Defense firms may issue layoff warnings despite U.S. guidance

Tanks are seen on display during a tour of the Joint Systems Manufacturing Center, Lima Army Tank Plant, in Lima, Ohio, April 23, 2012.

JUPITER, Florida (Reuters) - U.S. defense contractors facing automatic budget cuts at the year-end are still considering issuing layoff notices to employees just before the November 6 elections, even though the Obama administration says such warnings are unnecessary.

David Hess, president of aircraft engine maker Pratt & Whitney, told Reuters on Wednesday the company was still examining its legal obligations regarding notification of employees who could be put out of jobs in January.

At issue are some $55 billion in automatic spending cuts for fiscal 2013 that are due to hit on January 2 and which could cost the defense industry thousands of jobs.

Hess and other aerospace industry executives are mounting a campaign to persuade Congress to stop them.

In a controversial move last week, the U.S. Labor Department said the circumstances surrounding the planned cuts were too uncertain to require defense and other federal contractors to comply with the provisions the so-called WARN Act, which requires employees to be notified 60 days before major layoffs or plant closures.

Republican lawmakers immediately accused the Obama administration of trying to suppress potentially damaging notices of layoffs just before the election.

"Right now the WARN Act is the law, and we always comply with the law, so we're not quite sure we understand the direction from the Department of Labor," Hess told Reuters at a rally for employees at Pratt & Whitney's jet engine test facility and rocket engine plant near West Palm Beach, Florida.

The cuts in January stem from an August 2011 congressional budget deal to avoid a historic default on U.S. Treasury debt. Congress pledged to find $1.2 trillion in additional spending cuts by the end of 2012, or they would happen automatically, with half coming from defense spending.

Although defense firms have warned that some $500 billion in cuts over 10 years will ultimately cause the loss of more than two million jobs countrywide, they have little clarity on how the Defense Department will parse out the pain starting in January.

Pay and benefits for military personnel are exempt from the cuts, but executives are waiting to hear which weapons programs will be hit hardest.

DETAILS DUE WITHIN 30 DAYS

On Tuesday, President Barack Obama signed legislation requiring his administration to detail within 30 days how it will administer the cuts, which may help contractors decide where to cut.

"We'll make a decision in the future as to whether or not we'll issue WARN notices. Some of it may depend on what clarity we get in 30 days," Hess said.

Job cuts at Pratt & Whitney's U.S. operations could reach into the hundreds, Hess said. The Florida plant does development work on engines for the stealthy F-35 Joint Strike Fighter and builds rocket engines and has been under consideration for new investment to produce engines for exported F-35s.

Should the cuts cause a reduction in the fighter jet's production rate, the company would have to re-evaluate its expansion plans, Hess added.

Tom Burbage, program integration manager for the F-35 at the plane's prime contractor, Lockheed Martin, said his firm "appreciates" and will analyze the Labor Department guidance, but management must first answer to shareholders and employees.

"The Labor Department is not a major shareholder in corporations like Lockheed Martin or (Pratt & Whitney parent)United Technologies," Burbage said.

"Generally speaking, if we know there's a potential to have a major reduction in the future, we have to take appropriate action," he said. "All we are trying to do is be transparent with our employees so that nobody is caught by surprise."

Lawmakers from both parties say they oppose the across-the-board cuts that will hit in January as a result of a budget deal made a year ago, but they have not been able to agree on alternative ways to reduce spending.

Congress is on a five-week recess and when it returns in September, it will have only 11 legislative days to try to broker a deal before the November election.

With both parties dug into partisan positions on budget and spending issues, a resolution is not likely until a post-election "lame duck" session of Congress that will be crowded with other fiscal deadlines.

(Reporting By David Lawder; Editing by Fred Barbash and David Brunnstrom)