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GENERAL DYNAMICS (GD)
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Panetta warns Congress over Pentagon budget gridlock

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05/11/2012 | 12:12am CEST
U.S. Secretary of Defense Panetta speaks during a joint news conference with China's Defence Minister Liang in Washington

WASHINGTON (Reuters) - Defense Secretary Leon Panetta warned on Thursday that gridlock in Congress over the Pentagon budget could prevent action to avert another looming cut in spending next year, an outcome top military officials said would be devastating to the services.

Further budget reductions due to take effect in January would cut the U.S. Army by another 100,000 troops, slash the equivalent of the Navy's entire shipbuilding budget, and leave the U.S. Marines without adequate resources to respond to even a single crisis, top military officials told a Senate panel.

Lawmakers in the House of Representatives passed a Republican measure on Thursday to halt the automatic cuts - known as sequestration - by cutting social safety net programs instead.

No Democrats supported the measure, which would be unlikely to pass the Democratic-controlled Senate and is facing a veto threat from President Barack Obama. Panetta warned at a news conference that Congress was headed toward a stalemate on the issue that could result in a failure to stop the looming cuts.

"By taking these funds from the poor, middle-class Americans, homeowners and other vulnerable parts of our American constituencies, the guaranteed results will be confrontation, gridlock and a greater likelihood of sequester," he said.

Officials from the Army, Navy, Marines Corps and Air Force urged Congress to act soon to avert the $500 billion in additional defense cuts mandated after Congress last year failed to find $1.2 trillion in other savings.

They said the cuts - on top of $487 billion in reductions already planned over the next decade - would have a devastating effect on troop levels and industry, which must make critical investment and staffing decisions soon.

Waiting until December, after the 2012 presidential election, to address the threat of further budget cuts would give Pentagon planners insufficient time to adjust their budgets and make critical strategic decisions, they said.

"If we didn't have that sword of Damocles hanging over our head, we would be in much better shape," Army Vice Chief of Staff General Lloyd Austin told the Senate Armed Services readiness subcommittee.

The $487 billion in defense cuts is already triggering layoffs and plant closures around the country as Lockheed Martin Corp, Boeing Co and other weapons makers consolidate facilities, sell business units and cut overhead costs after more than a decade of unbridled growth.

Industry executives warned the situation will get far worse, if Congress fails to avert the additional cuts that are due to kick in at the beginning of 2014.

BIG IMPACT ON TROOPS, PROCUREMENT

Austin said the Army was not yet officially planning for sequestration, but "back-of-the-envelope calculations" showed it would likely lose another 100,000 troops on top of the 72,000 cuts already planned. Half would be in the National Guard and Army Reserve, he said.

Admiral Mark Ferguson, vice chief of naval operations, told senators that the Navy's budget would be cut by $15 billion a year if sequestration took effect.

"That's the amount of the entire ship construction account," Ferguson said, noting that naval shipyards and other defense contractors needed to notify employees well before the end of the year of any possible furloughs or layoffs.

"The uncertainty in our industrial base would affect our suppliers and then if it were to occur, would greatly affect our industrial base sustainment over the long term," he added.

The Pentagon's acting chief weapons buyer, Frank Kendall, warned in March that sequestration would hit the weapons-buying accounts particularly hard and could trigger hundreds of thousands of layoffs across the industry.

Boeing Chief Executive Jim McNerney said this week that his defense division was laying off a "significant" number of people, although he declined to give exact numbers. Boeing announced in January that it would close its Wichita, Kansas, plant, which employs 2,100 workers.

"Sequestration is the single greatest example of Washington-induced uncertainty that I've ever seen in my life," McNerney told a conference sponsored by The Atlantic magazine. "The point is, we have to anticipate the worst and hope for the best."

Navy and Air Force officials said there was a risk that some of the smaller suppliers would move into other business areas, or go out of business, which was a problem since the military was down to a single supplier in some areas, including the special "stealth" coatings that help fighter jets evade radar.

"In many of our more complex procurement programs, we're down to single vendors or single suppliers that we're their predominant customer," Ferguson said. "So it would be very difficult for some to recover."

MARINES 'AT THE MARGIN' WITH CUTS

General Philip Breedlove, vice chief of staff of the Air Force, said the service's fleet was now the oldest it had ever been, and further cuts would either reduce the number of units sharply, or eliminate their modernization.

Assistant Marine Corps Commandant General Joseph Dunford said his service was "at the margin" of being able to fulfill its mission with a planned cut in troops to 182,000 from 202,000, and was relying on war spending funds to make those cuts more gradually.

Further budget cuts would cost the service 18,000 more troops, he said, leaving it without adequate resources or capacity "to meet a single major contingency operation."

Plus all the cuts would likely take effect all at once, which would result in broken contracts with service members who are in Afghanistan today.

Dunford said there was a possibility that Obama could exempt personnel funding from sequestration, but if he did not, active-duty Marines would lose their jobs.

"These are the very people ... who are in Afghanistan today forward deployed, forward engaged, in harm's way, and their reward when they come home will simply be to dismiss and shake their hand," he said. "I think that'd be a mistake."

(Reporting By Andrea Shalal-Esa; Additional reporting by David Lawder; Editing by Jan Paschal)

By Andrea Shalal-Esa and David Alexander

Stocks mentioned in the article
ChangeLast1st jan.
BAE SYSTEMS 1.45% 601 Delayed Quote.4.89%
BOEING COMPANY (THE) -0.58% 338.67 Delayed Quote.15.51%
GENERAL DYNAMICS -0.83% 223.11 Delayed Quote.10.58%
HUNTINGTON INGALLS INDUSTRIES -0.76% 263.56 Delayed Quote.11.82%
LOCKHEED MARTIN CORPORATION -0.39% 351.99 Delayed Quote.10.07%
NORTHROP GRUMMAN CORPORATION -0.59% 355.92 Delayed Quote.16.65%
RAYTHEON -0.31% 227.35 Delayed Quote.21.41%
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Sector and Competitors
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GENERAL DYNAMICS10.58%66 504
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