Loren Thompson, chief operating officer of the industry-backed Lexington Institute, expresses a similar view in a column in Forbes magazine: “When the chips were down, the parties proved to be flexible. So it seems a safe bet that the same thing will happen when more crises come along in March,” Thompson writes.
“The debt limit will be raised, the stopgap spending measure currently funding government operations will be replaced by something that avoids a shutdown, and the sequestration provisions of the Budget Control Act will be diluted,” he continues.
Industry experts project that even if sequestration is averted, the Pentagon could face cuts of $30-45 billion per year over the next 10 years.
“If we can plan it, it would be a glide-slope as opposed to a karate chop,” says Tom Captain, Deloitte's global leader for aerospace and defense. “That would be making the best out of a bad situation.”
If the Budget Control Act already takes 10-12% off the top lines of the major defense contractors, additional cuts are likely to reduce them by another 6-12%, Captain says. While a 25% total reduction would be a less severe drawdown than historical postwar averages, the abruptness and uncertainty of these budget negotiations mean neither government nor industry can plan efficiently, he says.
The best outcome, says Harrison, is for the government to provide a gradual, annual 2.2% decline in defense spending over the decade. The deficit savings would be the same as the sequester, but the gentle slope would allow the Pentagon to plan adequately for the change. But such an outcome is far from likely, he admits.
If lawmakers do reach a deal that still makes cuts to Pentagon spending, then defense companies that have been united in a “Second-to-None,” don't-cut-the-budget campaign will take to their individual bunkers, and a war for scarce dollars will begin.
The Pentagon already appears to be positioning to sell additional reductions. During a recent speech at the Brookings Institution, Hale noted that the Pentagon seeks to continue its strategy of improving the way it does business to achieve savings through what are known as “efficiencies.”
But a drawdown will mean changes—and they will hit modernization accounts first. “There's a long history and a good reason why early in a drawdown, the cuts tend to be heavily on the investment portion of the budget, because it takes us awhile to make force-level decisions and then we gradually draw down the size of our forces,” Hale says. “If we are allowed the ability to make choices, they will probably be investment-heavy at the beginning.”