Pentagon Weapons Spending to Be 4.5% Less Than Earlier

Pentagon weapons spending through 2017 will be $20.6 billion, or 4.5 percent, less than projected a year ago for the same period, according to internal figures.

The Defense Department’s acquisition plan calls for spending $434.9 billion on weapons in the four years from 2014 to 2017, according to Pentagon projections obtained today by Bloomberg News. Last year, the plan anticipated $455.5 billion for those years.

The projection will be included in the Pentagon comptroller’s annual “Green Book” of past and planned defense spending that will be released this week in the aftermath of the $526.6 billion defense budget for fiscal 2014 that President Barack Obama proposed to Congress yesterday.

The comptroller’s annual report is reviewed by analysts and by planners for defense contractors seeking insight on the Pentagon’s investment trends. In a time of defense spending cuts, word that weapons spending won’t decline more deeply may be good news for companies such as Lockheed Martin Corp. (LMT), Boeing Co. (BA), Raytheon Co. (RTN) and General Dynamics Corp. (GD)

The planned procurement increases take into account increased purchases of Lockheed’s F-35 fighter, the Pentagon’s costliest program. The Air Force wants to increase its F-35 purchases to 60 by 2018 from 19 next year, and the Navy wants to ramp up to 40 aircraft by 2018 from 10 next year.

‘On Track’

The estimated cost for a fleet of 2,443 F-35 fighters has climbed to $395.7 billion, a 70 percent increase since 2001. Pentagon officials have prodded Bethesda, Maryland-based Lockheed and its subcontractors to improve performance and reduce costs.

Defense Secretary Chuck Hagel said today in testimony before the House Armed Services Committee that the F-35 program is “on track” after “many years of pain and billions and billions” of dollars spent.

Hagel, who was briefed for 90 minutes yesterday by the F-35 project manager, said costs per aircraft are “coming down.”

As with the Pentagon’s budget for next year, the four-year weapons projection doesn’t include the automatic budget cuts known as sequestration that are set to reduce Pentagon spending by $500 billion from over nine years.

Obama’s budget assumes Congress will accept his plan to replace sequestration with a combination of revenue increases and spending cuts. His approach would reduce defense spending by as much as $120 billion after 2018.

Annual Projections

The proposed budget released yesterday calls for spending $99.3 billion on weapons in fiscal 2014, a reduction of only $4.9 billion from a projection released in February 2012.

Similarly, the $106.2 billion for weapons projected for fiscal 2015 is about $6 billion less than anticipated last year. The $111.9 billion projected for fiscal 2016 is $4.4 billion less, and the $117.5 billion for fiscal 2017 is $5.3 billion less.

The latest comptroller’s report adds a projection of $123.8 billion for weapons in fiscal 2018.

Research and development spending under the new plan is projected to increase by $4.7 billion through 2017 from the $271.4 billion estimated last year. It includes $8.7 billion for continued development of the Air Force’s Long-Range Strike Bomber.

Major General Ed Bolton, the Air Force’s budget director, told reporters yesterday that the bomber program “would be big” in the service’s rebalance to Asia that’s part of the Pentagon’s defense strategy.

‘Highest-Priority’

“This is one of highest-priority programs for the Air Force and budget figures bear that out,” Byron Callan, an analyst with Washington-based Capital Alpha Partners LLC, said in an e-mailed statement.

Callan said he was “still not clear who will ultimately build these but it is a very important program opportunity for Boeing, Lockheed Martin” and Northrop Grumman Corp. (NOC), he said.

Similarly, the Army’s program to develop and field a new Ground Combat Vehicle benefits from the research boost. Research and development spending would increase to $953 million in fiscal 2015, up from $592 million requested next year.

The Army’s total planned request through 2018, including production starting in 2018, is estimated at about $4 billion, according to new service figures. The Army wants to buy about 1,748 vehicles at $29 billion through 2030 when priced in fiscal 2013 dollars. The program is in initial development.

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

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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