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F-22 Demise Highlights Plight of Small Firms

Stocks in this article: NOC BA LMT

Awarding contacts can take years, which is why it's tough for small businesses to diversify and focus on the next big plane or car. That's why the little suppliers that focused solely on the F-22 may have trouble bouncing back when production of the jet ceases at the end of 2011.

Car-part suppliers, desperate for business in the wake of their industry's decline, have joined the competition for aerospace contracts, McDermott says. However, this may be a losing proposition. "Just because you put brakes on a car doesn't mean you can put brakes on an airplane," he says.

The U.S. Small Business Administration is trying to ramp up programs that target manufacturers. The SBA plans to fund more "regional economic clusters," partnerships of suppliers, big businesses and academic institutions to spur economic growth in otherwise neglected areas of the country, such as the Midwest, where manufacturers are likely to reside. The first of these to receive SBA support was the Michigan Automotive Robots Economic Cluster, which addresses the ripple effect of auto industry turmoil on small manufacturers across the state. The goal of the cluster, which includes the Department of Defense, is to help these manufacturers focus their efforts on other industries.

"Regional economic clusters will help struggling industries find ways to diversify and transition to a new economy," says SBA spokeswoman Hayley Matz.

The SBA is also pushing for a looser definition of "small business" for firms looking to borrow from the agency. The organization has proposed an increase in size standards that would affect 71 types of businesses, marking the first major size review in 25 years, Matz says.

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