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Leaking When It Is In Your Favor On The Defense Budget

The last two budget cycles Secretary of Defense Gates has done a good job of concealing the machinations that go into developing the defense budget. This allowed the spending plan to be built without arguing in the press or with Congress over each detail and slowing down the process. Last year the DoD was able to design a budget that ended several major programs, moved funding to some favored ones and almost fully funded operations in Iraq and Afghanistan.

This year the Obama Administration has done leaking when it appears to be in their favor. They have had the Air Force publicly discuss some of what is going on with their budget. They allowed a story about "potential" problems with the Joint Strike Fighter (JSF) program to appear right after Christmas. The fact that the total budgeted amount would be an increase also made it into the press. This increase despite a great deal of fears that Obama would move to cut defense spending was caused by the fact that as he had previously stated more money was allocated to weapon development and procurement but no cuts could be made to current operations. Not only has Iraq not seen a significant troop reduction although that will accelerate through the next year but more troops are being sent to Afghanistan at increased cost.
Some programs that had been ended recently due to performance issues are now actually going to receive new funding. The C-130 Aviation Modernization Program (AMP) is a program to improve the avionics and communication gear on the older generation of C-130 aircraft used by the Air Force. It had originally been awarded to Boeing (BA) but that contract was caught up in the Druyun scandal and the production piece was decided to be re-awarded. The Air Force is planning to hold a Milestone C decision early this year that will allow a production contract to be awarded. One can expect Boeing, Lockheed Martin (LMT) the manufacturer of the aircraft and perhaps other large defense contractors to bid.

Continuing the focus of the aviation modernization budget from last year the F-35 JSF will feature in the budget. Despite reports that the test and development program continues to slip leading to reductions in the planned procurement quantities as predicted by some the program will be fully funded and see a request for forty-two aircraft in 2011. The Pentagon had cushioned the blow by leaking to the press that this would happen. There are also indications of a potential cost breach due to the delays in ramping up production leading to cost increases downstream as well as more being required for the development phase. Depending on how big this is that will lead to a thorough review of the program by Congress and OSD. Unfortunately there are very few options for the U.S. and its partners except to continue the course as the JSF is it for future modernization efforts.

According to Reuters there will again be attempts to end the C-17 and second engine for JSF. Gates tried this with his first budget but compromised with Congress and money remained for these two contentious programs. The C-17 is made by Boeing and gets strong support from Congress as the Air Force needs heavy lift and it keeps a plant in Long Beach, CA open. Congress not only added quantities in the 2009 supplemental but in the 2010 budget as well. The Pentagon argues that the long term logistic support cost of the extra aircraft takes money from other more deserving program not matter how used the C-17's are. The second source of an engine for the F-35 has been continued as risk reduction but almost all of its funding has come from Congressional additions to the budget. Made by GE (GE) and Rolls-Royce (RR) in competition with Pratt & Whitney part of United Technologies (UTC). Many consider this program wasteful and not necessary.

The budget will be on the Hill in two weeks and the details will be poured over by Congress, contractors and analysts. It seems that the Obama Administration is continuing its plans to reshape spending by carefully choosing what they want to invest in while maintaining a level of support for ground operations. The final budget in October to December will most likely include some things that the Administration doesn't want like the 2010 but will mostly fit their desires.