaried employees to operate machines.

The union calls the plan “despicable” as some members charge the United Technologies Corp. unit  with greedily padding profits while it pays executives richly.

The company insists it must cut costs aggressively as it competes fiercely with General Electric and Rolls Royce for new-generation engine sales, as Pentagon budgets tighten and as the company endures a delay of two to three more years before high-volume production kicks in.

A typical union member makes $90,000 a year — a figure that can be reached with a base rate of $36 an hour and eight hours a week of overtime.

But the outsourcing of material handling it’s not just about saving money. Bringing in a large logistics firm to move parts, assemblies, components and finished engines around the Pratt complexes could be seen as part of the company’s ongoing effort to focus on its core function of developing and making engines. Companies such as FedEx and UPS have boosted their in-factory services for manufacturers, making a switchover more viable.

Until now, much of the argument between Pratt and the Machinists has been about moving work to locations outside of Connecticut. A provision known as Letter 22 prevents the company from moving union work on the existing generation of engines, unless the Connecticut plants lack capacity to do that work.

The issue of replacing union workers with outside contractors on the shop floor could be equally explosive — and is also protected under the current contract, for work on the existing generation of engines.  The company has done it in years past, notably in the “cribs” where tools and supplies are handled, and among skilled tradespeople such as electricians. The outside contractors, known as “yellow badges” for the ID’s they wear, typically earn less than union workers.

But the company has rarely if ever laid off union workers whose jobs were replaced by contractors, instead typically making the new hires after retirements, or transferring affected workers. And while it’s too early to know whether Pratt’s current proposal would mean layoffs, many of the materials handlers who would be affected have little or no experience in regular production, a source familiar with operations said.

“It is early in negotiations brothers and sisters but the company is heading down a slippery slope,” today’s flier said.

It may be a slippery slope but it’s not a one-way road.  As a negotiation tactic, the union could, for example, allow the company to take back the 252 jobs in exchange for protecting jobs in the f135 and geared turbofan programs — jobs that are not now covered under Letter 22.

The flier also said weekly health insurance premiums would increase. Health care costs were a significant issue in 2001, when the union had a strike that lasted several weeks.  In its memo to employees late Wednesday, Pratt said it is urging workers to use a high-deductible, lower cost plan rather than the more costly, full-coverage ConnectiCare plan.

Pratt and leadership of the International Association of Machinists and Aerospace Workers have agreed not to talk publicly about the negotiations.

Defense Industry Caught In Crossfire

by Categorized: Aerospace, Defense, Economy, Government Date:

If it wasn’t immediately clear as the shutdown started that defense firms would suffer heavy collateral damage, United Technologies Corp. put an exclamation point on the issue late Wednesday with its bombshell furlough announcement.

Read the story here as it develops.

Now we’re seeing more evidence, including work backing up at Electric Boat and an aerospace parts export from a Connecticut firm that’s held up for lack of an approval by the U.S. Commerce Department, a tense story relayed by a Stamford lawyer.

Is UTC making a political statement by announcing the furloughs of 2,000 Sikorsky workers, starting Monday, the sixth day of the shutdown, and another 2,000 workers at Pratt & Whitney next week?  Or are the furloughs strictly a prudent business decision based on the fact that defense work can’t happen without Pentagon inspectors on the factory floor?

You might think a $60 billion-a-year company would have the wherewithal to keep its folks busy at least for a couple of weeks, so maybe this is in part a message to Congress and Obama. UTC would be in its rights for sending such a message, but then again, its own workers are the ones who would suffer for it, not to mention its shareholders, whose stock fell by 1.2 percent Thursday, as the defense index slid by 2.3 percent.

Clearly, the Pentagon’s factory inspectors ought to be exempt from the shutdown. Then again, so should the folks who send out checks for Head Start, along with the money for that and other social programs.

UTC isn’t talking beyond the terse press release it sent out at 5:30 p.m. Wednesday. That could be because it’s in the so-called quiet period before the release of quarterly earnings, and it could be UTC’s culture.

Regardless of whether theatrics are involved, the threat to UTC’s business is real and it illustrates just how tightly the ultra-lean, just-in-time aerospace manufacturing culture runs. There aren’t piles of parts, components and assemblies lying around for weeks, waiting for the next step. Everything is a giant machine that operates in sync, or it shuts down — and government inspection is part of that.

Broadly, it illustrates that government, at least the core function of it, is not a drag on industry or an umbrella over industry — it is built directly into the entire American commerce system. That’s why we can’t calculate the economic cost of a government shutdown by adding up the lost wages of bureaucrats and subtracting that money from the system.

In Stamford, attorney John Fusco at Edwards Wildman Palmer LLP is living with a perfect example. His aerospace client, which he can’t name, makes a certain aviation part that it has exported to several nations.

