Pentagon Contracts Slid 29% in May

Pentagon contracts fell 29 percent in May from a year earlier, the fifth drop in the past six months, in part driven by automatic U.S. budget cuts.

The Defense Department announced contracts with a maximum value of $13.7 billion last month, down from $19.4 billion in May 2013, according to data compiled by Bloomberg. United Technologies Corp. (UTX) won the only award topping $1 billion, for presidential helicopters.

“There will be fits and starts, but the general trend line will continue to fall,” said Mackenzie Eaglen, a defense analyst at the American Enterprise Institute, a Washington-based policy group. “The steepness of that grade is the only question.”

May’s prime, or direct, contracts were less than half the $35 billion awarded a month earlier. April was the only month since December in which contracts have risen on a year-to-year basis. That gain was propelled by a $17.8 billion Navy contract for 10 Virginia-class submarines.

Eaglen said she expected defense spending to decline through 2017 and perhaps longer if Congress and the White House extend the federal cuts mandated under a process known as sequestration. The reductions began last year, though some of the planned cuts have been eased for fiscal 2014 and 2015.

Presidential Helicopter

Still, the combination of mandated budget cuts, the end of the Iraq war and U.S. troop withdrawals from Afghanistan means defense spending probably won’t rebound any time soon.

“Over the last 10 years, a lot of people did very well,” said Larry Allen, president of Allen Federal Business Partners, a consulting firm based in McLean, Virginia. “Now it’s a bumpy landing for those companies and government agencies because that market isn’t there now.”

The largest May award was $1.24 billion to Sikorsky Aircraft, part of Hartford, Connecticut-based United Technologies, for construction of six helicopters to ferry the president and other executive branch officials. The Navy contract was announced May 7.

The month’s No. 2 contract went to seven companies, including Northrop Grumman Corp. (NOC), General Dynamics Corp. (GD) and Bethesda, Maryland-based Lockheed Martin Corp. (LMT) Both Northrop and General Dynamics are based in Falls Church, Virginia.

The $876.9 million contract for Navy training programs through April 2019 was announced May 1. It doesn’t guarantee any orders to individual companies. Instead, they must compete.

Foster Fuels Inc., based in Brookneal, Virginia, received the month’s third-largest contract. The Defense Logistics Agency on May 6 awarded the closely held company a $853.2 million agreement for fuel.

Five small businesses, including Leander, Texas-based TFR Enterprises Inc., shared May’s No. 4 contract. The $580 million Army deal for debris management runs through May 1, 2019, according to the May 1 announcement.

Lockheed won the fifth-biggest contract for maintenance and upgrades for its C-5B/C Galaxy cargo planes. The $508.9 million contract modification was announced May 8 by the Air Force. The work is expected to be finished by May 2018.

The Pentagon is required to announce contracts of at least $6.5 million.

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 Steve Geimann

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