Executives say Syria crisis shows U.S. budget cut flaw

WASHINGTON Tue Sep 3, 2013 8:14pm EDT

Boeing Defense, Space and Security CEO Dennis Muilenburg is pictured at the Reuters Aerospace and Defense Summit in Washington, September 3, 2013. REUTERS/Jason Reed

Boeing Defense, Space and Security CEO Dennis Muilenburg is pictured at the Reuters Aerospace and Defense Summit in Washington, September 3, 2013.

Credit: Reuters/Jason Reed

WASHINGTON (Reuters) - Top U.S. weapons makers on Tuesday said the crisis in Syria showed the need to halt more than $500 billion in mandatory defense spending cuts and ensure that the U.S. military is sufficiently funded to deal with such contingencies.

The executives told the Reuters Aerospace and Defense Summit they expected cuts and cancellations to big weapons programs in 2014, unless Congress acted to reverse those cuts, which are being implemented under a process called sequestration.

They said President Barack Obama's push for a limited strike on Syria for its use of chemical weapons, now being debated by Congress, showed how important it was for the U.S. military to be ready for actions around the globe at any time, something that will get increasingly difficult as budgets shrink.

"It brings back to the forefront the fact that our customers are facing global, evolving threats," said Dennis Muilenburg, who heads the defense unit of Boeing Co (BA.N).

"It should cause us all to take a look at sequestration and how it's being implemented."

The Defense Department must slash its planned spending by $500 billion over the next decade, or about 10 percent a year, after lawmakers failed to find alternate ways to reduce federal deficits. Military officials have repeatedly warned that those cuts, which come on top of $487 billion in cuts already being implemented, will reduce the military's ability to respond to crises around world, such as the situation in Syria.

Arms makers have been scrambling to cut costs by laying off workers and consolidating facilities to stay ahead of the budget cuts and maintain earnings, but executives say they have nearly exhausted those possibilities now.

Linda Hudson, who heads the U.S. unit of BAE Systems Plc (BAES.L), said the Pentagon had found pockets of money and other ways to fund programs in fiscal 2013, which ends September 30, but her company and others were bracing for more significant cuts and cancellations next year.

"2013 has not been as bad as many of us anticipated it would be. I think 2014 is likely to be much worse," Hudson said, adding that the defense industry needed greater clarity about future budget levels so it can make critical investment decisions.

She said the country also needed to rethink what she described as an "irresponsible" blunt approach to defense spending, noting that the across-the-board nature of the cuts meant they were out of synch with the Pentagon's strategy.

"The indiscriminate nature of the cuts associated with sequestration have not only had an impact on our industry, but it's had an impact on our customers' ability ... to make sure we have the right capabilities when our country needs them," she said.

Dale Bennett, who heads the Missions Systems and Training division of Lockheed Martin Corp (LMT.N), the Pentagon's biggest supplier, said the Pentagon was facing tough decisions that "could become a disaster" if they eroded the military's ability to handle future conflicts.

"We do find ourselves in a world that continues to be complex and that continues to have security issues, so we need to keep our readiness up," Bennett said. He added that the industry also understood the need to reduce U.S. deficits.

Boeing's Muilenberg said the wide range of possible risks to the nation's security demanded that leaders chart a steady course that allows companies to invest in developing necessary equipment and technologies.

"From cyber threats to actions like those we see in Syria, we have an important national responsibility and it's one that demands a defense budget that's solid and stable," he said.

"We recognize the defense budget is part of the overall fiscal solution for the country, but it should be done in a way that allows long-term planning and stability and allows the country to invest effectively."

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(Reporting by Andrea Shalal-Esa; Editing by Alwyn Scott and Lisa Shumaker)

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