Bloomberg News

Contractor Giving Soars 28% in Bid to Block Defense Cuts

May 13, 2014

Top U.S. government contractors are ramping up their political giving before the congressional elections, seeking protection from sales-sapping budget cuts.

The 10 biggest contractors, including Lockheed Martin Corp. (LMT:US) and Northrop Grumman Corp. (NOC:US), boosted political action committee contributions by 29 percent in advance of the 2014 midterm congressional elections compared with 2012, according to Federal Election Commission filings compiled by Bloomberg.

Lawmakers elected on Nov. 4 will help decide the fate of automatic federal spending reductions, which were set at $1.2 trillion over a decade, after a two-year deal easing the cuts expires next year. The companies need Congress’s support because sales are being hurt as agencies tighten spending. Their strategy of pumping up profits through stock buybacks and cost-cutting might be difficult to maintain.

“They’ll spend whatever it takes to stifle this trend,” said Mark Amtower, a partner at Amtower & Co., a Clarksville, Maryland-based consulting firm specializing in contracting. “Rather than buy back the stock, they want to buy back congresspeople.”

The government’s top 10 suppliers, most of which rely heavily on defense spending, made $13.7 million in PAC contributions during the first 15 months of the current two-year election cycle, which began Jan. 1, 2013. That compares with $10.6 million from Jan. 1, 2011, though March 31, 2012.

“We do see this as a critical election year,” said Marion Blakey, chief executive officer of the Aerospace Industries Association, an Arlington, Virginia-based trade group. “We want very much to be central in their minds as they decide what matters most in the new Congress.”

Industry Supporters

Blakey’s association has fought the across-the-board budget reductions mandated under a process known as sequestration, half of which covers defense.

The retirements from Congress of several longtime industry supporters may make the association’s job harder. Both Howard “Buck” McKeon, a California Republican who is chairman of the House Armed Services Committee, and Representative Jim Moran of Virginia, a senior Democrat on the Appropriations defense subcommittee, are leaving.

The potential successors to McKeon now lead Armed Services subcommittees: Mac Thornberry of Texas, Randy Forbes of Virginia and Michael Turner of Ohio. All three received more money from defense interests than any other industry for their 2014 campaigns, according to the Center for Responsive Politics, a Washington-based research group.

The industry is also cultivating new allies, including freshmen on the Armed Services panel.

Corporate Giving

Representative Jackie Walorski, an Indiana Republican, received $63,000 from defense PACs for 2014, after getting $6,500 two years earlier, according to the center. California Democrat Scott Peters took in $61,498, up from $3,500 in 2012.

Both are among the most endangered incumbents, according to Washington political analyst Charlie Cook, who tracks congressional races.

“I’m sure right now that the lobbyists and strategists are telling the corporate PACs that now is the time to really ramp up your giving,” said Larry Noble, a former FEC general counsel. “If sequestration continues, they’re not going to be happy. This is not the world that they wanted.”

The leading contractors have given so much money that they now account for three of the five most-generous corporate PACs in 2014. Two years earlier, only Bethesda, Maryland-based Lockheed made that list.

Lockheed Martin, the largest federal supplier and the maker of the F-35 jet, lifted its contributions 16 percent to $2.4 million during the current campaign cycle compared with the 2012 period.

No. 1 Northrop

Northrop Grumman, based in Falls Church, Virginia, beat Lockheed’s giving. It more than doubled its PAC contributions to $2.5 million from $1 million for 2012, second only to Honeywell International Inc. (HON:US) among corporate committees.

Mark Root, a Northrop spokesman, declined to comment on the filings, saying they “stand on their own merit.”

Gordon Johndroe, a spokesman for Lockheed, would say only that the company backs “a variety of members based on their concern and interest in our national security.”

Seven other top contractors boosted their PAC contributions. They included Boeing Co. (BA:US), with $1.9 million; Raytheon Co. (RTN:US), $2.2 million; Huntington Ingalls Industries Inc. (HII:US), $670,000; United Technologies Corp. (UTX:US), $1.2 million; L-3 Communications Holdings Inc. (LLL:US), $330,000; BAE Systems Plc, $927,500; and McKesson Corp. (MCK:US), $479,500.

Ten Subs

General Dynamics Corp. (GD:US)’s PAC donated $1.1 million. The company’s contributions declined 2 percent.

General Dynamics and Huntington received a $17.8 billion Navy contract last month for 10 new Virginia-class submarines, the largest shipbuilding contract ever awarded.

As part of its effort to end sequestration, the Aerospace Industries Association is also expanding its grassroots campaign.

An association website soon will include lawmakers’ votes on bills important to the industry. The campaign will try to enlist aerospace and defense workers, retired and active military, and fans of space travel and rocket launches in a bid to elect supportive lawmakers.

The midterm elections also will be a major topic at the industry group’s semiannual board meeting in Williamsburg, Virginia, from May 22 to 23.

“It’s very much a call to action,” Blakey said.

War Spending

The value of unclassified prime, or direct, federal contracts declined 11 percent to $456.2 billion in the year that ended Sept. 30 from a year earlier.

Military contracts, which account for two-thirds of that total, are falling because of sequestration and waning war spending. The automatic cuts, designed to reduce the federal budget deficit, began in March 2013.

Some companies have eliminated jobs, cut costs and bought back shares to sustain higher profits amid shrinking sales. The big contractors have enough cash to continue that trend through at least 2015, said Brian Ruttenbur, an analyst with CRT Capital Group LLC in Stamford, Connecticut.

“Eventually, the down cycle catches up,” he said.

While President Barack Obama and Congress in January agreed to restore $31.5 billion in scheduled defense cuts over two years, some programs are still at risk.

Defense officials proposed retiring the A-10 Warthog to save $4.2 billion over five years, though a measure passed by the House Armed Services Committee would provide a reprieve.

Growler Aircraft

The plane, which doesn’t have an active manufacturer, was originally built by Fairchild Republic Co., now part of Northrop. The Pentagon didn’t fund the A-10 or Boeing’s Growler aircraft in fiscal 2015.

The House Armed Services Committee on May 8 voted to stop the Pentagon from moving to retire the U-2 spy plane, built by Lockheed.

If Congress doesn’t end sequestration, funding for weapons such as the F-35 jet and Northrop’s Global Hawk Block 40 drones, will face reductions, according to a Defense Department report last month.

“You need to have a reservoir of support, a foundation of members who value and understand what you’re bringing to the table for national security,” said Roger Zakheim, a former general counsel for the Armed Services Committee who now works for the law firm Covington & Burling LLP.

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net

To contact the editors responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net Mark McQuillan


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Companies Mentioned

  • LMT
    (Lockheed Martin Corp)
    • $192.85 USD
    • 1.21
    • 0.63%
  • NOC
    (Northrop Grumman Corp)
    • $149.9 USD
    • 1.35
    • 0.9%
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