Hagel gets tough

25 Feb 2014. Is the DOD’s bark worse than its bite when it comes to long-running battles over US defence procurement budgets? Reaction from ‘Hill’ is yet to come but it seems that Secretary of State for Defense Chuck Hagel has chosen to lay out yet another load of controversial cuts in defense capability for Congress to analyse.

Hagel has decided that the numbers of active-duty Army personnel should be cut to somewhere close to 445,000. I suspect of all the ideas that could be laid out for debate in regard to defense this one will attract the most attention. Skeptics will be quick to point out that Hagel’s proposal is merely an opening salvo within the wider defense debate; realists will suggest that the real battle for Hagel will be how he gets the cuts passed without  mention of the impact they will have on industry – and the subsequent job losses in congressional districts. The immediate future for US defence is going to get tough and getting proposals, on the scale outlined, through Congress is likely to prove very difficult. Consequently the mid-term elections offer potential salvation for the defence industry but no one be in any doubt that further large equipment, personnel and base cuts over the next few years will hit the US military hard.

A cut of 80,000 in the number of full-time Army operatives initially seems very large given that vast numbers of Army personnel have already left the Armed Forces voluntarily ahead of the withdrawal from Afghanistan. However the situation may not be as dire as the headline figure suggests. In what is a five year plan covering FY15 to FY19 it is probably best to interpret Hagel’s proposition as an initial salvo of intent – a foil behind which he can negotiate potential trade-offs. The haggling is yet to start but endpoint is already apparent; in the future the US will spend less on defence as a proportion of GDP. How it gets there – and which service suffers most – remains a variable.

The Army will not be the only victim of budgetary consolidation. One notes that Hagel plans to scrap a number of ageing aircraft (such as the venerable A-10’s and U-2’s) and one suspects that the KC-10 tanker fleet will become a casualty, whilst the Navy’s plans to acquire the F-35C could be delayed.

The implications for industry are potentially huge, with the prospect of there being even less work to go round over the next 5 years than is currently anticipated. However Hagel’s detailed intentions are not yet set in stone. The Hagel ‘plan’ remains full of suggestion (and comparatively short of concrete policy solutions); what was left out of yesterday’s speech was just as interesting as what was included. For example, what is the intention for the Littoral Combat Ship and will the US Navy get any more F’A-18’s?

Last week ‘Defense News’ suggested a figure of $115 billion over-budget caps through a five year plan. This suggests that under the existing ‘Budget Control Act’ if budget caps on spending were exceeded in any individual year, large-scale sequestration would be automatically triggered. I suspect this figure could turn out to be a bit low. FY15 is already covered by the Bipartisan Budget Act but there is little idea what figures will be included in the final annual DoD budget plans submitted to Congress for 2016-2019 – too much uncertainty remains.

Analysis of the US defense scene is never easy but my sources suggest that over the next three years America’s view on defense will likely change yet again, the Air Force will face a rough ride and the Navy’s plan regarding ship numbers is too ambitious. However the question remains – will the DoD’s bite be worse than its bark!?

To be continued…….

 

Howard Wheeldon FRAeS

Wheeldon Strategic Advisory Ltd,

Email: hwheeldon@wheeldonstrategic.com

Tel: +44 7710 779785

 

 

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