Pentagon budget cuts might squeeze firms

The Defense Department's latest proposal to trim roughly $30 billion from a number of Cold War-era military platforms over the next six years suggests the Bush administration's defense buildup in the wake of the terrorist attacks of Sept. 11, 2001, might not translate into big profits for large U.S. contractors.

Officials and analysts say the Pentagon's proposed funding cuts in programs of record -- including Lockheed Martin Corp.'s F/A-22 stealth fighter and Northrop Grumman Corp.'s shipbuilding and repair programs -- are the first solid indication that the type of irregular warfare being waged in Iraq for the foreseeable future will do little to drive large defense contracts for conventional weapons systems.

The proposed changes are outlined in an internal Pentagon budget document dated Dec. 23 that was provided to CongressDaily.

One defense industry source said those changes raise the question of how large defense contractors will stay in the game as the Pentagon puts less emphasis on buying big platforms such as aircraft carriers and stealth fighters in quantity and more on technologies designed to meet emerging security threats, including countering bioterrorism, developing new non-lethal and kinetic energy weapons, and fostering joint service science and technology efforts.

"It's a question of how these large companies can redeploy their capabilities to go after areas where the money will be," the industry source said.

Part of the challenge is that much of the money may be spread across a wide variety of spending accounts, some of which offer little in the way of lucrative defense contracts for larger firms. "So how do these companies maintain their capabilities?" he asked.

But Michael O'Hanlon, a defense analyst with the Brookings Institution, said that even with the proposed reduction in the number of large platforms, the Pentagon's procurement spending is not expected to take a nose dive.

"Compared to the '90s, things aren't going to be that bad," O'Hanlon said. "You're still building a lot of big weapons platforms, despite the somewhat smaller quantities, and there is still a huge amount of money going into these big weapons programs."

Still, some Pentagon officials familiar with Defense Secretary Rumsfeld's vision of a military transformed to meet the threat of global terrorism say a shift in the Pentagon's procurement focus is coming, and that lawmakers have been slow to comprehend the changes in store for defense companies in their districts.

"This issue of irregular warfare and the changes it will bring really needs to be fleshed out more," one Pentagon official said. "Congress has to understand this -- this is long-term change."

Retired Vice Adm. Arthur Cebrowski, who heads the Pentagon's Office of Force Transformation, noted in a 2004 study that global trends are working against the idea that a nation strongly armed is adequately shielded against all threats.

Cebrowski's analysis of the military services' future roadmaps, dubbed the "Strategic Transformation Assessment," found them too focused on improving conventional military capabilities.

"That was no surprise because historically U.S. armed forces have prepared to wage major conventional and nuclear war with armed forces of other industrial nations," Cebrowski noted in the study.

"However, with no 'peer competitor' to confront, the armed forces of the U.S. may be inadequately prepared to deal with one or more of the major strategic challenges now facing the country," he said.