Defense industry groups are warning that drastic budgets cuts “could cripple” segments of the industrial base.

They said the $480 billion cuts mandated by Congress over the next decade would lead some companies to abandon defense work and put others, especially small and mid-sized ones, out of business. An additional $500 billion in cuts that will take effect unless Congress reverses them would be a “doomsday scenario” for industry, they warned.

The report by the Aerospace Industries Association, the National Defense Industrial Association and the Professional Services Council was sent to Defense Secretary Leon Panetta. In a letter, the groups said, “To an industry segment that is already executing significant personnel layoffs, planning on shuttering production facilities and reassessing near-term research and development investments, the added prospect of either of the scenarios is both daunting and of grave concern.”

On Jan. 5 President Obama announced new strategic plans that will guide future defense spending after the end of the wars in Iraq and Afghanistan. The cuts will be detailed when the president’s 2013 budget proposal is released next month.

Secretary Panetta also sounded an alarm about the possibility of a trillion-dollar cut. “It would result in what we think would be a demoralized and hollow force,” he said at the Jan. 5 briefing.

In the services sector, the industry groups said DOD’s emphasis on low price/technically acceptable awards and the ongoing efficiency campaign “has shrunk margins and correspondingly the resources available for R&D.”

The report, based on a survey of members of the three associations, adds, “While this challenge will affect a wide array of companies, several respondents observed that the impact will be greatest on small and smaller mid-tier businesses—many of which are critical providers of engineering and other technical talent, that by definition are far less able to weather difficult times.”

The industry associations urged that spending be wound down gradually to give companies time to adjust, but they acknowledged that is not likely.

“[T]he $480 billion in additional budget cuts projected over the next decade could cripple certain defense sectors, resulting in an industrial base that is smaller, less innovative, and less responsive to urgent wartime needs,” the report says. It says cuts beyond the $480 billion level, up to the trillion-dollar “doomsday scenario,” “would severely damage the Defense Industrial Base as a commercially viable enterprise, as a reliable and responsive provider of urgent wartime needs, and as a national strategic asset that is indispensable to the defense of the United States.”