August 5, 2009 / 4:37 PM / 10 years ago

Pentagon options to find $60 billion in savings limited

By Andrea Shalal-Esa - Analysis

An aerial view of the Pentagon building in Washington, June 15, 2005. REUTERS/Jason Reed

WASHINGTON (Reuters) - The U.S. defense industry, already reeling from Defense Secretary Robert Gates’ sweeping weapons cuts, got more bad news last week when the Pentagon said it needed to trim programs by $60 billion more to free up money to fight counter-insurgencies and regional foes.

Some further weapons programs could wind up on the chopping block, but the services are more likely to slow the repair of worn equipment and stretch out new arms development programs.

Cutting weapons programs is really tough and it remains to be seen whether Gates’ efforts to reform defense spending will prove more symbolic than real, given the determination of lawmakers to protect weapons industry jobs amid worsening U.S. unemployment.

Congress, facing a White House veto threat, agreed last month to end funding for the Lockheed Martin Corp (LMT.N) F-22 fighter. That was an initial victory for Gates’ bid to scrap programs that are over budget and behind schedule.

But at the same time, the Senate Armed Services Committee added some $9 billion in earmarks to its 2010 defense bill. The House of Representatives added nearly $6 billion in funding for weapons the Pentagon did not request or were targeted for termination, including the VH-71 presidential helicopter built by Lockheed, and a second F-35 engine built by General Electric Co (GE.N) and Rolls-Royce Group Plc (RR.L).

There are already signs the White House is softening its veto threat on those items, underscoring how much political capital it cost to win the F-22 fight, said one former senior defense official, who asked not to be named because of his current role in the industry.

And even the F-22 fighter could still be revived, given moves by the House and the Senate that could lead to an export version of the fighter, said Chris Hellman, military policy fellow for the Center for Arms Control and Non-Proliferation. Cutting arms programs did not necessarily save money, he said, noting that in order to win political backing for cuts in one weapon, the Pentagon often agreed to boost funding in another.

SCRIMP ON MAINTENANCE

David Ochmanek, deputy assistant defense secretary for force transformation and resources, said last week that the Pentagon told the services to find $50 billion to $60 billion to pay for new equipment and programs over the next five years. He conceded that Gates’ April cuts had already plucked most of the “low-hanging fruit.”

Instead of producing a long laundry list of weapons cuts, analysts say the services are more likely to curtail operations and maintenance outlays in the base budget and shift them into spending for the wars in Iraq and Afghanistan. Further base closures were also a possibility, Hellman said.

Generally, it was easier for the services to scrimp on maintenance and cut investment in future programs than to attack existing ones, said Richard Aboulafia, an analyst with the Virginia-based Teal Group. That would save money in the short term, but could prove costly in the longer run, since current weapons would become more expensive to maintain, he said.

Given moves to expand the size of the Army, the services are unlikely to find any savings in their personnel and health care accounts, which are already growing rapidly. And pay increases for troops or other benefits promised in recent years were simply “untouchable,” Hellman said.

Loren Thompson, an analyst with the Virginia-based Lexington Institute, said $60 billion was still only a small fraction of the $3-plus trillion that would be spent on defense over the next five years and the Pentagon was “rife with waste.”

But given the budgeting process, it was simply easier for officials to target specific large programs such as missile defense than tackling more systemic reforms.

“The waste is endemic, but you’re not going to realize those savings by ... telling people to mow the lawn less often,” he said.

The Pentagon could also target some weapons deemed less important today — amphibious warfare, ground-based air defenses, heavy armor and possibly even close air support — to harvest some savings, Thompson said.

One obvious target would seem to be Lockheed’s F-35 fighter program, at over $200 billion the largest arms program ever.

But analysts said the F-35 was unlikely to draw fire at least for now, given that Pentagon officials talked up its promise during their battle to cut the F-22. Lockheed also agreed to refrain from lobbying for the F-22, given the much larger orders for F-35 fighters that are due in coming years.

“The Air Force and industry would feel betrayed if the F-35 were cut on the heels of the F-22 move,” Thompson said.

But over time, especially if the program runs into cost overruns or schedule delays, analysts say the Pentagon could still cut plans to buy 2,443 of the new manned fighter jets.

After all, the Air Force once planned to buy 750 F-22 fighter jets — a program now capped at 187.

Reporting by Andrea Shalal-Esa; editing by Julie Vorman and Andre Grenon

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