$1 Billion a Day: How the Govt. Shutdown Affects Defense Contractors

A government shutdown affects Americans in different ways – everything from no seasonal flu program to the shuttering of 400 national parks and museums to limited Veterans’ benefits.

Companies doing business with the government are no different. Defense contractors face a $1 billion loss every day the government is closed. Some contractors who “provide support” will still receive checks, but what does “providing support” really mean? At a Bloomberg Government breakfast, Representative Chris Van Hollen (D-MD), added some clarity. The ranking member on the House Budget Committee told the room providing support covers “essential personnel and services” only.

With this in mind, our analysis shows us that contracts in Afghanistan will be paid out. So too will medical services, fuel and aircraft maintenance. Less clear is what will happen to the big weapons projects already in play.

For example, the Defense Department has paid Lockheed Martin and other contractors almost $50 billion for research and development on its F-35 Joint Strike Fighter – a plane that isn’t yet operational. And General Dynamics has been paid nearly $2.5 billion in fiscal 2013 on just one Virginia-class attack submarine contract.

This type of work probably isn’t the “support” Rep. Hollen referred to this morning. However, some of this work can be paid out of prior-year money which has already been appropriated but not yet spent.

To read more detail from our senior defense analysts go to Bloomberg Government.