U.S. defense plan kills programs, trims missile shield

WASHINGTON (Reuters) - The United States would trim missile-defense spending, cancel multibillion-dollar weapons programs but buy more arms for fighting insurgents in places like Iraq and Afghanistan, under a 2010 budget plan.

Defense Secretary Robert Gates proposed on Monday an overhaul of the world's most powerful military arsenal, including canceling a $13 billion presidential helicopter program that President Barack Obama has described as an example of Pentagon procurement "gone amok.

Gates would end production of Lockheed Martin's F-22, the premier U.S. fighter jet, at the 187 now delivered or in the pipeline. But Lockheed gets a boost with accelerated funding of its F-35 Joint Strike Fighter.

At a Pentagon briefing, Gates said the United States had the defenses it needed for now to protect from a long-range ballistic missile of the type that North Korea fired on Sunday.

"It actually would not have changed it at all," he said when asked whether a "successful" test-firing would have changed his views on spending. "We're in a pretty good place in terms of -- with respect to the rogue missile -- rogue country missile threat," he said.

The defense proposals must still become part of Obama's formal budget submission to Congress. Lawmakers have the final say on spending and were already gearing up to alter the plan.

Gates said he would kill the vehicle leg of the Army's Future Combat Systems, a Boeing Co-led flagship of U.S. Army modernization built around an advanced digital network.

The Defense Department would review requirements for the vehicles in light of changing U.S. military needs and seek bids for the revamped requirements later.

Also canceled under Gates' proposal would be a projected $26 billion "Transformational Satellite" program that would have swelled the coffers of rival bidders Lockheed or Boeing.

The proposals for fiscal 2010, which begins October 1, would add funding for unmanned aerial vehicles and other intelligence, surveillance, communications and reconnaissance programs designed to thwart insurgents.

"Our conventional modernization goals should be tied to the actual and prospective capabilities of known future ... adversaries, not by what might be technologically feasible," Gates told reporters at the briefing.

Defense stocks, beaten down for weeks on fears that years of rapid growth in U.S. defense budget was finally ending, rebounded following Gates' presentation.

"There was a cloud hanging over those stocks, people wondering what was going to happen, what the announcements were going to be," said Giri Cherukuri, head trader Oakbrook Investments LLC.

The Standard & Poor's Aerospace and Defense index ended up 3.6 percent.

SHIFTING PRIORITIES

Gates' proposal would cut missile defense spending by $1.4 billion in 2010, or roughly 15 percent; scrap a $15 billion competition for new Air Force rescue helicopters, and buy 31 more of Boeing's F/A-18 fighter jets in 2010.

Overall, Obama has said he would seek roughly $534 billion for the Pentagon's core budget in 2010, not including war funding, about 4 percent more than the $513.3 billion Congress provided for 2009.

Gates' proposal would change the makeup of the spending, not the overall figure.

It would revamp the way the Navy builds destroyers, kill a new cruiser program, and end the VH-71 presidential helicopter program run by Lockheed and AgustaWestland, a unit of Italy's Finmeccanica for new aerial refueling tankers, saying the Defense Department intended to seek new bids this summer. Gates said he still opposed congressional moves to buy more tankers and split them between the two competitors.

Retired Lt. Gen. Michael Dunn, president of the Air Force Association, criticized Gates' plan to retire 250 aircraft without replacements -- older F-15s, F-16s and A-10s.

These recommendations, Dunn said, would undercut Air Force ability to deter foes, carry out an air campaign, and rescue downed fliers.

Gates put the final touches on his proposals this weekend even as North Korea's missile launch sparked renewed debate over futuristic programs including Boeing's planned Airborne Laser, a modified 747 jumbo jet designed to zap missiles soon after they are launched.

The $10-billion-a-year missile shield is the Pentagon's costliest arms development project. Gates proposed turning the airborne laser into a research program, adding $700 million to regional missile defense programs, and said the Pentagon would put off buying more ground-based interceptors for a site in Alaska.

Lockheed, Boeing and Northrop -- respectively the Pentagon's three biggest suppliers by sales -- each have big stakes in elements of the layered antimissile shield.

Six U.S. senators -- an independent, Republicans and Democrats -- urged President Barack Obama to restore full funding for missile defense.

"The threat posed by rogue states with ballistic missiles has been underscored by Iran and North Korea's recent missile tests," they wrote.

Lockheed shares ended up 8.9 percent at $73.28, Northrop rose 9 percent to $47.94 and Raytheon rose 8.3 percent to $41.66. Even Boeing, which had been down for most of the session, ended slightly higher, up 1.3 percent at $38.16.

(Reporting by Jim Wolf and Andrea Shalal-Esa; additional reporting by Karen Jacobs and Ellis Mnyandu; editing by Tim Dobbyn and Patrick Fitzgibbons)