United Technologies Corp. (UTX:US), a supplier of helicopters and jet engines to the U.S. military, said an extended government shutdown would force furloughs of as many as 5,000 workers.
The first effect will be layoffs for about 2,000 Sikorsky Aircraft employees on Oct. 7, and possibly 2,000 more at Pratt & Whitney and UTC Aerospace Systems if the shutdown runs into next week, the company said yesterday in a statement. It said a shutdown into November could push the total past 5,000.
Potential cuts at Hartford, Connecticut-based United Technologies underline federal contractors’ vulnerability as the faceoff between President Barack Obama and congressional leaders drags on. With no funding for government operations in place for the new fiscal year that began Oct. 1, services ranging from medical research to tax audits are on hold.
“The effects of the shutdown are relatively slow at first,” said Jeffrey Ladewig, associate professor of political science at the University of Connecticut. “The first wave are federal employees, the second wave would be contractors and then deeper into the economy would be the suppliers and distribution centers that support all those companies.”
United Technologies receives about 18 percent of its revenue from the government, Chief Financial Officer Gregory Hayes told analysts this week. Its products include Black Hawk helicopters and engines for the F-35 Joint Strike Fighter.
Chief executive officers have begun chiding Obama and congressional Republicans to end their impasse, especially with the approaching deadline this month to increase U.S. borrowing authority, a step required to avoid a government default.
Goldman Sachs Group Inc. CEO Lloyd Blankfein told reporters yesterday after a White House meeting with the president that failure to act on the debt measure would imperil the economic recovery. Honeywell International Inc. (HON:US) CEO David Cote said Sept. 30 that the economy was already being put at risk from the government shutdown.
United Technologies fell for a fifth straight day, declining 1.2 percent to $103.69 at the close in New York. That’s the longest streak since December, according to data compiled by Bloomberg.
Work on Black Hawk helicopters at Sikorsky has already been slowed in response to the absence of government inspectors, Hayes said. The effects on the division are “only manageable for a short time,” Paul Jackson, a spokesman, said by e-mail earlier this week.
The Sikorsky employees at furlough risk are in Connecticut, Florida and Alabama, according to a company statement yesterday.
Mandatory budget cuts known as sequestration, which call for military spending to shrink by $500 billion over a decade, are already taking a toll on Sikorsky’s business. The unit will fall short of its parent’s forecast for annual sales growth because the reductions, which began in March, have sapped demand for spare parts, Hayes said.
Sikorsky won an $8.5 billion, five-year contract to build Black Hawks for the U.S. military last year. Pratt & Whitney reached an agreement with the Defense Department to manufacture a sixth lot of 38 F-35 fighter jet engines in August. While no value was announced, a 2012 pact for the fifth batch of 30 power plants was valued at $1.1 billion.
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