WSJ: Pentagon Unveils Spending Plan For Fiscal 2013

Date : 01/26/2012 @ 2:46PM
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Stock : Lockheed Martin Corp. (LMT)
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WSJ: Pentagon Unveils Spending Plan For Fiscal 2013

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U.S. Defense Secretary Leon Panetta on Thursday unveiled the Pentagon's spending plan for fiscal year 2013, a budget that portends a dramatic shift in strategic priorities for the U.S. military amid a push to rein in federal spending.

The Obama administration is requesting $525 billion to cover the basic operating costs of the U.S. military for the fiscal year that begins in October, plus an additional $88.4 billion to support troops at war in Afghanistan. The total proposed 2013 spending plan comes in around $33 billion lower than the fiscal 2012 spending levels approved by Congress: $531 billion for the basic defense budget, and $115 billion for war costs.

Previewing the budget for reporters, Mr. Panetta cast the reductions in stark terms. "This will be a test of whether reducing the deficit is about talk or action," he said in prepared remarks.

Details of the budget request have been closely held, and Mr. Panetta's rollout of the defense-spending plan comes ahead of the formal submission of the budget request in February. The budget plan incorporates a $487 billion reduction in defense spending over the next decade, a consequence of the debt-reduction deal concluded last year in Washington.

The annual release of the defense budget request has sweeping implications for the armed forces and the defense industry, but this year's defense-budget process is likely to come under particularly close scrutiny. Manufacturers have launched a campaign to preserve defense-related jobs, and military spending could shape up as an election-year issue in communities with ties to the military.

Mr. Panetta suggested this year's budget process would be politically fraught.

"Make no mistake, the savings we are proposing will impact all 50 states, and many districts across America," he said.

Left unresolved, however, is the question of automatic, across-the-board spending cuts that will be imposed on the Defense Department unless Congress acts to roll back provisions of last year's debt deal. Mr. Panetta urged lawmakers to make changes to the law, saying that "a further round of cuts … would inflict severe damage to our national defense for generations."

Among other things, the budget plan proposes that the Navy slow down the construction of new ships; that the Air Force eliminate several tactical air squadrons; and that the Army and the Marine Corps shrink in size. The cuts will also include slower procurement of the advanced F-35 stealth jet and a reduction in the Defense Department's purchase of commercial satellite imagery. The Navy will retire seven of its cruisers early, and the Air Force will take some its aging transport planes out of service.

At the same time, the Defense Department will continue to invest in key new technologies such as surveillance drones and ballistic missile defense. The Navy will maintain the current number of aircraft carriers--11 in total--and the Air Force will keep its current bomber fleet. The nuclear "triad," the military's ability to deliver nuclear weapons by intercontinental ballistic missile, by submarine, or by bomber, will remain intact.

Among other cost-saving measures, Mr. Panetta said President Barack Obama would ask Congress to initiate the Base Realignment and Closure process, a mechanism that is supposed to take politics out of the often-sensitive issue of base closures.

Shrinking the size of the Army and the Marine Corps is part of a larger strategy that is supposed to reduce the military's emphasis on manpower-intensive nation-building missions such as Iraq and Afghanistan: The administration wants to shift the military's geographic focus away from the Middle East and prioritize the Asia-Pacific region.

Gen. Martin Dempsey, the chairman of the Joint Chiefs of Staff, said the reductions involved some risk, but would not degrade the U.S. military's ability to prevail in a conflict.

"Capability is more important than size," he said in prepared remarks. "Yes, the strategy and budget reduce force size - we get leaner. But, this budget does not lead to a military in decline."

The Defense Department's spending plan promises to have a major impact on the defense industry.

Lockheed Martin Corp. (LMT) Chief Executive Bob Stevens acknowledged in a conference call with reporters Thursday a "new reality" for the defense industry in an era of greater fiscal constraint. He added, however, that company leadership was "greatly distressed" by sweeping, across-the-board cuts that would be imposed on the Defense Department if lawmakers don't make changes to a deficit-reduction deal passed last year.

"We think the impact on industry would be devastating" if the so-called sequestration cuts kick in, Mr. Stevens said.

Without changes to the deficit-reduction act, he added, the industry would face facility closures, layoffs and loss of engineering expertise.

-By Nathan Hodge, Julian E. Barnes and Adam Entous, The Wall Street Journal

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