November 20, 2012 12:10 am

Honeywell defence chief backs sector cuts

The head of the defence business of Honeywell, one of the US’s biggest industrial conglomerates, has broken ranks with his peers and called deep defence cuts inevitable and “the right thing”.

Mike Madsen told listeners to the company’s defence and space investor day conference call on Monday that Honeywell took an unusual position on the looming cuts.

The company expected legislators and the Obama administration to agree a deal averting the fiscal cliff – spending reductions and tax increases due to come into force from the start of the new year.

The fiscal cliff cuts – agreed last year as part of a deal to raise the US’s debt ceiling – would cut spending on most defence programmes by about 10 per cent.

However, Honeywell expected a compromise agreement still to lower spending by about 80 per cent of the fiscal cliff level. “We’re not really trying to push this back,” Mr Madsen said.

The Aerospace Industry Association, the trade lobby group for military contractors, has argued strongly against cuts, arguing that the US faces multiple international security threats and must be prepared.

However, Dave Cote, Honeywell’s chief executive, has been one of the most prominent industry voices in the Fix The Debt campaign calling for a deal to narrow the US’s budget deficit sharply.

Honeywell expects to generate sales of roughly $5.1bn this year in defence and space. The company provides mainly control, propulsion and other subsystems for major military programmes such as military helicopters, transport aircraft and the F22 joint strike fighter.

Honeywell recognised significant cuts would be made, Mr Madsen said. “They need to occur,” he said. “That’s the right thing to happen, actually.”

However, Mr Madsen said it would be better if they happened more “surgically” than would be the case under fiscal cliff cuts.

They would cut spending equally on large army programmes such as tanks – which many observers think could safely be significantly reduced – and budgets for naval programmes useful for any future war in the Pacific.

Mr Madsen said that given the near-ending of US involvement in Iraq and the draw-down of US forces from Afghanistan, spending on land forces was likely to fall.

“I think money that’s tied to a long duration on-the-ground sort of campaign will continue to decline from current levels,” he said.

However, spending would continue, and potentially increase, on the kind of equipment the US tended to buy before the 9/11 attacks led it towards a decade of war, he went on.

“We’re already seeing indications that spending on enduring platforms – the carriers, the bombers, long-range strike capability, as well as security spend across the [government] not just in the Department of Defence – it’s actually going to continue to ramp up a bit.”

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