* Veto urged if Congress adds funds for scrapped programs
* Gates ousts Pentagon F-35 program manager
* Lockheed docked performance fees for F-35 problems
(Adds Obama, Gates statements, byline, details)
By Andrea Shalal-Esa
WASHINGTON, Feb 1 President Barack Obama asked
Congress to approve a record $708 billion in defense spending
for fiscal 2011, but vowed to continue his drive to eliminate
unnecessary, wasteful weapons programs.
The budget calls for a 3.4 percent increase in the
Pentagon's base budget to $549 billion plus $159 billion to
fund U.S. military missions in Iraq, Afghanistan and Pakistan.
Obama's spending freeze on other parts of the budget, to
try to rein in the deficit, did not apply to the military.
"Even though the Department of Defense is exempt from the
budget freeze, it's not exempt from budget common sense," Obama
told reporters at the White House.
He said the fiscal 2011 budget proposal included cuts of
"unnecessary defense programs that do nothing to keep us safe,"
including annual spending of $2.5 billion for C-17 transport
planes built by Boeing Co (BA.N) that has been added to the
federal budget by Congress in each of the past four years.
"It's waste, pure and simple," Obama said.
At the Pentagon, Defense Secretary Robert Gates announced a
major shakeup of Lockheed Martin Corp's (LMT.N) F-35 fighter --
at $300 billion the largest weapons program in history.
Gates also said he would strongly recommend a veto of any
moves by Congress to keep alive the C-17 program or a second
engine for the F-35.
He said it was "important to take a final stand" against
lawmakers and ensure those programs were truly eliminated.
Cutting the alternate engine program would save $465
million in fiscal 2011 that begins Oct. 1, and more than $1
billion longer-term, according to Pentagon documents.
The engine is being developed by General Electric Co (GE.N)
and Britain's Rolls-Royce (RR.L) as an alternate to the main
engine built by Pratt & Whitney, a unit of United Technologies
Obama and Gates tried to kill both programs last year, but
lawmakers revived them during the budget process.
PLANNING FOR THE UNEXPECTED
Gates said the 2011 budget and related strategy reviews
were "shaped by a bracing dose of realism" about risks and
resources, noting that programs already cut in 2010 would have
cost taxpayers $330 billion.
The new budget built on those decisions, Gates said, adding
the determinations were strengthened by the Quadrennial Defense
Review, which is completed once every four years.
"The department's leadership now recognizes that we must
prepare for a much broader range of security challenges on the
horizon," Gates said, pointing to sophisticated new
technologies being developed by enemies overseas, threats posed
by non-state groups, and other unexpected scenarios.
"We have learned through painful experience that the wars
we fight are seldom the wars we planned," he said, saying the
U.S. military needed versatile capabilities to prepare for
Overall, the budget includes $112.8 billion for weapons
procurement, up from $104.8 billion in fiscal 2010, and $76
billion for research and development, down from $80 billion.
The Pentagon's budget also kills plans for development of a
new Navy cruiser, scraps plans to replace the Navy's EP-3
intelligence aircraft and halts work on a missile early-warning
satellite, opting instead to upgrade the Space Based Infrared
System satellite already being developed by Lockheed.
The budget proposal also calls for a delay in replacing two
new Navy command and control shops until after 2015, a move the
White House said would save $3.8 billion across the Pentagon's
five-year defense plan. The Navy had planned to buy one command
ship in 2012, and a second one in 2014.
Procurement of a new amphibious vehicle being built by
General Dynamics Corp (GD.N) for the Marine Corps would be
delayed by one year, saving $50 million in fiscal 2011 and
cutting risk by allowing more time for testing.
The budget includes $25 billion for shipbuilding programs;
$9.9 billion in continued funding for ballistic missile
programs; $9.6 billion for new helicopters; and about $4
billion for long-range strike programs.
The budget also includes nearly $11 billion for the F-35
program, including plans to buy 43 planes under a revamped
strategy to "stabilize its cost and schedule." Gates said the
Pentagon could buy even more planes in fiscal 2011, depending
on contractor performance.
He said he was docking Lockheed $614 million in performance
fees because the program's progress and performance had not met
expectations over the past two years.
But he said the Pentagon also bore responsibility for the
program's "troubling performance record," so he was replacing
the Pentagon's manager in charge of the program, Major General
David Heinz, a two-star general, with a three-star officer.
Gates did not name the new program manager.
The budget also pays for more unmanned planes, helicopters,
electronic warfare capabilities and cybersecurity measures.
(Reporting by Andrea Shalal-Esa; Editing by Lisa Von Ahn and