* Consolidation likely in second, third tiers
* Pentagon says further cuts would "emasculate" industry
* Industry cost-cutting to be rewarded "any way we can"
By Andrea Shalal-Esa
NEW YORK, Dec 1 Further massive cuts in U.S.
defense spending triggered by the failure of lawmakers to cut
deficits would emasculate the U.S. defense industrial base, a
senior Pentagon official said on Thursday.
The Defense Department was already doing its share to
reduce federal deficits and Congress should redouble its
efforts to solve the nation's fiscal crisis, Brett Lambert,
U.S. deputy assistant defense secretary for manufacturing and
industrial base policy, told an investor conference.
"We cannot have a strong defense without a strong national
economy," Lambert said. "But we will not solve this problem on
the back of the Defense Department or on the defense
Lambert is the latest senior Pentagon official to speak out
against the dramatic consequences of $600 billion in additional
defense spending cuts triggered after a bipartisan
congressional committee last week failed to strike a deal to
cut $1.2 trillion in federal spending by its Nov. 23 deadline.
The committee's failure triggered a process called
sequestration, which mandates spending cuts across the
government, including about $600 billion to be cut across the
board at the Pentagon over the next 10 years.
Those cuts are on top of $489 billion the Pentagon is
already budgeting for over the next decade. Republican
lawmakers have said they hope to reverse the cuts but that
could prove difficult until after the 2012 presidential
"When I think about it from an industrial base point of
view, I think about sequestration more as fiscal castration. It
truly will emasculate the industrial base ... if we implemented
it as it exists," Lambert told a conference hosted by Credit
Suisse and Aviation Week.
As currently structured, the measure would force defense
officials to cut spending on procurement as well as research
and development by about 27 percent, Lambert said.
Lambert reiterated that the Pentagon's fiscal 2013 budget
plan, which is being reviewed by Defense Secretary Leon Panetta
this week, did not include the additional cuts required under
Lambert declined to say if the cuts would result in
significant program cancellations, but said his office was
being asked to review program decisions from the viewpoint of
the health of the industrial base.
In general, he said, declining budgets were likely to
accelerate merger and acquisition activity in the sector,
especially among second- and third-tier companies, he said.
The Pentagon welcomed that level of consolidation, but felt
the balance in the top tiers of industry was "about right."
While there were no concrete rules, it would "take some
convincing" to approve any mergers on that level, Lambert
He also reiterated that the Pentagon was not out to squeeze
industry profit margins and would reward cost-cutting measures
"any way we can."