April 6, 2009 / 10:18 AM / 9 years ago

North Korea launch could arm Pentagon suppliers

WASHINGTON (Reuters) - North Korea’s rocket launch may be good news for Lockheed Martin Corp (LMT.N), Boeing Co (BA.N) and other big Pentagon contractors that face possible program cuts.

Defence Secretary Robert Gates is scheduled to announce his spending proposals at a Pentagon press conference at 6.30 p.m. on Monday.

Backers of a fledgling U.S. anti-missile shield lost no time pressing Gates to re-think any plans to trim spending on missile-defence, for instance. At roughly $10 billion (6.7 billion pounds) a year, it is the Pentagon’s costliest arms development program.

“A new security era has begun,” said Riki Ellison, who heads the grass-roots- and industry-funded Missile Defence Advocacy Alliance, which lobbies for a layered shield against missiles that could carry chemical, biological and nuclear warheads.

Arguing that Pyongyang had successfully tested a long-range ballistic missile on Sunday, Ellison urged Gates to seek full funding “to protect the millions of American lives that will be at risk.”

Lawmakers seized on the launch in an 11th-hour push to curb what could be deep cuts to home state-rewarding programs such as Boeing’s Ground-based Midcourse defence.

Boeing, the Pentagon’s No. 2 supplier by sales, is also developing an airborne laser widely considered vulnerable to cutbacks. Its chief partners on the project are Lockheed Martin, the Pentagon’s No. 1 supplier, and Northrop Grumman Corp (NOC.N), No. 3.

“The firing of this missile illustrates the critical role these systems play in our nation’s defence,” said Republican Sen. Lisa Murkowski of Alaska. A Boeing-funded study last year found the company’s work on the ground-based system added more than $246 million to Alaska’s economy in 2007.

“In light of the actions taken by North Korea, now is not the time to make cuts to these essential programs,” Murkowski said. Alaska and California host silo-based interceptor missiles configured to defend against a limited ballistic missile attack.

In a joint statement, Ike Skelton, chairman of the House of Representatives Armed Services Committee, and Ellen Tauscher, chair of the Strategic Forces subcommittee, said: “North Korea’s ballistic missile capability is a threat to the United States, our deployed forces, and our friends and allies in the region.”

SUPPLIERS ON NOTICE

Gates has been putting the final touches on a fiscal 2010 core defence budget request of $533.7 billion, not including war-funding. The Pentagon spends about $180 billion a year on weapons acquisition, research and development.

Lawmakers make the final decisions on budgets, so events like North Korea’s launch and any political manoeuvring they spark may figure into funding regardless of what is urged by Gates, the only cabinet holdover from the Bush administration.

He put Pentagon suppliers on notice in January that the “spigot of defence spending that opened on 9/11 is closing.”

“These are not changes to the margins,” Pentagon press secretary Geoff Morrell said Friday in reference to what Gates has been mulling to reshape the military under President Barack Obama. “This is a fundamental shift in direction.”

Obama has called on the Pentagon to “reform our defence budget so that we are not paying for Cold War-era” weapons at a time the government is devoting hundreds of billions of dollars to the worst financial crisis since the Great Depression.

Gates has pressed for more counter-insurgency tools for places like Iraq and Afghanistan even at the expense of hedging a future all-out war with countries like China and Russia.

The missile launch was a reminder that arms cuts carry risk for Obama who can not afford to be seen as weak on defence.

“The discussion that I’ve been hearing more and more about in Washington about lowering our investment in defences against the type of capabilities that are being developed in North Korea and Iran is incredibly out of step with the real world,” said Robert Joseph, the State Department’s top arms-control official during part of George W. Bush’s administration.

As many as 55 major programs were said to be under review for possible restructuring, including Navy shipbuilding programs involving General Dynamics Corp (GD.N) and Northrop.

Gates also must decide whether to extend production of Lockheed’s top-line F-22 fighter jet beyond the 183 already budgeted. Likewise, Lockheed’s new VH-71 presidential helicopter is said to be under review.

Reporting by Jim Wolf; editing by Paul Simao

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