‘THOSE DAYS ARE OVER’

That would be a far cry from the last decade, when military cost control was often of secondary importance as the United States waged wars in Iraq and Afghanistan.

“Whenever we found a problem, we cauterized it with cash,” Undersecretary of Defense for Industrial Policy Brett Lambert told a meeting of Reuters defense and aerospace reporters last month. “Those days are over.”

That is a reality some industry executives have quietly conceded. They have been pinning their hopes for growth on more sales to civilian government agencies and emerging states - an approach that has prompted viciously competitive battles for business with India, Brazil and the Gulf.

Attempts to fold Britain’s premier defense firm BAE into its larger European rival EADS were in part an acknowledgement of shrinking markets - even if differences between Britain, France and Germany ultimately killed the deal.

Meanwhile, U.S. defense firms have already begun laying off staff and closing facilities to reflect lower demand and the $487 billion in cuts already planned for the next decade.

U.S. defense spending in 2012 will total $612 billion, down slightly from 2010’s $691 billion peak as operational contingency spending specifically earmarked for the Iraqi and Afghan wars fell, according to the Pentagon.

The core Pentagon budget -- with the cost of the wars excluded -- is now $531 billion. As things stand, defense takes up around 20 percent of the entire federal budget, roughly the same as Social Security and massively outstripping federal spending on transportation, education and science.

But overall U.S. military spending is now expected to drop for the first time in more than a decade, with the Pentagon proposing a base budget of $525 billion and war spending of just over $88 billion in the fiscal year that began Oct. 1. When inflation is taken into account, it has been falling since 2010.