More job cuts expected in U.S. defense sector

By Karen Jacobs

ATLANTA, July 17 (Reuters) - Big defense contractors could be poised to shed jobs as the Pentagon cuts traditional weapons spending, while smaller, niche companies may ramp up their hiring as the United States expands resources to protect ground troops and computer networks.

Industry leader Lockheed Martin Corp (LMT.N) said this week it would cut 600 jobs, mainly in Owego, New York, as a result of the U.S. Defense Department's decision to terminate the VH-71 presidential helicopter program.

Aircraft maker Boeing Co (BA.N) said announced Pentagon cuts would claim 1,000 jobs in its defense business, affecting staffing at various U.S. work sites in missile defense and in the Army's Future Combat Systems modernization program, which is being opened to more competition.

Boeing, which has also been hit by the slump in commercial aerospace, declined to say whether the defense staff cuts were included in 10,000 jobs set to be pared companywide this year.

Congress is debating the Obama administration's fiscal 2010 defense budget request and has proposed changes, including adding back funding for some programs that the administration seeks to cut.

Despite the congressional bid, some industry experts are betting more job cuts will come as U.S. defense budget growth slows.

"Job cuts are starting and job cuts will happen," said Alex Hamilton, senior managing director at Jesup & Lamont Securities. "The main driver for defense is the defense budget and that's under pressure."

Paul Nisbet, an analyst with JSA Research, is expecting the fiscal 2011 budget to include more weapons cuts.

"I think we're going to continue to see net cuts in personnel because the defense dollar being devoted to weaponry is going to continue to decline," Nisbet said. He expects a pullback in U.S. weapons spending to hurt defense company revenues and earnings after 2010.

At the same time, shifting defense priorities could prove to be a boon for some manufacturers as the Pentagon looks to beef up protection for U.S. ground soldiers.

Oshkosh Corp (OSK.N) said this week it was hiring 300 to 500 workers in Wisconsin and calling back as many as 650 it had let go at a Pennsylvania facility as it looks to fill orders for armored trucks that can deflect roadside bombs.

The truck manufacturer last month won a $1.1 billion contract to build more than 2,200 Mine Resistant Ambush Protect All Terrain Vehicles for use by U.S. troops in Afghanistan.

The 2010 defense budget would rebalance military spending, giving greater weight to programs needed to fight irregular warfare in Iraq and Afghanistan. It seeks to scale back or eliminate weapons programs, including capping production of Lockheed's F-22 warplane at 187. The F-22 emerged as a main issue in Washington this week, with Congress looking to fund new warplanes.

As the fiscal 2010 budget request currently stands, experts say the biggest defense contractors would bear the brunt of cuts.

"On balance, I think that Boeing probably came out a little worse on all of the cuts that have been proposed," said Todd Harrison, a fellow for defense budget studies at the Center for Strategic and Budgetary Assessments.