November 07, 2012
Credit: Credit: DoD photo by Master Sgt. Ken Hammond, USAF
President Barack Obama’s re-election removes one of a long list of uncertainties clouding the outlook for U.S. weapons makers and may improve the chances Congress will delay $500 billion in additional defense spending cuts.
But the larger issue of how to cut government deficits remains, analysts said.
“This will be a nail-biter to the very end,” defense consultant Jim McAleese told Reuters on Wednesday.
Obama pledged in his victory speech to reach across the aisle and work with Republicans on reducing the deficit, fueling hopes among industry executives and defense experts that the indiscriminate cuts due to take effect on Jan. 2 would be put off for several months.
The election results -- which keep Obama in the White House, Democrats in control of the Senate and Republicans in charge in the House of Representatives -- mean little change for defense companies, which are already girding for leaner times, given the planned U.S. military drawdown in Afghanistan and mounting pressure to cut government deficits.
But analysts said Republican election losses and Obama’s pledge of cooperation should increase the odds that implementation of mandatory, across-the-board cuts will be delayed until the end of March when the current temporary 2013 budget measure and Bush-era tax cuts are due to expire.
That will give lawmakers a bit more time to come up with other ways to reduce the federal deficit, but the final compromise may still result in some additional cuts in the defense budget, analysts and industry executives agree.
McAleese said the ultimate compromise would likely trim the Obama administration’s budget request for fiscal 2013 by $20 billion to $26 billion, or nearly half of the proposed annual cut of $55 billion under the pending sequestration.
“The election removes some uncertainty, though we think many investors had already anticipated that President Obama would be re-elected,” said Rob Stallard with RBC Capital Markets.