Last month the Commerce Department rejected a bid for the firm to ship an order worth $80,000 to a certain country. Rejections are common and they’re followed by an appeal request — which in this case, had a deadline of Thursday.

“I can’t file that request,” Fusco said. “We can’t find out why it was denied nor can we appeal it simply because the government is not open.”

It’s not clear whether the deadline clock stops with the shutdown, Fusco said. But it is clear that the firm’s owner has a lot of money tied up in this decision as his customer awaits the shipment.

“Depending on the length of the shutdown, it may cause him to be in breach of his contract,” Fusco said.

Multiply that across the thousands of decisions that literally hundreds of government agencies make in Connecticut alone every day, and the picture comes clear. Some aerospace and defense firms had seemed confident they could weather a short outage of federal employees. Their defense contracts were in place, they reasoned, so they could keep working.

The Pentagon even rushed out billions of dollars in contracts last week, figuring that would smooth the way for defense firms during the shutdown, according to a story in the CT Mirror by Ana Radelat.

But now we see that even a short federal shutdown hurts this industry. That’s a national concern not only for defense but also for the economy as a whole.

It should be enough to see poor city residents suffer with Head Start programs closing, and a backup of food assistance payments in the Women, Infants and Children program. That should be enough. But if it takes a message from a company on the Dow Jones that one of the last great American industries is threatened now, not next week, not next month, but now — then the message is worth sending and must be heard.

 

Groton Sub Base Sends Notices to 750 For Furloughs Starting July 8

by Categorized: Defense, Economic Development, Economy, Public finance Date:

At the submarine base in Groton this week, 750 civilian employees are receiving furlough notices that they’ll be off one day without pay each week for 11 weeks starting July 8, through the end of the federal fiscal year.

Click here for historic pictures of the submarine base

The furloughs are forced by sequestration, the mandatory, across-the-board spending cutbacks in federal spending.  Capt. Marc W. Denno, commanding officer of the base until the end of this week, said safety and essential services would not be affected — but morale is a different story.

The base has about 1,300 civilian employees, Denno said in a written statement, and the 750 targeted for furloughs work in a wide variety of areas.

“Certainly the loss of work-hours from these dedicated and integral members of the team will impact base efficiency and support effectiveness,” Denno said in the release. In addition to sparing safety and security, he added, “Family Services such as Child Development Centers will not be affected.”

The furlough is believed to be the largest to his Connecticut since the White House and Congress had a budget meltdown at the end of 2012 that led to the mandatory cuts. The sub base furlough — which amounts to the equivalent of about 35 jobs in total number of hours — is larger than the cuts that would have led to the closing of six airport control towers; those closures were averted.

The base “has taken great effort to try to limit the visible impacts that patrons of facilities, or tenant customers of base services, may see,” Denno said.

Some services have already been curtailed, including hours of the base gym, pool and library, and the commissary might close an additional day, Denno said.

“Of course, all of this impacts morale and productivity, and keeping Navy Team New London focused and moving forward is going to be my challenge through the end of this month and Capt. Carl Lahti’s challenge as my relief, after.”

In the big picture of the base’s operations, the furloughs are very small. The main issue is that the sequester represents what nearly everyone agrees is a ham-handed way to control costs.

The base, home to 15 nuclear subs, has an estimated economic value to the state of $4.5 billion, including all direct spending, indirect spending and spillover effects as the money courses through the state’s economy. That figure might be a bit of an exaggeration and it might be on target, but either way, it’s far more valuable to the economy than, say, retail spending because virtually all of the money is coming from out of the state.

More broadly, the possibility of a Base Realignment and Closure Commission, or BRAC, represents a threat to the base — which was on an initial list of targeted bases in 1993 and again in 2005, but was saved both times.  President Obama has requested a BRAC for 2015 but that’s not likely to happen based on the chilly reception in Congress, said Bob Ross, executive director of the state Office of Military Affairs.

The House Appropriations Committee not only nixed the idea in its version of the budget, it prohibited the Pentagon from preparing for a BRAC, Ross said.

Connecticut is a lot better prepared this time around in case of a base-closing commission, as the Pentagon has spent $150 million upgrading Groton and the state has spent another $11 million.

“The nation has to do BRAC, there’s no doubt about it,” Ross said Wednesday, but not during sequestration and other defense cutbacks, and not before the Pentagon studies the effects and the lack of savings from the 2005 round.

As for the sequester, Ross said, “It’s going to pop up in places where you don’t expect it.”

 

A Prominent Hartford Citizen Recalls The First Test of the AR-15 Rifle

by Categorized: Defense, Technology Date:

Before the AR-15 rifle came to Colt Firearms, before it became the M-16, before anyone even dreamed it would become America’s most popular gun, David E.A. Carson was there.

