Lean Bush Budget Will Trim Defense

Some major long-term weapons programs will be scaled down as the war in Iraq eats up defense spending.

By Richard Sammon, Senior Associate Editor, The Kiplinger Letter

January 11, 2005

Among the domestic business casualties of the long, difficult and expensive occupation of Iraq are some of the more ambitious defense projects central to the Bush administration's military transformation effort—and to the bottom line of defense contractors.

As the war drags on, heavy day-to-day operational costs, including combat pay, fuel and medical costs and equipment maintenance, will force President Bush and Congress to cut funding for several next-generation defense programs. Lawmakers will fight for months over the exact amount, but early signs point to a reduction of $8 billion to $10 billion in procurement next year and a total of $45 billion over five years.

Prime contractors—Lockheed Martin, Boeing, Northrop Grumman—and hundreds of subcontractors down the supply chain will feel the loss, though some will make up for it on orders to resupply weapons, aircraft and other material used in Iraq and Afghanistan. And they will take solace in knowing that the overall direction of military transformation, which stresses ultra-sophisticated weapons and command systems and a lighter, faster, more-lethal force structure, will stay on course even if the pace slows.

The biggest reduction will be in the huge F-22 combat fighter program managed by Lockheed Martin and Boeing with help from dozens of subcontractors. Orders for the plane, whose projected price tag has skyrocketed to $200 million each, will be chopped from 277 to about 140. The Joint Strike Fighter, a sister combat fighter program of similar scope managed by Lockheed Martin, will also be cut, though not so sharply. And the Air Force will trim orders to Lockheed for the C-130J, a variant of the large C-130 cargo plane.

Missile defense spending will be reduced by about $1 billion from earlier projections of $8 billion in 2006. Bush will propose a bigger decrease, but congressional supporters and senior appropriators won't go along.

Another target is the LPD-17 San Antonio-class amphibious landing ship being built for $1.2 billion apiece by Northrop Grumman's shipbuilding division in Avondale, La. The program may be sliced from five ships to three. Also on the chopping block are Northrop Grumman's DD(X) stealthy destroyer, the planned replacement for the current Arleigh-Burke-class destroyer fleet, and Virginia-class submarines made from General Dynamics. Also likely is the early retirement of one of the Navy's 12 aircraft carriers, possibly the USS John F. Kennedy, whose home port is Mayport, Fla.

In addition, savings will be found by delaying scheduled work on the Future Combat System, which includes more than a dozen Army programs to improve integration of battlefield operations, weapons platforms and communications with sensors, unmanned weapons and satellites. Boeing and Science Applications International Corp. are co-leaders of the project, which involves hundreds of suppliers.

As with other multibillion-dollar, multiyear programs, the Future Combat System won't be gutted. It is strongly backed by the military as central to transformation and necessary for battlefield dominance, and it has reliable support in Congress, in part, because contract work has been spread out over dozens of states. But as with other programs, work will be disseminated over a longer time frame, and it will end up smaller than its military supporters and strongest congressional backers want.