Budget preview hits Defense contractors on weapons and management

Panetta aims to save $60 billion in five years by ‘improving business practices across the department.’

This story has been updated.

Defense budget cuts previewed Thursday would affect contractors in two ways: in the coming alterations to major weapons systems and the intensified search for greater efficiencies in Pentagon management.

Defense Secretary Leon Panetta planned to retire aging C5A and C130 transport aircraft while preserving adequate airlift capability. He would trim six tactical air squadrons from the current lineup of 60, and the Navy would retire seven older cruisers and two amphibious ships early. He would delay the next generation of ballistic missile submarines by two years, and he would “make adjustments” to the long-controversial Joint Strike Fighter aircraft, “slowing procurement to complete more testing and to develop changes before we buy in great quantities,” he said.

Programs left largely intact, he said, would be the Navy’s carrier air wings, the next generation of bombers and the aerial refueling tanker.

In a move likely to have the most direct effect on the acquisition community, Panetta said he would look to save $60 billion over five years by “improving business practices across the department.” That would include “more aggressive and competitive contacting practices and reductions in contract services.”

Further savings might be found, according to a Pentagon fact sheet, in better use of information technology, better use of business and enterprise systems, streamlined staff, limitations on official travel, improved inventory management and deferral of some military construction.

Asked whether such efforts in the past have proved fruitful, Panetta said his predecessor, Robert Gates, “had made some progress with regard to going after duplication, overhead and waste, and tightening up on systems. This is a very big bureaucracy,” Panetta said.

He emphasized that a key element of the guidance released earlier this month is “protecting key investments to retain a decisive technological edge,” which includes scientific programs in such areas as cyberwarfare, unmanned aircraft and homeland missiles. That means “maintaining the vitality of a healthy industrial base,” he added, “and avoiding imposing unacceptable risks on our critical suppliers.”

None of the actions comes as a surprise, said Stan Soloway, president and chief executive officer of the Professional Services Council, a contractors trade group. “They’ve long been signaling a need to drive more efficiency into the system, and you can only take so much out of each area,” he said. “The force structure reductions are going to happen, but it will take a while to achieve savings.”

He said people may look more carefully at the proposed new round of BRAC cuts. “We know it requires an up-front investment and takes several years to realize the savings, so it’s not impactful in the near term,” he said.

Marion C. Blakey, president and CEO of Aerospace Industries Association, asked how the Defense cuts will affect national security. “These cuts will have real consequences on our military and industrial base,” Blakey said.

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