America’s defence industry is bracing itself for cuts to the government’s weapons budget after early signals from President Barack Obama’s administration of “hard choices” ahead.
“One thing we have known for many months is that the spigot of defence spending opened by 9/11 is closing,” Robert Gates, US defence secretary, warned Congress recently. “With two major campaigns ongoing, the economic crisis and resulting budget pressures will force hard choices on this department.”
The message is an early warning for an industry that is traditionally defensive during recessions but whose calls for more investment as part of the proposed $884bn economic stimulus package have so far gone unanswered.
One of the most closely watched procurement decisions coming up is what Mr Obama will do with the F-22 Raptor stealth fighters. A letter from members of the House and the Senate last month warned the president he needed to decide by March 1 whether to plough more money into the programme or let the F-22 production line be at risk.
The US air force has enough funding to buy 183 of the world’s most advanced jets and materials for another four, which the letter warned was “insufficient to meet potential threats”.
More than 25,000 Americans work for the 1,000-plus suppliers in 44 states that make parts for the F-22, according to the letter.
What Mr Obama does regarding the F-22 is will be scrutinised not only by its manufacturer, Lockheed Martin, but also by the rest of the defence establishment. There is a lot at stake.
Mr Gates and the administration are to review all US acquisition programmes as they prepare to finalise the 2010 Pentagon budget request. He is expected to present an adjusted budget for 2010 in the spring.
Jane’s, the defence industry information group, forecasts that the budget will fall $90bn in real terms to $625bn by 2011 as supplemental spending on current operations declines.
“Given the state of the US military, the baseline budget won’t change that much,” says Richard Aboulafia of the Teal Group in Washington DC. “However, much of the defence industry’s growth over the past five years has come from lavish supplemental spending packages that have boosted procurement and operations budgets by up to 35 per cent. These supplemental packages will decline along with operational use of US forces in Iraq.”
The most industry can expect, he adds, is “a reluctance to kill programmes or production lines when jobs are at stake”.
He cites the $300bn Lockheed Martin-led F-35 programme to build a next-
generation fighter jet as among those that ought to be safe, and Boeing’s C-17 cargo aircraft project, which should be buoyed by international orders.
Apart from the F-22, programmes that analysts think could be at risk include
the Future Combat System, a $160bn project to build a new generation of armoured vehicles.
Among the “hard choices” Mr Gates said last month the Pentagon would have to make are compromises on weapons systems. He also suggested Congress needed to do more to make sure Pentagon decisions about programmes were not reversed later.
“It is one thing to speak broadly about the need for budget discipline and acquisition reform. It is quite another to make tough choices about specific weapons systems and defence priorities based solely on national interests. And then to stick to those decisions.”
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