The U.S. defense budget will likely decline somewhat in coming years, although it is not clear exactly when or by how much, a top Pentagon official told an investor conference on Thursday.
Defense Secretary Robert Gates is pushing the military services to find $100 billion in savings from overhead over the next five years to plow back into troop costs and weapons programs, while keeping the overall Pentagon budget growing at about 1 percent a year.
Marine Corps General James Cartwright, vice chairman of the Joint Chiefs of Staff, said those savings could come under attack from other parts of the government, given the current unprecedented economic crisis and high U.S. debt.
I think some of that will migrate out, Cartwright told reporters after a conference hosted by Credit Suisse and Aviation Week. He said he had zero confidence the Pentagon would be able to keep the full $100 billion in savings.
During the conference, Cartwright said past cycles had seen declines of 15 percent to 20 percent in U.S. defense spending, but he was not certain if the coming downturn would be on that scale.
In inflation-adjusted dollars, the U.S. defense budget has grown from $432 billion in fiscal 2001 to a projected $720 billion in fiscal 2011, a jump of about 67 percent. Big beneficiaries include top Pentagon suppliers such as Lockheed Martin Corp
Cartwright told analysts and industry officials at the conference that the Pentagon needed to dramatically revamp the way it buys weapons given the rapid pace of change in information technology (IT) systems and technologies that could increasingly remove human beings from their operation.
We're an industrial organization trapped in an IT world, he said, calling for major cultural changes to allow the U.S. military to keep up with rapidly evolving threats.
He said budgetary pressures could spur a shift to building weapons more affordably and getting them to the battlefield faster, but conceded some resistance by the military.
You can wish all you want, but if you can't afford it, it's an hallucination, he said, noting that top defense officials had already canceled some weapons programs such as a new destroyer that had seen costs spiral out of control.
Cartwright said the Pentagon was evaluating whether it would still be economical to build a short takeoff version of the Lockheed Martin Corp F-35 fighter for the Marine Corps now that Britain had opted for a different variant.
Scott Thompson with PricewaterhouseCoopers forecast flat Pentagon spending in coming years, but said the budget would remain at a high level that still provided plenty of opportunities for U.S. defense companies.
He said companies would need to focus on new and adjacent markets such as healthcare, energy security and cybersecurity to continue to generate growth -- a theme underscored by executives from big defense companies at the conference.
Continued fighting in Afghanistan made it unlikely that big defense cuts sought by a U.S. deficit commission would be enacted, Thompson said.
General Dynamics Chief Executive Jay Johnson said he did not expect a precipitous decline in U.S. defense spending, saying the September 11, 2001, hijacking attacks had changed the calculus from earlier down cycles in the industry.
To take a big swing in the defense budget right now really becomes a matter of how much risk is the nation willing to accept, Johnson told the conference.
Cartwright said the military too often imposed strict requirements to toughen and specialize weapons systems, which added unnecessary cost, reducing the number the Pentagon could buy and raising the price of the few it could.
If it continued on the current path, the Pentagon would be able to afford just two new bombers, one for each coast, and that was unacceptable, he said, noting the issue of scale was a big factor in shaping a new Air Force program for long-range strike that will likely be part of the fiscal 2012 budget.
It has to change for us, Cartwright said. For the cost of the alternate engine on the (Joint Strike Fighter) I can have 100 more Predators, he said.
(Reporting by Andrea Shalal-Esa; Editing by Steve Orlofsky, Dave Zimmerman, Phil Berlowitz)