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Lockheed warns that government shutdown could delay equipment and inflate costs



Lockheed


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Martin Corp. said on Saturday that the government's shutdown could inflate acquisition costs and delay critical equipment while defense contractors crouched because of continued uncertainty about the military budget.

Lockheed, the world's largest defense company by sales and colleagues as

Boeing
Co.

Y

Raytheon
Co.

they said they had activated contingency plans to keep programs running to compensate for any license among the civilian staff of the Department of Defense.

The defense sector has already been working for months under a series of temporary budgets – known as continuous resolutions – that effectively freeze spending at the level of the previous year and prevent the start of new programs.

Pentagon contractors and leaders have long warned that budgetary problems will increase costs and affect military preparedness at a time when the US UU It is initiating an important renewal of equipment and practical purchases, as well as new priorities established in the National Defense Strategy published on Friday.

"This closure has a negative impact on hundreds of ongoing government programs and thousands of our employees throughout the United States," Lockheed said in a statement. "The shutdown could result in costly delays and production failures that will increase the overall costs of the program and interrupt the delivery of critical equipment to our US government customers."

Lockheed, maker of the F-35 Joint Strike Fighter and Black Hawk Helicopters and their peers did not detail any immediate effect on their operations as contractors prepare to report their fourth quarter financial results and prospects for 2018 within the next two weeks.

The 16-day closure in 2013 led some contractors to outline plans to lay off thousands of employees, only most of the plans will be rescinded when the then Secretary of Defense

Chuck Hagel

He ordered the Pentagon's civilian staff to return to work.

"A closure of a week or two would have an impact on the Department of Defense and potentially contractors, but this also depends on how the closure is treated," the analyst said.

Byron Callan

of Capital Alpha LLC.

The fall of closure depends on the duration and treatment of crucial government departments. Permits from the Defense Contract Audit Agency, which oversees Pentagon contracts, contributed to the problems of the contractors in 2013. The majority of the personnel of the Defense Contract Management Agency, which inspects the work in the plants that produce such equipment as the F-35 fighter plane, were also suspended several days in 2013.

The Defense Contracts Administration Agency said on Saturday that the personnel should normally report on Sunday and Monday, waiting for news "If the government is still closed, DCMA will follow the orderly closure procedures," it said in a statement on its website.

The Defense Contracts Audit Agency did not respond immediately to a request for comments.

However, Lockheed and other defense contractors are also exposed to agencies beyond the Pentagon. Most of Lockheed's staff in 2013 was linked to non-defensive government work, such as nuclear cleanup for the Department of Energy, modernization of air traffic control systems and support for scientists in Antarctica.

"We have deployed contingency plans to minimize the impact on our employees affected by the closure," Lockheed said. "The specific impact for our workforce and our subcontractors depends on the individual contractual terms."

Write to Doug Cameron at doug.cameron@wsj.com


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