Making defense cuts seen tough for McCain, Obama
WASHINGTON (Reuters) - Republican John McCain and Democrat Barack Obama both emphasize the need to curb Pentagon costs and focus on weapons relevant to today's wars, but canceling big programs will be difficult no matter who is elected president.
Conventional wisdom holds that Democrats tend to scale back defense spending, but McCain, a leading member of the Senate Armed Services Committee, has a long history of criticizing waste in Defense Department programs.
That has prompted speculation about declining orders for big defense contractors like Lockheed Martin Corp, Boeing Co, Northrop Grumman Corp, General Dynamics Corp, Raytheon Co, and others.
"Big-ticket weapons programs are in triple jeopardy after the election because many of the programs have nothing to do with the war in Iraq, we're facing a huge budget deficit, and neither of the two major candidates is favorably disposed toward the industry," said defense analyst Loren Thompson of the Virginia-based Lexington Institute.
But defense analysts agree a host of factors will make it tough for Obama or McCain to quickly scale back big weapons projects.
Key issues include the wars in Iraq and Afghanistan, an urgent need to replace billions of dollars of equipment worn out in those conflicts, homeland defense needs, plus a long history of intervention by lawmakers to protect high-paying defense jobs in their home districts.
"It's very difficult to kill weapons programs," said Nick Schwellenbach of the Project on Government Oversight, a nonpartisan watchdog group. "Even if you did have a McCain or Obama administration go after major weapons programs, the contractors and their congressional allies would keep those programs alive -- even on life support."
COSTING FAR MORE
The new president will face competing pressures to increase the base defense budget to pay for expanding the Army and the Marine Corps, and fund rising weapons costs, while at the same time grappling with an economic downturn and widening federal deficits, said Steve Kosiak of the Center for Strategic and Budgetary Assessments.
"New weapons are ending up costing a lot more than predicted as they go from low-rate to full-rate production," he said. "Most will cost far more than the systems they are replacing and significantly more than anticipated," he said.
A recent report by the Government Accountability Office concluded that the cost of the Pentagon's major acquisition programs doubled to $1.6 trillion in fiscal 2007 from $790 billion in fiscal 2000, and average development costs rose 40 percent over that eight-year period.
Defense company stocks have responded strongly, with the Amex Defense Index more than tripling from its September 2001 inception through the September 30 end of the 2007 fiscal year.
Lawmakers frequently talk about the need to reform defense spending, but even the end of the Cold War and pressure to generate a "peace dividend" did not result in the outright cancellation of many programs, Schwellenbach said.
Vice President Dick Cheney did manage to cancel some big programs, including Northrop's B-2 bomber, when he served as defense secretary under former President George Bush, but Boeing and General Dynamics are still fighting legal battles over Cheney's 1991 termination of the A-12 stealth fighter.
Cheney tried to cut the V-22 tilt-rotor aircraft built by Boeing and Bell Helicopter, a unit of Textron Inc, but it ultimately survived, and the planes are now in use in Iraq.
Once a program has started, proponents fight to maintain funding since "so much has been spent already," or if it's early in the program, for continuing development efforts and transferring results to other projects later, Schwellenbach said.
WEAPONS AND JOBS
The worsening U.S. economy will only strengthen concerns about maintaining jobs in the defense industry, making it unlikely that lawmakers will agree to end Boeing's C-17 cargo airplane production line in California, or Lockheed's F-22 fighter jet line in Georgia, Thompson said.
"Over time, we will see cuts in major weapon programs but there are many players in this process and to some degree they will cancel out each other's agendas," he said, predicting some program cancellations could begun appearing late in 2010.
Anthony Cordesman of the Washington-based Center for Strategic and International Studies, said the real cost of national security spending is likely to be 20 percent to 30 percent higher than estimated in current baseline budgets.
"The combined cost of war, steadily rising military manpower costs, the underfunding of operations and maintenance, and a procurement crisis in every service will force the next administration to reshape almost every aspect of current defense plans, programs, and budgets," he wrote in a CSIS paper.
Endemic procurement problems made it clear that the Pentagon "is indulging in a 'liar's contest' in terms of costs, the timelines for major programs, their probable effectiveness, the numbers it can actually procure, and the trade-offs between modernization and force cuts," Cordesman said.
Reshaping military procurement could well spell bad news for the U.S. defense industry, but it would take at least the full term of the next president to be realized, he said.
Erik Leaver, defense analyst at the Institute for Policy Studies, says the weakness of the overall economy could dampen lawmakers' willingness to give the Defense Department "whatever it needs" and slow growth in defense budgets to single digits.
But costly shifts of resources to Afghanistan could still make the fiscal 2010 budget one of the biggest ever, he said.
The progressive think tank has compiled a list of some $60 billion in weapons programs that could be cut, however it might take "a full blown recession" before those programs were actually put on the chopping block, Leaver said.
(Reporting by Andrea Shalal-Esa with additional reporting by Jim Wolf; editing by Tim Dobbyn)
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