Carson, a Hartford resident and the retired CEO of People’s United Bank, played a key role in the first testing of the first-ever models of the rifle, which were delivered to Fort Benning, Ga. for Army testing after ArmaLite made the prototypes.

David E. A. Carson.jpg

It was a competition to see which gun would succeed the World War II-era M-1 as the Army’s infantry rifle. The AR-15 was a radical design based on a smaller bullet and lightweight materials.

“In 1958 I was Private First Class Carson, mathematical statistician for the Small Arms Division of the US Army Infantry Board,” Carson wrote in an email  “There were three rifles in the test, one from Springfield Arsenal, another from Remington Arms and the third from ArmaLite and Gene Stoner.”

“It was a fascinating experience!  My job was to take the test data and analyze it using the mathematics of that era. We had no computers and used mechanical calculators.”

Carson’s conclusion: “The Armalite AR-15 was the clear winner!”

Others agreed. But the Army instead chose the Springfield Armory model, dubbed the M-14.

If the ArmaLite had won, it’s entirely possible that a struggling Colt’s would not have bought the design, and it’s possible there would be no Colt’s today.

Click here for more on Colt’s AR-15 history.

The ArmaLite lost in part because of a controversial water test, which Carson recalls.

“To some extent all the rifles had a problem with the water test, however the AR-15 had the most severe problem and yet potentially the easiest solution. I have always thought that the water test was not realistic.

“The rifles were put in a fixed mount with the barrel pointing up. A water hose was fixed to shower the weapon for a period of time and then the rifle was fired. This was unlike other user tests where the rifle was fired by a soldier. There was a lot of discussion about this test both its design and the reporting of the results.”

Carson, then age 24, thinks he could be the last person alive involved in that test.  He has not, for the record, taken a public position on Gov. Dannel P. Malloy’s proposed ban of the AR-15.

Another Year, Another Base-Closing Threat As CT Defends Groton

by Categorized: Defense, Economic Development, Politics Date:

The Pentagon is likely to seek another round of base closings in Obama’s upcoming budget proposal and this time, unlike last year, it won’t go away easily.

That’s the assessment from Bob Ross, director of the state’s Office of Military Affairs — who’s charged with leading the defense against defense cuts.

“It has to come,” Ross said. “What we’re focused on in Connecticut is how to prepare for that.”

Rep. Joe Courtney, D-2nd District, is skeptical that Obama will spend scarce political capital in an already hostile U.S. House.

Either way, as the Pentagon prepares its budget for 2014, a Base Realignment and Closure commission is a hot topic. That alone is bad news for the submarine base in Groton, which spins off a nuclear-powered $4.5 billion-a-year in economic value for Connecticut.

But this time, unlike in the past, Connecticut is ready to defend its submarine base if a BRAC emerges.

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State Treasurer Reviewing Gun Investments, Which Total Less Than $1M

by Categorized: Defense, Public finance, Wall Street Date:

Connecticut’s pension funds hold less than $1 million in direct holdings in firearms manufacturing firms, state Treasurer Denise L. Nappier said late Wednesday, but her office is reviewing indirect holdings and will “scrutinize” its policy on all gun-related investments.

The state’s pension funds, with more than $23 billion in total value, is limited to $57,233 in stock and $830,500 in bonds of Alliant Techsystems, a Virginia-based maker of solid rocket motors and military and commercial ammunition.

“As a shareholder of Alliant Techsystems, the Newtown tragedy makes it abundantly clear that we must scrutinize our direct exposure, as well as our indirect exposure to companies throughout the supply chain,” Nappier said in a written release.

“I join the nation in mourning the tragic deaths…and have, like countless others, considered what can be done to avoid another such senseless tragedy,” Nappier said. “I am reviewing our investment exposure to not only gun manufacturers, but also to those companies that distribute these weapons.

“My interest is ensuring that any company in which Connecticut pension funds are invested conducts its business consistent with our standards for responsible corporate citizenship — which includes considerations of public safety and the well-being of our children.”

That’s not an empty platitude coming from Nappier, as she has been at various times one of the nation’s most aggressive fund fiduciaries when it comes to corporate responsibility — especially on the issues of splitting the roles of chairman and CEO, and on executive pay.

The surprise is that the state funds’ holdings in the firearms industry are not larger.  The two publicly traded U.S. gunmakers are both nearby, Smith & Wesson in Springfield and Sturm, Ruger & Co. in Fairfield,  Both firms have had a dramatic share price run-up since President Obama was elected in 2008.

The industry was born in the Connecticut River Valley and there are still many local employees in firearms, chiefly at Colt Defense LLC and Colt’s Manufacturing Co., which are privately owned in West Hartford. The state pension funds invested $25 million in Colt’s in the early 1990s, before the company sought bankruptcy protection, and another $10 million after the bankruptcy but before the company split in two.

