DoD On Jenny Craig With Fries On The Side

For all the talk about whether U.S. ‘defense cuts’ are insufficient or cataclysmic, almost all can agree finally the U.S. military enters the post 9/11 world. Overdue, but a good thing.

The political car wreck known as the August 2011 Budget Control Act mandated $487 billion in cuts mostly by reducing out year proposed DoD budget increases. DoD complied with a proposed budget that cut increases to avoid sequestration. Panetta’s Hill testimony argues for keeping things pretty much status quo. There are some losers and winners – especially C4ISR capability.

Defense budget, Defense Sector, Obama, Procurement

Panetta and DoD’s notional cuts are made possible by ‘cost savings’ via the hoary procurement stretch-out gambit, improved ‘processes’ and less spent on people. He even called on Congress to cut Medicare and raise taxes before touching defense.

He didn’t have a choice adopting this aggressive stance. As new SecDef he has only a CIA tour behind him. His first job is to secure the loyalty of the building and services. And he’s carrying their water well. His grip is still formative; the defense sector is in a panic. He knows what happened to Les Aspin. Or Rummy before 9/11. He won’t make their mistakes.

Panetta and DoD kicked the can down the road. They hope to show good faith to Congress and escape sequestration’s draconian blunt cuts.

A necessary corollary to the Panetta/DoD preservation of the status quo? The Administration, unlike Bill Perry under Clinton, is completely avoiding any leadership directing or leading defense industry consolidation. They will regret it.

It’s axiomatic that there is surplus defense capacity – whether metal benders, network/systems/integrators and all down the line. Even more than under Perry, the defense sector is essentially socialized today. The State is the customer and provider of seed and other capital, including foreign military sales. Ergo, market forces can not be expected to re-allocate resources rationally. Nor should they.

In all the major sectors such as military space, tactical aircraft, electronics, missile defense and networking Panetta is signaling to industry nothing really is really changing. No major systemic rice bowls were touched. None of the major defense companies are really re-structuring (NG’s shipbuilding spin-off aside). What little M&A that is happening is among the second and third tier companies – mostly those that seek to expand or add specialty companies in one niche of the value chain. More should be done now to lay out roadmaps for discussion and orderly consolidation or exit.

Nearly 4 years in, it would be hard to say the Administration’s lack of leadership here is surprising.