2009 DOD budget: a safe bet

March 1, 2008
The U.S. Department of Defense (DOD) has released its budget request for next year, fiscal 2009, and it looks to be a safe budget for President Bush’s last year in office

John Keller, Editor in Chief

The U.S. Department of Defense (DOD) has released its budget request for next year, fiscal 2009, and it looks to be a safe budget for President Bush’s last year in office. We’ll have a new president by the time the next DOD budget request comes out, and Bush looks like he has left any hard decisions up to the next chief executive.

There’s not a lot that stands out in the DOD’s latest budget. Generally it would keep the money faucets turned on at stable levels across the board. Nothing major seems to be cut, and nothing major seems to have substantial increases.

In other words, steady as she goes; let the next commander-in-chief make the tough choices.

There could have been big changes, but that wasn’t likely in an election year. The Joint Strike Fighter program continues on course, even though some experts point out that this multi-billion-dollar program could have—and still might—make a juicy target for anyone in Congress or a new administration whose aim is to reducing defense spending.

Other programs that have received close scrutiny and much criticism in recent months—the Transformational Satellite Communications System (TSAT), the Navy’s Littoral Combat Ship, the Joint Tactical Radio System, and ballistic missile defense—all would receive predictable, healthy funding levels in this budget.

Just as the Pentagon’s spending plan contains few, if any, surprises, I’ll bet we’ll see more of the same routine on Capitol Hill this spring as Congress discusses whether to grant the Pentagon’s proposed spending. It’s an election year, after all, and no one wants to be singled out as soft on defense.

If big cuts are going to happen, we might see them next year or the year after. For now, it’s status quo.

It’s shaping up that it doesn’t matter if members of Congress are Democrats, Republicans, liberals, or conservatives. No one seems very interested in cutting defense spending in a substantial way. I predicted that the 2008 defense budget would face tough sledding in Congress this past year, but I was wrong. Lawmakers approved the budget essentially as submitted with little fanfare.

I think we’ll see the same in coming years. Members of Congress don’t want to be seen as anti-military, and the next president won’t, either—especially, believe it or not, if the next president is a Democrat.

If the next president is John McCain, he’s making the war on terror the centerpiece of his campaign, so spending would seem safe with him. If the next president is Barack Obama or Hillary Clinton, that person will be under intense pressure to appear tough in international relations. Military spending would appear safe there, too.

I don’t think there is a lot to worry about if you’re involved in the defense business. Some experts even predict that defense spending could help prop up the economy as the retail and housing sectors soften. We’ve watched as the U.S. economy has run through nearly every powerful business sector to keep itself upright. Commercial technology seems to be played out. Housing—long the mainstay—is on its back. Consumer spending is staggering.

A lot of people are asking, what’s left? Well, it could be defense spending. It’s come to this.

With most business sectors at the end of their ropes, U.S. defense profits, sales, or both, apparently are on the upswing. Lockheed Martin in the fourth quarter had flat sales but a 20 percent increase in net income. General Dynamics posted net income at the same time that is up 42 percent. Northrop Grumman had flat sales, yet a 10 percent gain in net income. Northrop Grumman over the full fiscal year had a 16 percent increase in net income and a 6 percent increase in sales. More good news is likely to follow.

Why? Defense is still a stable business, and companies are betting—rightly, I believe—on continued and growing demand for miniaturized electronic components and subsystems for platforms like unmanned aerial vehicles, as well as for technology insertion and refresh, systems upgrades, and platform resets of existing aircraft, ships, and combat vehicles.

Contrast that with the dismal news we have been reading about the banking and housing industries. The defense industry, again, is looking relatively like a winner.

It’s funny, though. Defense spending only seems to be really great when most commercial industries have hit the skids. I sense from conversations in January at the Photonics West trade show that electro-optics companies usually focused on commercial endeavors are giving surprisingly strong consideration to the military.

What this tells me is commercial technology might not be the best bet these days, and technology companies are looking for a safe harbor. When they do this they usually turn to the stable, predictable, and large defense budgets.

When’s the last time they did this? It was in the wake of the telecom and dot.com busts and the 9/11 terrorist attacks in 2001.

Some newcomers to the defense business will make it, and some won’t. Those with experience with the military business have a big advantage. Those without experience are likely to be disappointed.

But watch. Most of the newcomers will toss defense aside like an old shoe once commercial technology comes back. Defense systems integrators have seen this before—and they have long memories.

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