Obama's budget plan appears to spare F-35 and V-22 programs

Posted Sunday, Apr. 21, 2013  comments  Print Reprints
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To view President Barack Obama's fiscal 2014 budget, go to 1.usa.gov/bubJ9L.

To view the budget's "funding highlights" for the Department of Defense in PDF format, go to 1.usa.gov/10U1JnG.

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After months of angst, it appears that Tarrant County's major defense programs, the F-35 joint strike fighter and the V-22 Osprey, may avert the harsh spending cuts on the horizon in Washington -- at least for now.

The Obama administration has proposed a $526.6 billion defense budget that sets aside $8.4 billion for Lockheed Martin's Fort Worth-based F-35 in the next fiscal year, similar to the allocation for fiscal 2013. What's more, the budget request to congressional leaders is mute on cuts to Bell Helicopter's V-22 program.

"Pentagon policymakers have decided that they're going to protect the F-35 program," said Loren B. Thompson, an aerospace analyst at the Lexington Institute, a public-policy think tank in Arlington, Va. "And there's no chance at all for drastic cuts to the V-22 program for many years to come."

The White House proposal, which kicks off annual spending negotiations with Congress, has created new optimism for North Texas defense contractors who have worried that automatic spending cuts under the sequestration will lead to massive layoffs and cutbacks.

The Budget Control Act of 2011 triggered the spending cuts beginning in March, imposing $487 billion in Defense Department reductions over the next decade.

Commitment to national security

Ignoring sequestration and focusing on military spending priorities for the future, the president's budget proposal eases those fears. It "clearly demonstrates our nation's continued commitment to national security systems," Lockheed spokesman Ken Ross said.

Together, Lockheed Martin Aeronautics and Bell Helicopter employ more than 20,000 people in Tarrant County, with about 6,000 of Lockheed's 14,200 workers at its west-side complex directly involved with the F-35.

Bell's current multiyear contract with its military customers to build 30 tilt-rotor aircraft a year over five years is not in jeopardy, aerospace analyst Richard Aboulafia said. The contract ends in 2015.

Too much invested

The president's budget proposal would provide $6.36 billion to build 29 F-35s previously planned for 2014 -- 19 for the Air Force, six for the Marine Corps and four for the Navy, according to a budget document. The other money would be spent on development and spare parts. Plans are to increase production to as many as 60 aircraft a year by 2018.

The sequestration may have minimal immediate impact on the F-35 program, since Lockheed recently locked up new production contracts. In December, it received a Pentagon contract guaranteeing a final installment of $127.7 million for the fifth production lot of F-35 fighters.

And it later received Pentagon contracts worth up to $3.67 billion for 31 additional F-35 jets, according to news reports.

The Pentagon is doing all it can to recharge a program that has been criticized by the Government Accountability Office and watchdog groups for being 70 percent over budget and delayed by seven years.

The original plan, a decade ago, called for building 2,400 aircraft by 2017, but delays caused the Pentagon to downsize production to 400 planes by that year.

The reduced production has resulted in more than 300 layoffs at the Fort Worth assembly plant since January and 27 more over the last two weeks. Hundreds more employees will leave this year as part of a voluntary buyout program.

Still, with so much already invested, the F-35 is here to stay, experts say. "There's really no way from walking away from this program. ... The government has to make it work," Thompson said.

Deficiencies corrected

Under pressure from the Pentagon, the program has gone through many changes and is now in better shape, he said.

The GAO, in its most recent analysis, released last month, identified only two deficiencies in the program. It said that the company missed its 40-aircraft goal for 2012, completing only 30, and that Lockheed had failed to submit an "Earned Value Management System," a cost-efficiency plan required by the government.

Overall, the GAO said the F-35's "current outlook is improved but long-term affordability is a major concern."

Thompson said that while the Pentagon's restructuring slowed the program down, "it is now meeting almost all of its goals, so it's stabilized."

Overall, Obama's plan introduces some $150 billion in curbs on defense spending over the next decade, but most of the reductions would occur after 2016. In contrast, cuts under sequestration could amount to $52 billion in fiscal 2014 funding, Defense Secretary Chuck Hagel told a congressional committee at a recent hearing.

Echoing Hagel, Lockheed and other contractors want lawmakers to replace sequestration with a less drastic budget-reduction plan.

"We are encouraged by the President's plan to replace the across-the-board sequester spending cuts with a more strategic approach," Ross said.

Uncertainty ahead

But it's not over. Congress has to weigh in, and both the House and Senate will develop spending plans of their own.

So aerospace companies are going to have to keep waiting to hear more definitive news on the impact of sequestration, said Aboulafia, an analyst at the Teal Group in Washington, D.C.

Programs that look safe now could face cuts later, he said. "We still don't have the slightest idea" about what happens under sequestration to specific programs over time.

As at Lockheed, sequestration's immediate impact on Bell is likely to be small. But a multiyear proposal for a second batch of tilt-rotor aircraft -- up to 20 a year over five years -- could be affected, Aboulafia said.

"You've got uncertainties about how a sequestration might deal with a multiyear procurement contract," Aboulafia said. "No one really knows."

Yamil Berard, 817-390-7705

Twitter: @yberard

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