Bloomberg News

Hagel’s Call for Smaller Force Delays Picking Among Contractors

November 06, 2013

U.S. Defense Secretary Chuck Hagel is outlining his vision of a smaller, better-equipped military while anticipating tough choices about some multibillion-dollar weapons systems that declining Pentagon budgets may force President Barack Obama’s administration to make.

“In some cases we will make a shift, for example, by prioritizing a smaller, modern, and capable military over a larger force with older equipment,” Hagel said yesterday in a speech to the Center for Strategic & International Studies, a policy research group in Washington. He called for preserving funding for cyberdefense, special operations, space and intelligence, surveillance and reconnaissance systems.

While that formulation may bolster efforts within the Pentagon to protect projects such as Lockheed Martin Corp. (LMT:US)’s F-35 fighter and Raytheon Co. (RTN:US)’s next-generation system to jam enemy radars, Hagel also warned that the Pentagon must try “to control areas of runaway cost growth.”

Hagel didn’t hint at which defense programs may be vulnerable to cutbacks, delays or cancellations. That may come in February or March, when the Vietnam War veteran and former U.S. senator is scheduled to present a five-year defense plan. It will be a test of how willing Hagel -- who once called the Pentagon “bloated” -- is to take on defense lobbyists and their congressional allies.

Hagel, 67, “will have to make choices to preserve the viability of priority systems and capabilities” when he proposes the Pentagon’s budget for the fiscal year that begins on Oct. 1, 2014, said Roman Schweizer, a defense industry analyst in Washington with Guggenheim Partners LLC.

Stretching Purchases

With no “elegant solution” available, Schweizer said in an e-mail, the Pentagon will have to stretch out purchases and cull “underperforming programs, overlapping capabilities and marginal, incremental improvements.”

Pentagon officials so far have shown determination to shelter sophisticated and costly weapons from reductions even as the military faces $500 billion in automatic budget cuts over nine years under the process called sequestration.

When Hagel released his “Strategic Choices and Management Review” in July, he highlighted systems that he said were worth protecting, including the F-35 made by Bethesda, Maryland-based Lockheed, Air Force plans for a new long-range strike bomber and the Navy’s program to increase the number of Tomahawk cruise missiles on Virginia-class submarines.

“The companies that look likely to benefit most from Hagel’s priorities are big aerospace and electronics houses that can integrate next-generation weapons and the networks to support them,” said Loren Thompson, a defense analyst with the Arlington, Virginia-based Lexington Institute who also consults for contractors.

Can’t Escape

Even the biggest programs can’t escape budget cuts indefinitely, said Robert Levinson, an analyst with Bloomberg Government in Washington.

“There’s just too much money in the F-35,” Levinson said of the fighter, the most expensive weapons system at a projected cost of $391.2 billion for a fleet of 2,443 planes. “You can’t protect the F-35 completely.”

Pentagon Comptroller Robert Hale also has said the F-35 wouldn’t escape scrutiny for potential cuts as the Pentagon weighs increasing annual production starting in fiscal 2015 to 42 planes from 29 annually this year and last year.

“It’s an important program and we want to be darn sure we don’t damage the program, so we’ll work hard to avoid” that, “but yeah, we’re going to have to consider it,” Hale said in an interview.

Two Navy programs, the Littoral Combat Ship built in separate versions by Lockheed and Austal Ltd. (ASB) and the John F. Kennedy, an aircraft carrier scheduled to be built by Huntington Ingalls Industries Inc. (HII:US), also are under evaluation and may become targets for funding cuts.

Hagel has said little publicly about the need for new aircraft carriers. Robert Gates, one of his predecessors as defense secretary, spoke as far back as 2009 of the potential vulnerability of aircraft carriers to Chinese anti-ship ballistic missiles.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


Coke's Big Fat Problem
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • LMT
    (Lockheed Martin Corp)
    • $166.97 USD
    • -3.21
    • -1.92%
  • RTN
    (Raytheon Co)
    • $90.77 USD
    • -1.85
    • -2.04%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus