Defense companies prepare for next year

As Congress and the White House spar over funding operations in Iraq and Afghanistan, Pentagon planners are sketching the details of the 2009 budget — a crucial year to try to cement support for weapons systems programs before a new administration makes its mark on defense spending.

Although a new president will likely have different defense priorities than President Bush, the decisions made in the 2009 budget request could go a long way toward determining whether programs survive a new administration, according to defense analysts and lobbyists. Pentagon planners make budget projections years in advance. Shifting money for certain programs can be politically difficult, regardless of which party controls the White House or Congress.

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Another reason why decisions in the 2009 budget will carry over is it will likely be months before new assistant secretaries and other top Pentagon and service officials are in place, said Philip Coyle, a senior adviser with the Center for Defense Information.

“When this happens the bureaucracies will mark time, not wanting to unnecessarily commit their prospective new bosses to decisions they might want to make otherwise. All this creates uncertainty for programs,” he said.

Pentagon planners and analysts say they do not expect any major cuts to weapons systems next year, but they do foresee a careful juggling act to satisfy the military’s current and future needs.

As the ink was drying on the 2008 defense spending bill, the chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, pressed to increase the defense budget to 4 percent of the gross domestic product. It currently is 3.3 percent of GDP.

An increase in the budget “topline” would help Pentagon planners deal with a big headache: trying to figure out how to roll billions of dollars in supplemental funding into the regular budget request, per Congress’s mandate.

As Pentagon budget writers work to balance the long-term priorities of the services, new needs have developed that make their job even harder.

For example, the Joint Improvised Explosive Device Defeat Organization, a group dedicated to combating the use of such devices in Iraq and Afghanistan, is in dire need of money. Officials said the group will run out of money by spring if Congress does not approve the 2008 war supplemental.
And because of the uncertainty over how ongoing operations will be paid for — supplementals may not be an option — the budget crunch isn’t likely to abate in 2009.

Even if troops start withdrawing from Iraq, the Pentagon faces an overwhelming bill to pay for more troops and higher healthcare costs and to fix equipment worn out from use in Iraq and Afghanistan.
Foreseeing tightening budgets and an emphasis on operations and maintenance, some defense companies, such as Boeing Integrated Defense Systems, are gearing their business towards O&M support, expecting larger profits in that sector.

The Pentagon could also face a crisis with the current round of base realignments and closures, which have to be completed by 2011. Pentagon officials have expressed concern that delayed congressional funding both last year and this year threatens the Pentagon’s ability to meet the timelines.

Moreover, cost estimates of closures and realignments have grown twofold in some cases from the estimates the Pentagon gave the Base Realignment and Closure Commission in 2005.

Also, the inability of Congress to pass the 2008 military construction bill affects the construction of new barracks and other types of quality-of-life improvements, according to Army Secretary Pete Geren, who testified recently before Congress.

Aware of upcoming budget crunches and competing interests, defense companies are lobbying the Pentagon and Congress to improve the chances their contracts will survive in the coming years.

“FY ’09 is really important,” said a defense lobbyist who asked not to be quoted by name. “You want to get in your business early because, even though 2010 will be done by this administration it could still be changed by the new administration.”

Boeing has been pushing to see more C-17 cargo aircraft produced, while Lockheed Martin has made an unsolicited offer to the Air Force for more C-130Js.

Additionally, with recurring problems in the F-15 fighter jet fleet, the Air Force is considering buying more Lockheed-produced F-22 Raptor aircraft, which were designed to replace the Cold War-era F-15.

The Air Force said on Tuesday it had grounded about 450 older-model F-15 fighter jets for the third time in four weeks to perform additional inspections.

The F-22 line was expected to close after 2011, when Lockheed is due to deliver the last of 183 aircraft. The Air Force ideally wants to have about 381 F-22s in its inventory, but so far the Pentagon has green-lighted only 183 aircraft. The Air Force is also meeting with congressional staff to brief them about the problems with the F-15 and the need for more F-22s.

The F-22 already has a number of backers on Capitol Hill, where lawmakers have successfully pushed for multi-year contracts for the airplane.

The Air Force next year also will have to make a decision on its contested search and rescue helicopter program as well as a new mid-air refueling tanker that Boeing and a Northrop Grumman-EADS North America team are competing to build.

Already managing multibillion-dollar aircraft programs, the Air Force also has to lay the groundwork for a new long-range bomber.

Deputy Secretary of Defense Gordon England said that he wanted to see a new combat vehicle plan, a move that could affect how Congress is going to fund the Army’s flagship Future Combat Systems program, according to a congressional source. “This year may be the last year that Congress is going to protect FCS,” said the source.

The Army as well as the Marine Corps will face decisions on how the life-saving Mine Resistant Ambush Protected vehicle (MRAP), for which they have already spent millions of dollars, fits into future force plans.

Meanwhile, the Navy could find itself in a bind over the next five years as significant shipbuilding and aviation programs contend for money in what defense planners and industry lobbyists describe as a challenging budget environment.

Not only does the Navy want to achieve its 313-ship plan while it faces cost overruns and delays on programs such as the Littoral Combat Ship, the sea service has kicked off an aggressive aviation recapitalization and acquisition program after years of relatively small investments. Now the Navy is in dire need of revitalizing its aircraft fleet all at the same time.