Shrinking DOD budget actually contains good news for the defense electronics industry

THE MIL & AERO COMMENTARY, 16 Feb. 2016. It's a cliche, yet nonetheless true, that things aren't always what they seem -- especially when it comes to the fiscal 2017 DOD budget. At first glance when the budget came out last week it looked to me like technology spending was headed down, based on topline numbers. A closer look reveals something else.

After big defense cuts, what lies ahead?
After big defense cuts, what lies ahead?
Military Electronics 16 Feb 2016THE MIL & AERO COMMENTARY, 16 Feb. 2016. It's a cliche, yet nonetheless true, that things aren't always what they seem -- especially when it comes to the fiscal 2017 DOD budget. At first glance when the budget came out last week it looked to me like technology spending was headed down, based on topline numbers. A closer look reveals something else.

Despite cuts in the overall 2017 DOD budget, as well as cuts in procurement accounts, the budget calls for increases in research, development, test, and evaluation (RDT&E), as well as in communications, electronics, telecommunications, and intelligence (CET&I) technologies.

That could be good news -- at least in the short term -- for the defense electronics and electro-optics industries. Military research spending essentially helps prime the technology pump and sets the stage for potential future increases in procurement for promising military technologies.

First, for the 2017 Pentagon RDT&E request, the military is asking for $71.66 billion, which if Congress agrees would be the largest military research budget since $72.84 billion in 2012. It would represent an increase for the third straight year, and would increase research spending to levels not seen in the past five years.

There's also good news in the 2017 DOD budget CET&I accounts. For next year DOD is asking Congress for $10.74 billion for CET&I procurement and research, which is up 5.1 percent from 2016 levels, and is the highest in at least three years.

Related: Pentagon seeks military budget reductions in President Obama's last year in office

Just goes to show you how deceiving initial impressions can be.

Certainly the DOD budget request isn't all good news. Procurement accounts -- which contain large programs like ships, submarines, aircraft, armored combat vehicles, and military communications systems -- are down for 2017.

The procurement budget calls for spending $112.1 billion next year, which is down 6.5 percent from current-year procurement levels of $119.9 billion. The overall 2017 DOD budget calls for spending $583 billion.

Yet the budget increases in RDT&E and in CET&I spending bode well for the near-term prospects for military electronics spending.

There's much more in the 2017 DOD budget than I've been able to look at so far, but I'm still on the job, and will be reporting on other budget trends in areas like electronic warfare (EW), unmanned vehicles, cyber warfare, and other important areas that rely on advanced electronics technologies.

Stay tuned ...

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