Hanging on to the defense budget.
Wall Street Bail Out Won't Damage US Defence Budget
26 September 2008
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A massive bailout for Wall Street will not lead to a 'gutting' of the US defence budget, but the US military will come under increasing pressure to review big weapons programmes and see if they are really needed, the Navy's top uniformed officer said Thursday.
Chief of Naval Operations Adm. Gary Roughead said there had not yet been much discussion within the Pentagon about the impact of the financial crisis, and it would fall to the new administration to make decisions about future defence budgets.
"I don't think there's going to be a gutting of the budget in the near term, but I think that you have to be prepared for some pressurisation to occur," Roughead said in remarks to the Center for a New American Security, a nonpartisan defence think tank based in Washington.
Lawmakers underscored the importance of reining in massive cost overruns on big Pentagon weapons programs at a Senate hearing on Thursday, saying reforms were long overdue.
The Government Accountability Office (GAO) this year reported cost overruns on the Pentagon's 95 largest weapons programs amounted to $295bn over their original programme estimates, raising their overall price tag to $1.6tn.
Sen. Thomas Carper, chairman of the subcommittee on federal financial management of the Homeland Security and Governmental Affairs Committee, said the Pentagon was wasting valuable money at a time when Americans faced huge financial problems.
"We could use these federal funds to pay for a little less than half of the president's $700bn Wall Street bail out," he said.
Roughead said the slowdown in the US economy had already begun having an impact on the Navy's work force, he said. For instance, the Navy needed $390m in extra funds to pay the salaries of people it had expected to retire, but who had opted to stay in the Navy given the sluggish economy.
As defence budgets come under increasing pressure, all military services would face tough choices about big weapons programmes, Roughead said.
"Every service is going to have to look at large, expensive weapons programmes and decide, if they are appropriate to the future," he said, citing mounting pressure to make procurement more efficient and effective.
The Navy recently said it would truncate its new DDG-1000 destroyer programme after just three ships, rather than build all seven ships that were initially planned. Northrop Grumman and General Dynamics were sharing the work on that programme.
Roughead said that decision came after it became clear that the capabilities of the new ship were not well suited for future wars, but affordability was also a big issue.
The Navy will buy eight additional DDG-51 destroyers, also built by Northrop and General Dynamics, instead of the new DDG-1000 warships. Each of the first two DDG-1000 ships are expected to cost $3.2bn, while the first of the new batch of DDG-51 warships will cost about $2.2bn each, with the price dropping to $1.8bn in later years.
Michael Sullivan, director of acquisition for the GAO, told lawmakers that all too often the military services overpromised capabilities and underestimated costs to capture the funding needed to start new weapons programmes. Contractors were encouraged to underbid programmes, and adjust costs later.
"It is clear that DoD's implied definition of success is to attract funds for new programmes and to keep funds for ongoing programmes, no matter what the impact," Sullivan said, and no meaningful reform was possible until that dynamic was changed.
James Finley, deputy undersecretary of defense for acquisition, denied the system was 'broken' and said the administration had already implemented many reforms to improve the acquisition process, and had a plan for continuing the hard work that still needed to be done.
By Andrea Shalal-Esa, Reuters.
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Big Arms Programme Protection
As billions are spent on the economy, Jim Wolf, Reuters, sees how much is left to keep major weapons programmes alive.
Date: 24 Oct 2008
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The US armed services are manoeuvring to defend big-ticket weapon programmes as the nation's economic woes mount and the government spends billions of dollars shoring up the financial system.
"The US armed services are manoeuvring to defend big-ticket weapon programmes."
Experts say the services have a good chance of succeeding, to the benefit of contractors such as Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon.
To the extent there is budget pressure on the biggest programmes, they are likely to be stretched out or scaled back slightly rather than scrapped, several experts say. "It's very rare for programmes to be actually cancelled," says Steven Kosiak, vice president for budget studies at the Center for Strategic and Budgetary Assessments.
Even such controversial efforts as missile defence, which has been receiving about $10bn annually in recent years, was pruned by 3% this year by lawmakers – a measure of bipartisan support.
The air force is seeking the abrupt retirement of 314 F-15 and F-16 fighter aircraft and nine A-10 close-air support planes to save $3.4bn in fiscal 2010, which begins 1 October 2009. Its goal is to use the money to keep Lockheed's next-generation
F-35 joint strike fighter on track, modernise bombers and buy unmanned surveillance planes.
In addition, air force officials have made it clear that they hope to extend production of Lockheed's radar-evading F-22 air superiority fighter – a decision for a new president who will take office in January after the 4 November election.
And less than 24 hours after cancelling a projected $6.2bn deal with Textron's Bell helicopter unit due to cost overruns and delays, the army said it would stage a new competition as soon as possible. The army said a new fleet of 512 reconnaissance and attack helicopters remained a 'critical requirement'.
Political support
"Big weapons programmes generate so many jobs that they spawn potent political constituencies," says Loren Thompson, a defence industry consultant. "Weapons programmes will be fiercely defended."
The army is also seeking to protect its $160bn future combat systems programme, the centerpiece of its modernisation efforts. The programme is co-managed by Boeing and SAIC.
"We're 100% behind it, and we'll make it a priority in all of our budgeting going forward," Army Secretary Pete Geren told reporters earlier this month, days after a $700bn financial rescue package was signed into law.
Not all defence-industry watchers believe military spending can be largely immune to the sputtering economy. James McAleese, a McLean, Virginia, government contracts lawyer, cites the army helicopter cancellation as signalling the start of leaner times for the defence industry. "This vote of no-confidence is an obvious wake-up call for the rest of the defence community for at least the next four years," he says.
Spending patterns
The Bush administration has projected that defence spending, adjusted for inflation, will flatten and gradually decline starting in 2010, after peaking in fiscal 2009 that began 1 October.
Defence spending has risen four or five percentage points above the inflation rate over the past eight years.
"Big weapons programmes generate so many jobs that they spawn potent political constituencies."
Congress authorised $612.5bn for national security in fiscal 2009, including $542.5bn for the basic defence budget and a $70bn allowance for the wars in Iraq and Afghanistan.
Thompson says demand for fighter aircraft, ships, tanks and other multibillion-dollar weapons systems is driven mainly by overseas threats and domestic politics, not economic forces. Pentagon efforts to kill programmes have often been defeated by congress. Lawmakers kept alive a second engine for the F-35 fighter and the navy's next-generation destroyer programme in 2008.
David Berteau, a defence industry analyst at the Center for Strategic and International Studies and a former Pentagon acquisition official, says the big programmes are based on 'fundamentally sound requirements'. If they were not funded, the military would have to spend large sums to upgrade aging systems or abandon missions, "and we're not going to do that," he says.
Jacques Gansler, the chief weapons buyer from 1997 to 2001 who still advises the Pentagon on many issues, predicts the sums being spent on national security will not have a 'precipitous decline'.
