January 6, 2011 / 8:23 PM / 8 years ago

UPDATE 4-U.S. to dip into defense budget, slash troops

* U.S. to cut up to 47,000 troops starting in 2015

* Defense budget to stagnate in 2015 and 2016

* Lawmakers already flagging concerns over cuts

* Lockheed’s F-35 program to be restructured

* Defense shares up slightly, relief cited (Rewrites with further details)

By Andrea Shalal-Esa and Phil Stewart

WASHINGTON, Jan 6 (Reuters) - The United States will cut $78 billion in defense spending over five years, including a reduction of up to 47,000 troops, in a move that would trim the government’s growing budget deficit.

The cuts are in addition to a $100 billion cost-savings drive that Defense Secretary Robert Gates had kicked off last year to eliminate waste, cut poorly performing weapons programs and redirect the money to other priorities.

Congress ultimately controls the Defense Department’s budget, and lawmakers often block administration efforts to cut military spending that provides jobs in their home districts.

But Gates, in a somber briefing on Thursday, said the military had to play its part in getting U.S. finances in order.

“As the biggest part of the discretionary federal budget, the Pentagon cannot presume to exempt itself from the scrutiny and pressure faced by the rest of our government,” Gates said.

There were gains in shares of some major defense contractors, such as Lockheed Martin Corp (LMT.N) and General Dynamics Corp (GD.N), whose have programs that will be hit by the $100 billion spending reshuffle but were largely spared from the $78 billion in cuts. [ID:nN06140935]

Gates said the Pentagon will cope with the spending cuts by freezing civilian pay, changing economic assumptions and reducing troops starting in 2015.

That will allow defense spending to keep growing modestly through 2014 before leveling off in 2015 and 2016, Gates said.

Gates said calls from some in Congress for deeper cuts would be “risky at best and potentially calamitous,” citing global tensions that require a strong, modern U.S. military.

Mitch McConnell, the top ranking Republican in the Senate, said on Thursday he believed no U.S. government department was off-limits from belt-tightening.

Other Republicans offered a swift rebuke of the plans, showing the proposed cuts may not be realized despite growing pressure to rein in U.S. government spending.

“I’m not happy,” House Armed Services Committee Chairman Howard McKeon told reporters. “This is a dramatic shift for a nation at war and a dangerous signal from the Commander in Chief.”

TROUBLED PROGRAMS AXED

McKeon and other critics took issue with Gates plans to cut up to 47,000 troops from the Army and Marines starting in 2015, long after U.S. troops are due to leave Iraq at the end of this year. It is also the year when U.S. war planners hope to hand over responsibility for Afghan security to local forces.

“The numbers that we’re talking about are relatively small and the Army is still left significantly larger than it was four years ago,” Gates said.

Gates announced cuts or cancellations of troubled weapons programs, including a $13 billion Marine Corps landing craft, designed by General Dynamics.

The Arca index of defense stocks .DFII closed up 0.8 percent, in a sign of relief that financial fallout from the Pentagon’s spending overhaul was not worse than what had already been speculated.

“The bear argument about significant cuts has been taken off the table,” said Peter Arment, an analyst with Gleacher & Co.

The plan also calls for cancellation of a ground-launched missile built by Raytheon Co (RTN.N), and includes the second overhaul in a year of the Pentagon’s largest weapons program: Lockheed Martin’s F-35 Joint Strike Fighter.

The Lockheed restructuring will cost the company 124 planes over the five years.

But some of the Pentagon’s cost-savings will be reinvested in similar big-ticket programs, including a new long-range nuclear bomber, more ships for the Navy and beefed up missile defense capabilities. Boeing will win a potential $3 billion-plus order for 41 more F/A-18 fighters. (Additional reporting by Kim Dixon, Tabassum Zakaria in Washington and Karen Jacobs in Atlanta; Editing by Tim Dobbyn)

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