Gates upbeat about long-term defense budget

WASHINGTON (Reuters) - Defense Secretary Robert Gates on Tuesday struck an upbeat note about the future outlook for U.S. defense spending, citing strong bipartisan support for U.S. national security goals.

Gates said the Pentagon was still working to finalize its budget proposal for fiscal 2010, but hoped to include more spending for persistent conflicts in the base budget and reduce the government's reliance on special war spending requests.

"What we are trying to do is protect real growth in technology and research and development so that we don't fall behind in those areas," Gates told news agency reporters in an interview at the Pentagon.

His comments could be a shot in the arm for U.S. defense companies, which have seen their shares fall sharply since summer, hurt by broader market declines and concerns that years of strong growth in defense spending are drawing to a close.

Lockheed Martin Corp posted third-quarter profit below Wall Street estimates on Tuesday and forecast lower-than-expected earnings for next year due to higher pension costs and uncertainty over military spending.

Gates gave no details, but said a reported drive by the Pentagon to increase the base budget by $60 billion each year was also aimed at accounting for inflation.

"If it stays flat, we lose with inflation," Gates said.

Putting money in the Pentagon's regular budget for persistent conflict would also underscore the message that "we're going to be in this for quite some time," Gates said.

He said the Pentagon's budget plans had not yet been finalized but White House officials were "sympathetic."

Gates cited strong congressional support for the Lockheed F-35 or Joint Strike Fighter, a new fighter jet being developed by the United States and international partners to replace the F-16 and other aging fighter jets.

He said the administration did remain at odds with Congress over the need to spend money on a second engine for the warplane, signaling another possible push by the Pentagon to scrap a second F-35 engine being developed by General Electric Co and Britain's Rolls Royce.

The Pentagon has tried to kill the second engine for two years running and focus solely on one being built by United Technologies Corp's Pratt & Whitney unit, but lawmakers have reinstated funding for the alternate engine both years.

Gates said the global financial crisis could result in some pressures on the U.S. defense budget, but said he did not expect it to have a major effect on U.S. military spending. In fact, money spent on new weapons could actually underpin the economy, he said.

"If you want to talk about a stimulus package, the defense budget's not bad," Gates said. "Obviously, a lot of jobs in our economy depend on the defense budget."

He also said he was confident that the U.S. economy would recover from its current decline and grow again in time.

"I don't see this crisis as being long term or enduring," Gates said.

(Reporting by Andrew Gray and David Morgan, writing by Andrea Shalal-Esa, editing by Richard Chang)