Wall Street Journal | Defense Industry Fears More Budget Cuts

Arms manufacturers are trying to fend off a new round of defense-budget cuts they fear could result from deficit-reduction talks under way in Washington.

The White House and congressional leaders are deep in negotiations over lifting the federal borrowing limit. Those talks, if successful, are likely to call for trillions of dollars in government spending cuts over the next decade.

Against that background, the Aerospace Industries Association, the defense industry’s main trade group, has launched a push on Capitol Hill to encourage lawmakers to avoid what it sees as potentially drastic cuts in military spending. Association Chief Executive Marion Blakey and senior company officials are meeting with members of Congress this week, as talks continue over the debt plan.

“Industry wants to be responsive to the needs of the government to put us on a sound financial footing,” said Dan Stohr, a spokesman for the association, whose 147 full members include Boeing Co., Lockheed Martin Corp. and Raytheon Co. “But there’s a tradeoff there. And whatever tradeoff needs to be accomplished needs to be very carefully considered.”

Arms suppliers are already worried about the business impact of the wind-down of wars in Iraq and Afghanistan.

The defense industry has seen a series of moves in recent months aimed at reining in defense spending, including a cost-saving drive launched last year by then-Defense Secretary Robert Gates and a White House directive in April to identify an additional $400 billion in security spending cuts over the next 12 years. savings that would largely come from the Pentagon budget.

Michael Herson, president of American Defense International, a defense-industry lobbying firm, said any deficit-reduction agreement “creates another layer of unease” for the industry.

Adding to the uncertainty, support for defense from traditionally hawkish Republicans appears to be wavering, Mr. Herson added.

“It is no surprise that congressional Democrats have been pushing for defense cuts, but the Republicans have been pushing for deeper-than-expected defense cuts in an apparent effort to show that they are willing to sacrifice one of their core principles in order to attack the budget deficit,” he said.

Not all in the industry are pessimistic. “I think the debt is going to force good things, just as the ending of the Cold War forced the rationalization of the military,” said an industry insider. “The debt crisis is going to force us to rationalize the military. What is wrong with that?”

Another defense-industry lobbyist predicted cuts would be “substantial.” Republicans, he added, have “drawn sharp lines with increasing taxes but they are not going to go absolute on defense.”

Some defense executives expect Senate appropriators to unveil reductions to the administration’s fiscal 2012 defense-budget request in September.

“People are concerned, but the people who are most concerned are the people with new starts,” said a defense-industry executive, referring to companies that hope to win contracts for brand-new weapons programs.

Adding to the industry’s pessimism is a sense that defense projects are no longer sacrosanct on Capitol Hill. In a statement posted Tuesday on the social-networking site Twitter, Sen. John McCain (R., Ariz.), the ranking member of the Armed Services Committee, blasted the management of the F-35 Joint Strike Fighter, the Pentagon’s most expensive procurement program. Cost overruns on the jet, he said, were “outrageous.”

A defense official said the Pentagon was “making the necessary adjustments to cover the bills” for the fighter program, without asking for additional money from Congress.

By Nathan Hodge
July 14, 2011

Wall Street Journal | Defense Industry Fears More Budget Cuts

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