Cyber Security May Gain in Pentagon’s Budget Review, Lynn Says

Spending on cyber security may be one of the few areas to gain as the Pentagon prepares to meet President Barack Obama’s goal of cutting $400 billion in defense spending over the next 12 years, said William Lynn, the U.S. deputy secretary of defense.

Cyber threats are “likely to ratchet up and get worse,” Lynn said in an interview at Bloomberg’s headquarters in New York. Attackers of U.S. networks today usually seek to steal data or temporarily block access through so-called denial of service techniques, he said. In the future, he said, assaults may become more destructive as sophisticated tools get into the hands of “malicious actors.”

The Defense Department has proposed spending $38.4 billion on information technology in fiscal year 2012, which begins Oct. 1. About $3.2 billion of the total would be dedicated to cyber security, according to a data compiled by Bloomberg. The amount may not cover for all cyber security spending because it is spread across the different military services and doesn’t include classified programs.

U.S. defense officials are conducting a comprehensive review of the military including its missions, the size of the forces and which new weapons are needed. The Obama administration’s goal is to cut $400 billion by 2023 in addition to the $78 billion, five-year reduction that Defense Secretary Robert Gates announced in January.

The review team won’t propose “across-the-board cuts,” Lynn said. “Some things are going to be eliminated, some things are going to be reduced and some things are going to be increased,” he said. “I think cyber is one of the ones that we are going to more likely increase than decrease.”

Full Spectrum

The U.S. is spending sufficiently on both defensive and offensive cyber capabilities, Lynn said. “In the last budget, we have already put additional funding into several areas of cyber and we’ll continue to do that.”

The U.S. also is working with allies such as Australia, the U.K., and the North Atlantic Treaty Organization on systems to spread the word quickly when cyber attacks are detected.

“This is one of those areas where the earlier you see a threat the better you can react,” Lynn said. If allies see “things on their networks and we can anticipate them, that gives us far more agility and vice versa.”

The Pentagon’s cyber initiatives, dubbed Cyber 3.0, are developing more robust defenses against all categories of threats. The military’s investment in building such tools may improve the “balance between defenders of the network and the attackers,” which now favors attackers, Lynn said. That would also “make the Internet more secure for everybody,” he said. “That would be a huge commercial boon.”

Prepared for Cyber

Lockheed Martin Corp. (LMT), the world’s largest defense company, Boeing Co. (BA), the second largest, and Northrop Grumman Corp. (NOC), maker of Global Hawk, one of the largest drones, all have acquired cyber security companies to strengthen their portfolios.

Chicago-based Boeing sees annual sales growth exceeding 10 percent in cyber-security, the focus of about half of Boeing’s recent purchases, Dennis Muilenburg, the head of its defense unit, said in December.

General Dynamics Corp. (GD), the Falls Church, Virginia-based maker of Abrams tanks, operates the Pentagon’s Defense Cyber Crime Center, which conducts forensic analysis of cyber attacks. The company has been called upon by the federal government to assist in probes of commercial data thefts.

‘Everything on the Table’

Lynn said the Pentagon’s review to meet Obama’s budget goal would put “everything on the table” including reducing the number of troops and restraining spending on new weapons -- the part of the budget that matters most to defense suppliers including Lockheed Martin and Boeing.

The review will inform current congressional discussions about raising the debt ceiling. Treasury Secretary Timothy F. Geithner has said lawmakers must raise the $14.3 trillion debt ceiling before Aug. 2 or risk a default.

The review also may guide how the military services craft their new five-year budget plans, which are compiled in August and September.

The 2013 defense budget is due to Congress in February 2012 and, if confirmed, will be presented by Leon Panetta, who’s nominated to be the next defense secretary when Gates leaves in June.

Lynn said he expected a “seamless handoff” between Gates and Panetta, currently the director of the CIA.

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

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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