Copyright Breaking Defense
WASHINGTON — The government has been shut down for a month, but for the most part, the CEOs of some of America’s top defense companies say they’re not seeing a financial impact to their business — not yet, that is. Government funding expired on Oct. 1, too late to put a dent into third quarter earnings, which defense executives have detailed over the past two weeks. But although CEOs are not sounding the alarms to investors, they cautioned that a prolonged shut down will cause delays to contract awards that could whittle away projected revenue for the year. “The government shutdown is clearly the challenge. It’s disappointing where we are, and we need Congress to get together and resolve this situation,” said L3Harris CEO Chris Kubasik, who called the shutdown “baffling” during an earnings call with investors on Thursday. L3Harris is already seeing impacts to cash collection and delays in the timing of contract awards, Kubasik said. For example, the government will need to reopen to move forward on programs like the Space Development Agency’s Tranche 3 tracking system and Missile Defense Agency’s Hypersonic and Ballistic Tracking Space Sensor. “There’s clearly an incongruency within the government. The DoW [Department of War] wants to go fast,” he said, using a secondary name for the Defense Department. “They meet with us all the time, [telling us] we’ve got to go quicker, and then Congress can’t fund the DoW. So we’re kind of stuck between those two situations.” The company remains confident it will be able to meet its financial guidance for the year and is currently projecting that the government will reopen in November, Kubasik said. “Then we’ll have a busy December to catch up on everything.” Northrop Grumman CEO Kathy Warden noted that Northrop’s latest financial guidance for 2025 already bakes in some of the delays the company anticipates in terms of getting programs under contract, and that it does not project any “significant impact” on financial results so long as the shutdown is resolved “in the near term.” “We are assuming that this only goes a few more weeks, say around mid-November,” Warden said last week. “If it goes beyond that, we may start to see some additional delays in getting funding on contract, or even delays in receiving payment before year end that could impact our cash flows for the year. We don’t anticipate that at this time, but it’s certainly something we’re watching. And so we’re very hopeful, as I said, that the government will agree to reopen soon, even if under a continuing resolution.” At the same time, she added that the shutdown is already slowing down the Pentagon’s ability to make decisions on programs. For example, although the Pentagon’s fiscal 2026 budget has yet to be approved by lawmakers, the reconciliation legislation passed by Congress earlier this year includes $4.5 billion to increase the B-21’s production rate that is already available for the Pentagon to execute. However, discussions with the Air Force to define the specifics of the ramp-up plan — including the max production rate and the timing for the production acceleration — have “been held up a bit” because of the government shutdown, Warden said. Leonardo DRS is another company that is expecting the shutdown to last no longer than November. “As it starts to go longer than that, the people who pay us and give us the awards aren’t there. And so you’ll start to see delays in awards and delay in pay,” said its CEO Bill Lynn, who is retiring later this year. “But it would really have to keep going for a longer period — where we’re already basically longer than we’ve ever seen — but it would have to be a historic length before we’d see an impact.” General Dynamics CEO Phebe Novakovic said a long shutdown would have particular impact on short-cycle programs where contracts need to be renewed more frequently, although she wasn’t willing to say at what point the company would expect to see a financial impact. “The uncertain duration and future potential impacts of the government shutdown creates a lack of clear visibility into our cash forecast for the remainder of the year,” she said. “We are taking prudent actions to conserve cash and liquidity. If a resolution can be reached in the near term, we would expect to be able to achieve the forecast that I just discussed. However, in the event of a protracted shutdown, it is unclear how and when our cash flow will be impacted, despite our careful efforts to diligently manage cash.” Novakovic laid out one such step: Following the third quarter, the company re-entered the commercial paper market — a financial term used to describe what is essentially an IOU sold by a company to help finance short term debts — which she said would support the company’s liquidity during the government shutdown in the event of slow or nonpayment issues. General Dynamics is evaluating the impacts to its contracts on a weekly basis, and while the shutdown has not yet impacted cash collection, the furlough of certain department contracting personnel has resulted in a delay in awards, Novakovic said. “If it goes into next year, that increases the likelihood this will have additional impact,” she said, adding that “particular lines of business” could begin to run out of funding. For HII, shipbuilding programs continue to be supported, with no impact to ongoing shipbuilding operations or the contract negotiations for the next round of Columbia-class ballistic missile submarines and Virginia-class attack submarines, said CEO Chris Kastner during an earnings call Thursday. However, there has been an impact to the company’s mission technologies business, which Kastner characterized as “immaterial” so far. “We are watching those programs closely as they are more likely to be impacted by budget timing. We continue to support completion of the FY26 appropriations process as soon as possible to minimize the impact that a lapse in funding could have on our programs,” he said.
