April 6 (Bloomberg) -- Defense Secretary Robert Gates today offered a blueprint for reorienting U.S. military purchases that calls for more to be spent on immediate battlefield needs and threats while eliminating programs designed in the Cold War-era and those exceeding budget estimates.

Gates recommended capping purchases of Lockheed Martin Corp.’s F-22 fighter jets at 187 and canceling the company’s VH- 71 presidential helicopter, while planning to buy 30 of the company’s next generation F-35 warplane in the 2010 budget compared with 14 this year. Boeing Co.’s Future Combat Systems would be curtailed and its anti-missile programs would be slowed down.

He also proposed spending an additional $2 billion in fiscal 2010 budget for surveillance needs including unmanned planes, and called for one more Littoral Combat Ship, made by Lockheed and General Dynamics Corp., as well as $500 million for helicopters needed in Afghanistan.

“Until recently, there has not been an institutional home in the Defense Department for today’s war fighter,” Gates told a Pentagon news conference. “Our contemporary wartime needs must receive steady, long-term funding.” The 2010 budget would begin that process, he said.

If the recommendations pass approval by the White House and Congress, “they will profoundly reform how this department does business,” Gates said.

Standard & Poor’s Aerospace & Defense Index rose 8.4, or 3.6 percent, to 244.12 after Gates’s announcements. It had risen 82 percent by the seventh anniversary of the Sept. 11 attacks in 2008.

‘Good-Faith Effort’

The recommended cuts in weapons programs come as U.S. defense spending is set to reach $654.1 billion for the fiscal year 2009, including war costs, a 72 percent gain since 2000. President Barack Obama assigned Gates, who took office during the Bush administration, to rein in spending.

“This is a good-faith effort,” Representative Ike Skelton, chairman of the House Armed Services Committee, said in a statement. “However, the buck stops with Congress, which has the critical constitutional responsibility to decide whether to support these proposals.”

Four more of the F-22 fighters will be bought out of the 2009 war supplement for a total of 187 aircraft, Gates said.

Fees ‘Unattractive’

Gates recommended curtailing the vehicle component of Chicago-based Boeing’s $159 billion Future Combat Systems. He said the fleet of about eight different vehicle models was estimated to cost about $87 billion and he was “troubled by the terms of the contract,” which had a “very unattractive fee structure.” He said the vehicles would be canceled and the need for them reevaluated through competitive bidding.

Boeing’s anti-missile Airborne Laser program made with subcontractors Northrop Grumman Corp. and Lockheed should be limited to one test aircraft, Gates said. He also recommended terminating the presidential helicopter program because “it runs the risk of not delivering the required capability.”

Gates called for proceeding with buying three DDG-1000 destroyers to be produced by General Dynamics at Bath, Maine, and may continue the older DDG-51 destroyers built by Northrop Grumman’s Ship Systems at Pascagoula, Mississippi.

Defense-contractors’ shares gained after Gates’s announcement. Lockheed rose $5.97 or 8.9 percent to $73.28 in New York Stock Exchange composite trading. Raytheon Co. increased $3.19 or 8.3 percent to $41.66 and Northrop Grumman rose $3.96 or 9 percent to $47.94. Boeing Co. increased 47 cents to $38.16.

‘Absence of Uncertainty’

“For defense contractors, Gates’s announcement is positive because now there is an absence of uncertainty,” said James McIlree, a New York-based analyst with Collins Stewart who rates Lockheed “buy” and General Dynamics “hold.” “You now know what you are dealing with,” he said. “In an environment where people don’t know what’s going on they tend to sell everything.”

The recommendation to stop buying F-22s is a setback for Bethesda, Maryland-based Lockheed, the world’s largest defense contractor.

The company wants to keep building the plane to bridge the gap until its new F-35 reaches full production. Gates would buy only four more than the 183 F-22s currently on order by using the forthcoming war spending, compared with the 60 more that the Air Force wants.

Lockheed ‘Assessing’

“We’re assessing the impact of the secretary of defense’s decisions on all affected programs,” Lockheed spokesman Jeff Adams said in an e-mail.

The F-22, conceived at the height of the Cold War to take on the Soviet Union, was the focus of a lobbying campaign as Lockheed and its subcontractors said halting production at the 183 already on order could jeopardize 95,000 jobs in 44 states. At $354 million in inflation-adjusted dollars including research and development costs, it is the most expensive fighter in U.S. history.

Lockheed’s VH-71 presidential helicopter program, based on a design by AgustaWestland, a unit of Finmeccanica Spa of Italy, is a fleet of 28 helicopters, whose cost has more than doubled to $13 billion since the company won the contract in January 2005. The original cost estimate was $6.1 billion. Obama has called it an example of a program “gone amok.” The current presidential fleet has some helicopters from United Technologies Corp.’s Sikorsky unit that are 40 years old.

New Program

“We’re eager to hear about a new program,” said Paul Jackson, a spokesman for Sikorsky, which lost the helicopter competition to Lockheed. “We believed all along we have a great helicopter for this mission and we certainly have the experience to support it.”

United Technologies rose 68 cents to close at $46.31.

Gates recommended canceling the Air Force’s Transformational Satellite Communication System program, which is intended to be a constellation of five satellites and ground stations to provide data and message services to ground forces throughout the world using laser beams. The program, expected to cost as much as $11 billion, was to be awarded this year. Boeing, Lockheed and its subcontractor Northrop Grumman have said their designs show that the technology is feasible.

“We will be studying Secretary Gates’s announcement for potential impact to Boeing,” company spokesman Dan Beck said in a statement.

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net. Tony Capaccio at acapaccio@bloomberg.net.

Last Updated: April 6, 2009 18:16 EDT