Connecticut is not the only state reviewing its holdings in the firearms industry.  On Monday, the California state treasurer ordered a similar review and said it may be inconsistent for that state to hold investments in companies whose products are illegal there.

Connecticut, like California, has an assault weapons ban but manufacturers have ways of getting around it, and the semi-automatic rifle used by the shooter in Newtown was legal in this state.

Nappier’s announcement came on the same day when Obama vowed to enact stricter gun laws. Companies including Colt Defense and industry groups such as the National Shooting Sports Foundation, based in Newtown, and the National Rifle Association, have expressed outrage and condolences in the massacre but have not yet weighed in on the rising national calls for a renewal of an assault weapons ban.

On Tuesday, Cerberus Capital Management, which owns several gun manufacturers, including Bushmaster, maker of the rifle used in Newtown, shocked the industry by announcing it will sell the Freedom Group, exiting the business. The father of Stephen Feinberg, the Cerberus founder, lives in Newtown.

The NRA said Tuesday it will “offer meaningful contributions to help make sure this never happens again.”

After Outcry, Wall Street Firm That Owns Maker Of Newtown Rifle Exiting Firearms Industry

by Categorized: Corporate finance, Defense, Manufacturing, Politics, Wall Street Date:

The private equity firm that owns Remington Arms, Marlin Firearms and Bushmaster, which made the gun used in the Newtown killings, is selling the businesses as a result of the outcry over weapons since Friday.

Those gun-makers and several others are part of a company called Freedom Group, which has become a dominant force in the firearms industry over the last five years.  Freedom Group was assembled and is 95 percent owned by Cerberus Capital Management, which said in a statement released Tuesday that it will sell the group of companies.

The statement was highly unusual in the private equity world, in which firms typically say little or nothing about their investment decisions other than in financial filings.

“It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level,” Cerberus said. “As a Firm, we are investors, not statesmen or policy makers.  Our role is to make investments on behalf of our clients who are comprised of the pension plans of firemen, teachers, policemen and other municipal workers and unions, endowments, and other institutions and individuals.

“It is not our role to take positions, or attempt to shape or influence the gun control policy debate.  That is the job of our federal and state legislators.”

The firm has a close connection to Newtown: The 86-year-old father of Stephen A. Feinberg, the billionaire financier who founded and heads Cerberus, lives in a private community in the town.

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As Firms Report Global Weakness, UTC Holds Ground, With Caution

by Categorized: Aerospace, Defense, Manufacturing Date:

Wall Street is worried about company earnings as bellwether firms report sluggish sales, and United Technologies Corp. said today it’s also concerned about the global economy affecting revenues.

But on a day when 3M, DuPont and UPS all missed targets or reported lower sales, UTC held its own, reporting a 6 percent revenue gain, excluding businesses it’s selling.

CEO Louis Chenevert, however, said aerospace aftermarket, and the global economy in general, will keep sales this year at $58 billion, the low end of previous estimates.  He upped the set-aside for restructuring to $600 million from $500 million, a move that always raises fears of layoffs.

Operating profits and margins were off from 3Q 2011 levels, but as lways, UTC’s numbers slightly exceeded expectations, with the culture of no surprises continuing.

The result: on a morning when the Dow was down by 195 points, approaching 1.5 percent, UTC was off just a few cents, at $77.62.  For a while it hovered at the lucky $77.77 level — so we’re hoping for that as the close for the day.

Even The Mention Of A Base-Closing Commission Strikes Fear, Rightly

by Categorized: Defense, Jobs, Politics Date:

There’s almost nothing in the world of politics and economics that can match a base closing for sheer, brute force in a single blow.  A massive storm comes with a massive rebuilding effort, for example, and a company layoff of 10,000 or more workers in one place at one time is thankfully rare.

That’s why the non-news issued by Defense Secretary Leon Panetta on Monday, that there would be no base-closing commission in 2013, was followed by such dramatic reactions from elected officials across the nation.

Panetta had asked Congress in January to launch a new Base Realignment and Closing commission as a way to cut spending. It was clear to everyone that wasn’t going to happen. Still, when he said it in a speech in Monterey, Calif. late Monday, a sigh of relief emanated from the Groton sub base.

“The Department of Defense has properly recognized that its BRAC request was dead on arrival – as I urged in January – because it would cost more than it saves, and imperil national security,” Sen. Richard Blumenthal said in a written release. He added, “Now is no time for a victory lap.”

That last line is most telling, since Groton was targeted in 1992 and again in 2005, only to be saved both times. No one thinks the base, which creates at least 15,000 jobs directly and indirectly and spiritually supports the neighboring Electric Boat, would be safe in future BRACs. Continue reading