This article is part of the series

Emac's Bottom Line

Moody’s: Supercommittee’s Failure Is Credit Negative for Defense Contractors

Moody’s Investors Service has ranked the top 10 defense programs -- and defense contractors -- that could get hurt by an estimated $1.2 trillion in automatic budget cuts over the next decade, an estimated half of which could come from the defense industry.

Continue Reading Below

The failure of the Joint Select Committee on Deficit Reduction, the Supercommittee, to put forward $1.5 trillion in deficit cuts means the triggers could take effect beginning 2013.

The automatic cuts would come on top of Defense reductions that Congress has already passed in the Budget Control Act last August, where “the nation’s defense budget faced cuts of more than 10% over the ensuing decade, almost double the amount of previously mandated initial cuts,” Moody’s says. Those cuts come in at an estimated $492 billion over the next ten years.

Moody’s adds, however, that before the new automatic triggers automatically kick in, the markets will see yet another “period of prolonged uncertainty throughout 2012, much like this year’s continuing resolution prior to” signing the Budget Control Act “when the US seemed at risk of imminent default.”

Moody’s also notes that “defense contractors have already shown signs of the adverse effect of these various political showdowns,” including “increasing pricing pressure and delays in government awards contributing to organic sales declines in the low- to mid-single-digit percentage this year.”

And Moody’s notes that “all the more troubling is that these events have occurred before the implementation of any real cuts” and “the fallout still to be felt from rapidly declining wartime spending, particularly given the likely accelerated withdrawal of US armed forces from Iraq and Afghanistan."

Continue Reading Below

Here is Moody’s ranking of the 10 defense programs facing the knife, based on the Defense Department’s 2012 budget request:

Program Contractors Est’ed Program size
($ in billions)
F-35 Joint Strike Fighter Lockheed Martin, United Technologies $385 billion
Virginia-Class Submarine General Dynamics, Huntington Ingalls 93
P-8A Poseidon Boeing, General Electric 35
V-22 Osprey Textron, Boeing  1 55
F/A-18E Super Hornet Boeing, General Electric 49
MQ-1 Predator/Reaper General Atomics 30
Littoral Combat Ship Lockheed Martin, Austal 34
DDG-51 AEGIS Destroyer General Dynamics, Huntington Ingalls 81
Landing Heli Assault Replcmnt Huntington Ingalls   7
LPD Transport Dock Ship Huntington Ingalls 19


What do you think?

Click the button below to comment on this article.