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Mass. defense firms paying price of US spending cuts

Billerica’s American Science lays off 40

American Science and Engineering Inc. is the latest Massachusetts defense contractor to be hit by US military spending cuts, which have already taken a toll on some of the state’s biggest employers and are threatening tens of thousands of jobs.

The Billerica maker of bomb-detection equipment used by the military and law enforcement agencies around the world has laid off 40 people, or 10 percent of its workforce, as it prepares for even deeper reductions in orders from the Pentagon.

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“We are basically moving forward not counting on any Department of Defense orders,” said Anthony Fabiano, American Science’s chief executive. “The reality of our business now is that we are going to have to reduce our cost structure to remain competitive.”

The company said Monday it was cutting its head count when it reported earnings for the third quarter of its fiscal year. Profits for the year so far have fallen 16.8 percent, to $16.6 million. Its stock closed Tuesday at $64.57, down 0.65 percent.

Cutbacks at American Science follow layoffs and falling profits at other large defense contractors in Massachusetts. The industry in the state has about 2,500 companies that perform work for the Pentagon or the Department of Homeland Security.

Last week, Bedford’s iRobot Corp., creator of the Roomba vacuum cleaner, reported profits fell 57 percent in 2012 as the defense side of its business continued to shrink. Much of its losses last year were due to a $100 million drop in US military contracts for robots used to defuse bombs.

Raytheon Co., the state’s biggest defense contractor and one of Massachusetts’ largest employers, said it expects revenue this year will fall about 3 percent.

‘Research and development is to Massachusetts what corn is to Nebraska and oil is to Alaska.’

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While defense contractors have already endured cuts in domestic orders, many such as Raytheon and iRobot are bracing for future cuts and the possibility of automatic spending cuts that will occur if Congress doesn’t reach a deal to reduce the federal budget deficit.

The automatic cuts could mean $500 billion in US military spending reductions over a decade.

That’s a big concern, said Patrick Larkin, deputy director of the Massachusetts Technology Collaborative, a quasi-state agency that promotes the state’s innovation economy.

It not only threatens high-paying jobs, it could also mean a reduction of millions of dollars in research and development money the US military sends to private and academic research institutions across the state.

“Research and development is to Massachusetts what corn is to Nebraska and oil is to Alaska. This is what we do in the state,” he said.

Research funding made up 15 percent of the $34 billion in contracts that organizations in New England received from the Pentagon and Homeland Security in 2011, according to a November report from the UMass Donahue Institute, which studies economic and policy issues in the state.

Defense contractors in Massachusetts employ about 130,000 people and the overall economic impact of the industry in Massachusetts amounts to more than $25.5 billion, according to the institute.

Because of the looming cuts, many defense contractors are moving quickly to find new streams of revenue.

IRobot recently introduced a new line of robots for use in hospitals. Raytheon and American Science are looking overseas to find new customers.

“Our job is to protect people’s lives and keep them from being blown up by terrorists,” said Fabiano of American Science, which manufactures X-ray detection equipment. “With all the terrorism around the world, we are seeing more and more bookings from customers overseas.”

Michael B. Farrell can be reached at michael.farrell@globe.com.
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