By Jim Wolf
WASHINGTON (Reuters) - The Pentagon's top contractors expect U.S. defense spending to grow more slowly in coming years than at any time since the September 11, 2001, attacks on the United States.
"I think the budget will likely be sustained," Robert Stevens, chief executive of Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz), the Pentagon's No. 1 supplier, told the Reuters Aerospace and Defense Summit this week. "I think the rate of growth will probably decline."
Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz), the No. 2 supplier, predicted some arms development programs may be delayed because of budget pressures facing the incoming administration of President-elect Barack Obama.
"While the defense budget may continue to go up, it'll be incremental increases rather than the dramatic increases we've seen," said Jim Albaugh, chief executive of Boeing's Integrated Defense Systems unit.
Ron Sugar, chief executive of third-ranked Northrop Grumman Corp (NOC.N: Quote, Profile, Research, Stock Buzz), said U.S. defense spending would remain at a high level in coming years, although the rate of growth would decline.
"The environment is a little more uncertain today as we look longer-term for the defense industry than it's been in quite a number of years," Sugar told the summit's leadoff session on Monday. He cited federal spending on economic bailout packages among other pressures.
But wars in Iraq and Afghanistan are taking a heavy toll on existing U.S. military hardware, which will continue to fuel orders even if new programs slow, the executives said.
The top defense appropriator in the U.S. House of Representatives said last week that leaner years lay ahead for the Pentagon after defense funding surged to what he calculated was $656 billion in 2008. It has risen four or five percentage points above the inflation rate during the Bush administration's eight years in office.
The Aerospace Industries Association, the sector's chief lobbying group, predicts its members likely will reap continued sales growth at least through the next two years.
"There's no chest-thumping here but we do see ourselves as being in a healthy state and for the near-term, that's going to continue," Marion Blakey, AIA president and chief executive, told the summit.
The industry group said its members sales -- including civil and military aircraft, missiles and space-related hardware -- should reach $214 billion in 2009, about 2.2 percent more than would have been rung up this year if not for a 58-day strike by Boeing's 27,000 machinists.
Loren Thompson, an industry consultant at the nonpartisan Lexington Institute in Arlington, Virginia, said U.S. defense spending may be constrained for the first time in many years by the government's lack of money.
"We have always been focused on other things like the threat or strategy," he told the summit. "For the first time since World War II, we are going to run up against the limitations of what our economy can support and that is going to create a very different environment for military outlays."
Richard Aboulafia of the Teal Group, an aerospace consultancy, predicted that spending on new systems would be crimped while fixing and buying proven systems would hold steady.
"My feeling is modernization gets hit and recapitalization stays because you go with what you know," he said. "It's affordable stuff because you have been building it for so long." Continued...
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