September 05, 2012
Credit: Credit: DoD photo by Master Sgt. Ken Hammond, USAF
U.S. defense companies are bracing for additional cuts in Pentagon spending, even if Congress reaches a deal to avert a controversial $500 billion across-the-board budget cut due to go into effect in January, industry officials said on Tuesday.
Dennis Muilenburg, head of Boeing Co’s defense and security unit, said in an interview with Reuters reporters and editors that his firm anticipated the Pentagon would face more spending reductions even if Congress acts to avert the cuts looming in January under the process known as sequestration.
“We know that there’s still a gap to close in terms of the overall budget deficit,” Muilenburg said. “Certainly the defense budget, being one of the large components of the overall federal budget, will have to be considered in that process.”
Linda Hudson, the top U.S. executive at Britain’s BAE Systems Plc, also predicted a further decline in U.S. defense spending, given the depth of the economic challenges facing the country. But she said continued threats to U.S. national security would prevent a precipitous drop.
“Defense has to be part of the solution to the fiscal challenges that the country has,” Hudson told Reuters. “However, I have never seen a downturn in this industry where the country was at war and the world in general was as uncertain and perhaps as unsafe as it is today.”
The Pentagon is facing $500 billion in across-the-board cuts to defense spending over 10 years beginning in January, after Congress failed to reach a compromise deal to reduce federal spending by an equivalent amount. A similar amount will be cut from non-defense government programs.
Marion Blakey, president of the Aerospace Industries Association, said defense spending would inevitably be part of the debate over fixing the U.S. debt crisis. But she said the industry had already paid a big price and further automatic cuts under sequestration were not the solution.
“Yes, there’s going to have to be that debate, and defense is going to have to be a part of it. But it should be a reasoned, intelligent debate and that really goes to how do you address the fundamentals of the problem,” she said.