Defense Downsizing:

Selected Contractor Business Unit Reactions

NSIAD-95-114: Published: May 3, 1995. Publicly Released: May 3, 1995.

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Pursuant to a congressional request, GAO examined the impact of the recent decline in defense expenditures on individual business units of major defense contractors, focusing on a comparison of defense expenditures over a number of years and changes in the business units': (1) sales and employment levels; and (2) spending on independent research and development and bid and proposal (IR&D/B&P) preparation, capital improvements, and facilities.

GAO found that: (1) measured from their peak years, the six business units GAO visited had experienced sales decreases ranging from 21 percent to 54 percent through 1993 and estimated declines ranging from 50 percent to 73 percent through the latest year projected; (2) the resulting employment reductions ranged from 30 percent to 76 percent through 1993 and planned reductions ranging from 44 percent to 79 percent through the latest year projected; (3) from their peak year spending levels through 1993, the six units had reduced IR&D/B&P spending ranging from 31 percent to 71 percent and projected reductions ranging from 41 percent to 84 percent through the latest year projected; (4) the six units had also reduced expenditures for capital improvements by an average of 80 percent through 1993 and, through the latest year projected, estimated an average reduction of 76 percent in these expenditures; (5) although these business units have significantly reduced spending in these areas, projections by some of the units are still higher than their: (a) 1976 levels, the lowest peacetime defense spending level since the Korean War buildup; and (b) 1980 levels, the year before the Reagan administration military buildup; (6) the defense industry has adjusted to previous spending reductions; (7) the current post-Cold War reduction is only 2 percentage points greater than the reduction after the Vietnam War and is taking place over a period that is 2 years longer; and (8) however, unlike other drawdowns, defense contractors view the current decline as permanent and have developed a variety of strategies to deal with reduced defense spending.

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