UPDATE 1-US Army budget shows 30 pct drop in vehicle funds

* Final terms for FCS-successor program due in late Feb.

* Budget includes $934 mln for new ground vehicles (Adds details from Army news conference, byline)

By Andrea Shalal-Esa

WASHINGTON, Feb 1 (Reuters) - The Obama administration's proposed 2011 budget includes a big drop in funding for U.S. Army tracked and other ground combat vehicles, which analysts say may be bad news for companies like BAE Systems PLC (BAES.L) and General Dynamics Corp (GD.N).

The budget request for fiscal 2011, which begins Oct. 1, includes $1.72 billion for these vehicles, down from $3.46 billion in fiscal 2010, according to budget documents.

The 2011 funding includes $300 million for more General Dynamics Stryker vehicles, plus $147 million to toughen their armor; upgrades to the M1A1 Abrams tanks and Bradley fighting vehicles, but no big new vehicle purchases.

The budget also includes an additional $688 million for war-related spending on tracked and other combat vehicles in fiscal 2011, including $445 million for Stryker upgrades.

The combined total of $2.4 billion for fiscal 2011 is still 30 percent less than the $3.46 billion spent in fiscal 2010, largely due to the cancellation of the Future Combat Systems modernization drive last year, withdrawal of troops from Iraq, and a shift of funds into research for the FCS follow-on.

Overall Army procurement was due to increase to $21.33 billion in fiscal 2011, up from $19.3 billion in fiscal 2010, bolstered by a 15 percent increase in funds earmarked to buy new helicopters made by Boeing Co (BA.N) and United Technologies Corp (UTX.N), and other aircraft.

Procurement of heavy trucks built by Oshkosh Corp (OSK.N) is due to drop to $741.9 million in fiscal 2011, about half the level of $1.48 billion seen in 2010.

The Army budget also includes $1.4 billion for medium trucks, a program awarded to BAE Systems that was unsuccessfully protested by Oshkosh.

Army research and development spending was due to decline to $10.3 billion from $11.4 billion in fiscal 2010.

Todd Harrison, analyst with the Washington-based Center for Strategic and Budgetary Assessments, said the documents showed the Army had not been able to fully protect funding for ground vehicles after the Pentagon's decision last year to cancel the Future Combat Systems modernization program.

"It appears that money is getting pulled away and being used elsewhere," Harrison said after a preliminary review of the administration's fiscal 2011 budget documents.

Defense Secretary Robert Gates had said he would safeguard funding for the ground vehicle part of the FCS program, but the documents indicate that most spending on that program will remain in research and development for now.

Virginia-based defense analyst Jim McAleese said the budget numbers were "negative news for General Dynamics and BAE Systems," which build the Army's big armored vehicles.

In the case of General Dynamics, the news was offset by the Pentagon's commitment to buy one to two additional brigades of the company's wheeled Stryker vehicles, he said, citing the Pentagon's Quadrennial Defense Review.

"It's a major drop-off in production orders for the Army's big armored vehicles," said McAleese, noting the FCS successor program would not generate orders until years from now."

Army spokesman Paul Mehney said the proposed budget includes $934 million in research funding to begin development of the new Ground Combat Vehicle (GCV) program that will replace the vehicle portion of FCS.

He said the Army planned to issue a final request for proposals in the second half of February, and award up to three contracts in the fourth quarter of fiscal 2010, followed by engineering development contracts in fiscal 2013.

The Army could whittle the field down to just a single winner in fiscal 2013, but would continue work by both bidders if it awarded less than three contracts next year.

Current plans called for the Army's new combat vehicles to enter into low-rate production in fiscal 2016, Mehney said. (Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn)