A $17 Billion Pot of National-Security Stimulus Aid Goes Begging
A $17 Billion Pot of National-Security Stimulus Aid Goes Begging
(Bloomberg) -- There’s a $17 billion pot of money in the pandemic aid package for companies vital to national security -- and no one seems to want it.
The $2 trillion rescue package Congress adopted in late March includes loans and loan guarantees specifically for companies “critical to maintaining national security.” The funds at first were seen as largely directed at Boeing Co., which at the time had been pleading for a government bailout. But after selling $25 billion in bonds to investors, the aircraft maker turned down the aid, which would have come with strings attached that it didn’t like.
With the $17 billion up for grabs, the U.S. defense industry is asking the Trump administration to change the criteria for getting some of it, arguing that the terms are too strict.
The Treasury Department, which has sole authority over the $17 billion, has limited the companies that qualify to those whose work is designated DX, which means it ranks highest on the military’s list of national priorities, or to companies that have facilities with top-secret security clearances.
Only about 20 companies applied by the May 1 deadline, according to the Defense Department. There are about 300,000 companies in the Pentagon’s contractor supply chain.
“What we’re hearing across the board is that the restrictions and requirements on the money are pretty onerous, and a majority of companies just can’t apply for the money,” said Hawk Carlisle, president of the National Defense Industrial Association, which represents defense contractors.
It’s another example of the Trump administration’s struggle to help businesses that have been decimated by the pandemic. The initial round of $349 billion aimed at small businesses sparked outrage after large restaurant chains, a professional basketball franchise and numerous publicly traded companies were able to get money while mom-and-pop businesses were shut out.
Treasury has approved about $25 billion out of the $35 billion that Congress allocated for payroll assistance to airlines and cargo carriers.
On Tuesday, Democratic Senator Maria Cantwell of Washington asked Treasury Secretary Steven Mnuchin to broaden the criteria for qualifying for loans and reopen the application process.
“Treasury’s implementation of the loan program has not adequately addressed the needs of the aerospace supply chain and its workforce, which is fundamental to America’s industrial base,” she wrote.
It’s not just the defense industry raising concerns. Ellen Lord, the Defense Department’s top acquisition official, told reporters last month that Treasury’s criteria may have prevented companies with the greatest need from qualifying.
“We have talked with them several times; they have reached out to us,” Lord said. “I am not sure companies with DX-rated contracts are perhaps the ones that have the most critical needs.” She said suppliers already have been giving DX programs priority, which they are required to do under Pentagon rules.
The Treasury Department didn’t respond to requests for comment.
Congress stipulated that companies receiving the national-security loans must provide the government with warrants, equity or senior debt securities and agree to limits on dividends, stock buybacks and executive pay.
But it’s Treasury’s additional criteria that defense firms say are too narrow. It restricted loans to two groups: those with a contract with the DX rating or those with facilities that have top-secret security clearances.
Eric Fanning, president of the Aerospace Industries Association, whose members include Lockheed Martin Corp. and BAE Systems Plc, said the criteria should be broadened to cover more companies.
A Pentagon spokesman, Air Force Lieutenant Colonel Mike Andrews, said in an email that the Defense Department has determined that only a few programs required a DX rating, but opted to stop releasing their names as of December 2018.
Before that, the Pentagon had said there are about a dozen DX programs, including those for the Minuteman III ICBM program, the B-2 bomber, presidential aircraft, missile warning satellites and nuclear-missile submarines. Some of the major companies involved are Boeing, Lockheed Martin, Northrop Grumman Corp. and General Dynamics Corp.
The Pentagon doesn’t track the number of companies that possess top-secret clearances, but only the number of facilities cleared at that level, spokeswoman Cynthia McGovern said in an email.
Like Boeing, the large companies that might qualify for the Treasury loans are able to tap the capital markets to meet their financing needs, especially now that the Federal Reserve is pumping hundreds of billions of dollars into debt markets by buying corporate bonds and bond funds.
The Pentagon is helping by increasing progress payments by $3 billion and speeding up those payments to contractors, which range from the biggest makers of weapons systems to the more numerous, lower-tier suppliers of everything from software to uniforms.
But many contractors also rely on commercial deals to supplement their government work. With the airline industry facing a sharp and lengthy contraction, aviation suppliers could see a greater need for rescue financing in the near future, said Fanning of the aerospace industry group.
“We don’t have a sense yet of where the stress points are in the industrial base,” Fanning said. “The health of supply chains can take a while to sort out and show where there are problems.”
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