Wed December 4, 2013
Impact of military spending cuts uneven among Iowa's defense companies
As the Department of Defense scales back military spending abroad, domestic arms manufacturers are seeing drastic changes in their revenues. For the first installment of this three part series, Iowa Public Radio’s Durrie Bouscaren profiles one of Iowa’s smallest defense contractors—the creator of a critical component for M-1 tanks.
When it comes to military contracting, the big money goes to the country’s industrial behemoths— Airplanes from Lockheed Martin and Boeing. Tanks from General Dynamics. When wars end, or defense budgets are cut, many of those contractors end up shifting their work to commercial markets, so the losses are replaceable.
But then there are companies like J-Tec Associates in Cedar Rapids. CEO Gary Roling points to a box of aluminum cylinders used in tanks. J-Tec has sold them to the military since 1984.
"These units were originally to be shipped in January," Roling says. "They want to push them back because they don’t have the need."
At 11 employees strong, J-Tech just celebrated its 45th year. Roling says that in 2007, 75% of J-Tec’s business was this one, heavily specialized crosswind sensor used in American tanks throughout the Middle East. The sensor allows a gunner to calculate how wind speeds affect a shell.
A few years ago, Roling was filling orders for as high as 1,300 sensors a year. But recently, Roling says orders have come down to a slow trickle.
"Typically we were quoting 100, 150, 200," Roling said. "A couple weeks ago I got asked to quote nine units for delivery at the rate of one per month in 2015."
Because as wars overseas wind down, the army is using fewer tanks--and those tanks don’t need J-Tec’s crosswind sensor.
"That’s part of the burden of being in the military. They have full access to all the information, you don’t get to operate independently. Every change and every price increase has to be justified in a very formal way.
Roling says J-Tec has experienced the ups and downs of defense contracting before, but the military can be a tough customer.
"They know you're a small business, you depend on work they’re giving you. This is the way it has to be.
Michael O’Hanlon is a senior fellow at the Brookings Institution, a think tank based in Washington, DC. He says defense cuts and sequestration have hit the smaller contractors the hardest--often, the ones who rely on just a few big-ticket contracts with the military each year.
"But what they’re more upset about is the inability to do proper planning, or to even anticipate what’s going to happen two months from now," he said. "There’s a natural result at the end of a period of warfare."
Over the summer, J-Tech moved out of a section of their building to save on rent, and Gary Roling says he’s had to cut the hours of some employees—a group Roling says is like a family.
Without the automotive side of his business, which now makes up 75% of sales, Roling says he would not have been able to keep the technicians who have worked on the crosswind sensor for decades.
"Four of the production people have been with us more than 25 years. They’re key to building that product," Roling said.
But Roling says he’s not sure how much longer contracting for the military will make financial sense.