Wednesday, January 9, 2013

Hagel as defense secretary another indication the U.S. military budget is headed downward

Posted by John Keller

By all accounts, it looks fairly certain that President Obama will nominate Charles Timothy "Chuck" Hagel, a former Republican senator from Nebraska. as the next U.S. secretary of defense to replace the outgoing Leon Panetta.

Although Hagel is described as a moderate Republican, his history of supporting deep cuts to the Pentagon's budget is yet another solid indication that the U.S. military budget is on the way down.

"The Defense Department, I think in many ways, has been bloated," Hagel said in a September 2011 interview with the Financial Times. "So I think the Pentagon needs to be pared down."

There you have it: an incoming defense secretary on record supporting more defense cuts, a president with a demonstrated affinity for defense cuts, and a delayed-but-still-looming threat of across-the-board sequestration cuts of nearly half a trillion dollars in the Pentagon's budget over the next decade, starting on 1 March.

I wish I had better news for those of us involved in the defense business, but i don't. So where do we go from here?

The Pentagon is emerging from at least a solid 10 years of growth. Now, obviously, it's time for big adjustments. Employment in the defense industry is going to be trimmed back. Big-ticket programs like combat aircraft, warships, and armored vehicles will become few and far between.

At worst, U.S. global military technological leadership may be fading, and perhaps for a long time. Suffice it to say, things are not going to be like we've been used to moving forward. I think the guessing game is over; it looks line a done-deal. For defense suppliers, however, it's not all bad news -- particularly those involved in technologies that enable military capabilities, such as embedded computing, electro-optics, persistent-surveillance sensors, electronic warfare, and devices to detect and neutralize improvised explosive devices (IEDs).

The U.S. has a sizable military, and it's likely to remain so, even at reduced levels. The planes, tanks, and ships already out there need to maintained and upgraded. That's where technology suppliers come in.

The contracts may not be as lucrative as they used to, but there will be contracts. Like so many things in business today, winning those contracts will take more work than it used to, and the rewards probably will be smaller than we've seen in the past.

More work for less revenue ... sound familiar?

Unfortunately, this appears to be the new normal for the defense industry.

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