Defence Cuts

Republican John McCain and Democrat Barack Obama both emphasise the need to curb Pentagon costs and focus on weapons relevant to today's wars, but cancelling big programmes will be difficult no matter who is elected US president.

Conventional wisdom holds that Democrats tend to scale back defence spending, but McCain, a leading member of the Senate Armed Services Committee, has a long history of criticising waste in Defense Department programmes.

That has prompted speculation about declining orders for big defence contractors like Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon and others.

MEETING THE RIGHT NEEDS

"Big-ticket weapons programmes are in triple jeopardy after the election because many of the programmes have nothing to do with the war in Iraq, we're facing a huge budget deficit, and neither of the two major candidates is favourably disposed toward the industry," said defence analyst Loren Thompson of the Virginia-based Lexington Institute.

But defence analysts agree a host of factors will make it tough for Obama or McCain to quickly scale back big weapons projects.

Key issues include the wars in Iraq and Afghanistan, an urgent need to replace billions of dollars of equipment worn out in those conflicts, homeland defence needs, plus a long history of intervention by lawmakers to protect high-paying defence jobs in their home districts.

"It's very difficult to kill weapons programmes," said Nick Schwellenbach of the Project on Government Oversight, a nonpartisan watchdog group. "Even if you did have a McCain or Obama administration go after major weapons programmes, the contractors and their congressional allies would keep those programmes alive – even on life support."

COSTING FAR MORE

The new president will face competing pressures to increase the base defence budget to pay for expanding the Army and the Marine Corps, and fund rising weapons costs, while at the same time grappling with an economic downturn and widening federal deficits, said Steve Kosiak of the Centre for Strategic and Budgetary Assessments.

"New weapons are ending up costing a lot more than predicted as they go from low-rate to full-rate production," he said. "Most will cost far more than the systems they are replacing and significantly more than anticipated," he said.

A recent report by the Government Accountability Office concluded that the cost of the Pentagon's major acquisition programmes doubled to $1.6tn in fiscal 2007 from $790bn in fiscal 2000, and average development costs rose 40% over that eight-year period.

Defence company stocks have responded strongly, with the Amex Defence Index more than tripling from its September 2001 inception through the 30 September end of the 2007 fiscal year.

Lawmakers frequently talk about the need to reform defence spending, but even the end of the Cold War and pressure to generate a 'peace dividend' did not result in the outright cancellation of many programmes, Schwellenbach said.

Vice President Dick Cheney did manage to cancel some big programmes, including Northrop's B-2 bomber, when he served as defence secretary under former President George Bush, but Boeing and General Dynamics are still fighting legal battles over Cheney's 1991 termination of the A-12 stealth fighter.

Cheney tried to cut the V-22 tilt-rotor aircraft built by Boeing and Bell Helicopter, a unit of Textron Inc, but it ultimately survived, and the planes are now in use in Iraq.

Once a programme has started, proponents fight to maintain funding since so much has been spent already, or if it's early in the programme, for continuing development efforts and transferring results to other projects later, Schwellenbach said.

WEAPONS AND JOBS

The worsening US economy will only strengthen concerns about maintaining jobs in the defence industry, making it unlikely that lawmakers will agree to end Boeing's C-17 cargo airplane production line in California, or Lockheed's F-22 fighter jet line in Georgia, Thompson said.

"Over time, we will see cuts in major weapon programmes but there are many players in this process and to some degree they will cancel out each other's agendas," he said, predicting some programme cancellations could begin appearing late in 2010.

Anthony Cordesman of the Washington-based Center for Strategic and International Studies, said the real cost of national security spending is likely to be 20% to 30% higher than estimated in current baseline budgets. "The combined cost of war, steadily rising military manpower costs, the underfunding of operations and maintenance, and a procurement crisis in every service will force the next administration to reshape almost every aspect of current defence plans, programmes, and budgets," he wrote in a CSIS paper.

Endemic procurement problems made it clear that the Pentagon "is indulging in a 'liar's contest' in terms of costs, the timelines for major programmes, their probable effectiveness, the numbers it can actually procure, and the trade-offs between modernisation and force cuts," Cordesman said.

Reshaping military procurement could well spell bad news for the US defence industry, but it would take at least the full term of the next president to be realised, he said.

Erik Leaver, defence analyst at the Institute for Policy Studies, says the weakness of the overall economy could dampen lawmakers' willingness to give the defence department 'whatever it needs' and slow growth in defence budgets to single digits.

But costly shifts of resources to Afghanistan could still make the fiscal 2010 budget one of the biggest ever, he said.

The progressive think tank has compiled a list of some $60bn in weapons programmes that could be cut, however it might take 'a full blown recession' before those programmes were actually put on the chopping block, Leaver said.