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Defense industry dodges bullet, but more cuts could be coming

Jan. 14, 2011 - 11:33AM   |  
By JOHN T. BENNETT   |   Comments
Only the Marine Corps, which axed its troubled Expeditionary Fighting Vehicle (EFV), and its manufacturer, General Dynamics, were seen by defense experts as taking much of a hit in the defense initiatives announced last week by Defense Secretary Robert Gates.
Only the Marine Corps, which axed its troubled Expeditionary Fighting Vehicle (EFV), and its manufacturer, General Dynamics, were seen by defense experts as taking much of a hit in the defense initiatives announced last week by Defense Secretary Robert Gates. (Chip Somodevilla / Getty Images)

It could have been worse. Much worse.

Most of the defense sector dodged a bullet last week when Defense Secretary Robert Gates unveiled the results of his efficiencies initiative. The Pentagon was able to buy more, while also mostly absorbing a $78 billion five-year cut directed by the White House.

Only the Marine Corps, which axed its troubled Expeditionary Fighting Vehicle (EFV), and its manufacturer, General Dynamics, were seen by defense experts as taking much of a hit. What's more, Gates put the Corps version of the F-35 fighter on a two-year sink-or-swim probation, a potential blow to Lightning II-maker Lockheed Martin.

"The Air Force and Navy are the big winners in these decisions," said Loren Thompson of the Virginia-based Lexington Institute. "The Air Force saw several major new programs added like a future bomber, while key programs like Global Hawk were not trimmed. The Navy got more warships and a much-needed acceleration in development of its next-generation Jammer."

Andrew Krepinevich, a top Pentagon adviser and president of the Center for Strategic and Budgetary Assessments, noted that "the Marines, who escaped Gates' major cuts in April 2009, appear to be the biggest losers, with the cancellation of the EFV and their version of the F-35 slipped."

For defense firms, "the companies that fared best ... were Boeing and Northrop Grumman," Thompson said. "They will collaborate on building more carried-based Super Hornet fighters, and one of them will probably build the new bomber the Air Force is funding. Also, Boeing will build more space launch vehicles, and Northrop Grumman is a leading contender to develop the Navy's next electronic jammer."

Gates said Jan. 6 the White House would propose a 2012 DoD base budget of about $553 billion, which is about $13 billion less than projected in last year's five-year spending plan. But it would also be, in real terms, 3 percent higher than 2011 spending under the current continuing resolution and about 1.5 percent higher than the congressional appropriators approved for 2011. Current plans call for zero percent growth in 2014 and 2015.

"Clearly, defense spending has crested, but it's hardly a crisis when we are talking about $550 billion," one Pentagon budget official said.

The secretary told reporters the White House reduction proves the days of "endless money" flowing into Pentagon weapon programs are long gone. If DoD wants more money for procurement and development, it will have to squeeze it from elsewhere in its budget, he said.

"There won't be any more money for these programs coming in from outside," he said.

And if some lawmakers have their way, the defense budget might actually shrink. After Gates' announcement, some Democrats instantly called for bigger cuts. House GOP leaders recently said defense cuts will be on the table as part of deficit-reduction efforts. And many new lawmakers of the tea-party ilk have yet to clearly state their positions on things like Pentagon spending.

Cord Sterling, vice president of the Aerospace Industries Association, said industry supports Gates' efficiencies drive but is "very concerned with any proposals to cut or eliminate programs that would increase costs in the future," adding such moves could "negatively impact the U.S. industrial base and impair" combat capability.

House Armed Services Committee Chairman Rep. Howard "Buck" McKeon, R-Calif., and other congressional advocates of bigger budgets will have their say on the EFV termination and Gates' plan to push the STOVL F-35 variant to the back of the production schedule.

McKeon has already signaled his disapproval of Gates' decisions.

"These cuts are being made without any commitment to restore modest future growth, which is the only way to prevent deep reductions in force structure that will leave our military less capable and less ready to fight," McKeon said in a statement. "This is a dramatic shift for a nation at war and a dangerous signal from the commander in chief."

Mackenzie Eaglen, a former Senate defense staffer and now a Heritage Foundation analyst, said the $78 billion cut will leave the military challenged in future fights.

"Yes, the military is buying a handful of next-generation systems, but those plans are constantly being scaled back because of ongoing spending cuts," Eaglen said. "Simply recapitalizing legacy systems will not be enough in five to 10 years, particularly if the military remains engaged around the world as it's likely to do."

But retired Army Lt. Gen. David Barno, now a senior adviser at the Center for a New American Security, said Gates recognizes that "the Pentagon budget is not a sacred cow any longer."

"He's fully aware that this fits into a much bigger strategic context for the United States that includes putting the economic ship back in balance. That was refreshing to see and it's an astute commentary on Secretary Gates and his understanding of where defense fits in the bigger world of U.S. national security."

Krepinevich, no stranger to budget battles, said he doubts Congress will block Gates' proposals.

Lawmakers "will be heavily preoccupied with the lagging economy," he said.

In line with the deal Gates struck with the services, they were allowed to keep their savings, which they were ordered to pay for hardware needs. Collectively, the services got an extra $70 billion for previously unaffordable equipment.

Most notably, the Air Force will redirect its funds to relaunch an effort to field a new bomber. The air service also will buy more EELV rockets to orbit U.S. military and government satellites, a move Gates said will help sustain the U.S. space industrial base. It also will buy more Reaper UAVs, upgrade F-15 fighter radars and buy more F-35 fighter simulators.

With its savings, the Army will modernize some of its Abrams tanks, Bradley fighting vehicles and Stryker wheeled vehicles. It will accelerate fielding of a new tactical communications network and its new MQ-1C Grey Eagle UAVs, buy more MC-12 reconnaissance aircraft, and begin developing a new vertical-lift UAV.

The Navy will buy more Littoral Combat Ships, destroyers and other vessels. It also will buy additional F/A-18E/F fighters and extend the life of 150 F/A-18s as a hedge against further F-35 delays.

Kate Brannen contributed to this report.

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