The SDSR and the American Defense Budget

by: Matthew Potter
October 25, 2010

Category: Boeing, Business Line, Companies, Congress, Contract Awards, Countries, Department of Defense, development program, England, Events, Federal Budget Process, General Dynamics, Industry Analysis, Lockheed Martin, logistics, Military Aviation, missile defense, northrop grumman, Northrop Grumman Corp., production program, Protest, Raytheon, Restructuring, Services, U.S. Air Force, U.S. Army, U.S. Marine Corps, U.S. Navy | RSS 2.0

It is not abnormal for a new government to do a spending review when they take control and readjust expenditures. The new Conservative-Liberal Democrat Coalition in the United Kingdom did this but they were in a tough spot due to the last several years of deficit spending. The Coalition had to reduce total spending greatly and one area they focused was defense.

The normal process for building a defense budget is to define what capabilities are required and then invest the available money into the highest priority. Because the British defense spending had been so affected by operations in Iraq and Afghanistan their investment programs had suffered. In the United States total defense spending increased several hundred billion dollars to pay for the operations while several core investment programs such as Lockheed Martin’s (LMT) Joint Strike Fighter (JSF) were maintained.

To achieve an eight percent reduction in defense spending which has been reported as closer to fifteen due to off budget spending for Iraq and Afghanistan the new U.K. budget takes major cuts at operational units and capabilities.

One aircraft carrier is to be retired. The two under construction will have limited air wings including cuts to the number of F-35 JSF aircraft for the Royal Air Force and Navy. Surface combatants will be reduced and new submarines delayed. All manned ISR assets will be eliminated being replaced by UAV and Allied systems. Ground troops will be cut making it even harder to maintain current operational obligations including total withdrawal from Germany.

If the U.S. defense budget faced a similar situation it would be a reduction of about $80 billion in spending a year. This would lead to major cuts to the quantities of current new systems being purchased such as UH-60 helicopters, DDG-51 destroyers and F-35 aircraft. Active forces would have to be reduced and the Navy may have to eliminate aircraft carriers or major quantities of surface ships. The Army would lose whole divisions of troops from the current ten active ones. The Air Force would have to retire F-15, F-16 and A-10 aircraft faster then currently planned.

Investment in new systems such as the LCS, JSF, KC-X and new Army vehicles would be slowed down delaying their development and entry into production. As in the Seventies and Nineties the lack of funding would reduce training and maintenance of current units reducing operational capability.

There is no doubt the U.S. faces budget challenges. The defense budget will have to be reduced as part of an attempt to control spending since it makes up such a large part of discretionary spending. The question will be how severe and in what areas will they be felt. The U.S. does not want to end up in a situation like the U.K. where their military capability is eroded to the point that they cannot necessarily meet combat requirements and treaty obligations.

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