Rather than stick with traditional all-you-can-eat deals known as “enterprise licensing agreements,” the CIA wants to buy software services on a “metered,” pay-as-you-go basis, Ira “Gus” Hunt, the agency’s top technology officer, told an industry conference.

“Think Amazon,” he said, referring to the electronic commerce giant where the inventory is vast but the billing is per item. “That model really works.”

The old way of contracting for proprietary software inhibits flexibility, postponing the CIA’s chance to take advantage of emerging capabilities early on, Hunt said.

He added that this made it harder to keep up with “big data” at a time that such challenges are growing while federal agencies are tightening their belts for deficit reduction.

The CIA does not comment on how much it spends on its software licenses nor other details of its budget because they are classified, said Preston Golson, an agency spokesman. He did not immediately respond to a query about whether the CIA already had begun to recast its software licenses.

Intelligence analysts use programs from companies such as Oracle Corp, SAP AG and Hewlett Packard Co to sift through vast data sets to provide insights, warning and opportunities to the president of the United States and other decision makers.

Hunt made his remarks at a conference on emerging technologies organized by the Armed Forces Communications & Electronics Association’s Washington D.C. chapter.

Replying to a question, he said the CIA would be willing to give vendors with security clearances a “peek under the covers” to address any doubt about whether it was fairly accounting for proprietary software used under any pay-as-you-go deal.

“Don’t kid yourself that we can’t do this thing because we can,” he said, adding that the agency was seeking to build strong partnerships with its information technology suppliers.

“We’re not out there trying to screw you,” Hunt told representatives of the many vendors present. But “you really need to think differently about how we do these things,” he said.

Earlier in the day, Reginald Brothers, deputy assistant secretary of defense for research, told the conference that existing software tools for data analysis, management and interaction lagged the vast amounts of information that drones and other high-tech U.S. military sensors were vacuuming up.

“The big data problem is the analysis of it,” he said. Existing tools “do not aid users … in the mission timelines.”

(Reporting By Jim Wolf; Editing by Bob Burgdorfer)

The $9.7 billion sought for fiscal 2013, down $700 million
from 2012, would scale back deployment of advanced radars built
by Raytheon Co as well as a Lockheed Martin Corp
“THAD” antimissile system that works inside and outside the
atmosphere.

The Pentagon proposed to reduce the total number of Theater
High Altitude Area Defense interceptor missiles from 333 to 180
from fiscal 2013 to 2017 as part of a restructured program. The
total savings over five years would be $1.8 billion, budget
documents said.

Overall missile defense spending would total $47.4 billion
for the five-year planning period through 2017, a Pentagon
budget overview booklet said.

Congress has the final say on U.S. government spending and
often makes major changes to administration spending requests.

Robert Hale, the Pentagon’s chief financial officer, said
the proposal would “protect” previously projected spending on
the sole U.S. defense against long-range ballistic missiles that
countries like Iran and North Korea are developing. Boeing Co
manages the program that is due to include 38 interceptor
silos in Alaska and California in 2013.

President Barack Obama’s blueprint also largely would
maintain spending on protecting NATO allies and forces from
regional ballistic missile threats, Hale said.

The proposal would relegate Raytheon Co’s Sea-based
X-Band Radar to “limited test support” status to save $500
million a year while keeping the ability to recall it to an
active operational status if needed.

“It’s very expensive to keep and operate, and we thought we
could get adequate data for the testing that we’re doing without
that radar,” Frank Kendall, the Pentagon’s acting chief arms
buyer, said at a Pentagon briefing.

The Defense Department is looking to U.S. partners to help
pick up the slack for regional missile defense caused by its
budget cutbacks.

“There could be other Middle Eastern countries that we hope
will either step up themselves or we will have to slow down some
of our actions to improve their missile defenses,” Hale said.

The president’s spending plan calls for a Pentagon base budget of $525.4 billion, about $5.1 billion less than approved in 2012. The cost of U.S. wars abroad would fall 23 percent, to $88.5 billion from $115 billion, primarily due to the U.S. withdrawal from Iraq and a drawdown in Afghanistan.

The budget begins to add flesh to the bones of the Pentagon’s new defense strategy, which puts greater focus on the Asia-Pacific and the Middle East. The Pentagon plans to spend at least $2.8 billion on arms needed as part of that shift, including $300 million toward a new long-range bomber.

“This budget plan represents a historic shift to the future, recognizing that we are at a strategic point after a decade of war,” Defense Secretary Leon Panetta said in a statement. “The plan is aligned to strategic priorities we have identified to keep America safe and maintain the strongest military in the world.”

The requested cut in defense spending follows a decade of growing Pentagon budgets, driven by U.S. wars abroad and rising personnel costs. With the country facing ongoing budget deficits and a ballooning $15 trillion national debt, Congress and the president agreed in August to cut projected defense spending by $487 billion over the next decade.

The defense budget slashes personnel costs by $6.7 billion as the military begins to cut its overall force size by about 100,000 troops over five years. The Army is to take the bulk of the reductions – about 72,000 soldiers.

CUTTING FORCES, AND BUREAUCRACY

The Army is expected to shrink by eight combat brigade teams; the Marines are to eliminate six battalions and four tactical air squadrons; the Air Force is to cut six tactical air squadrons and the Navy to retire seven of its older cruisers.

The Pentagon said force structure cuts would save about $50 billion over five years.

Cutting the Pentagon bureaucracy would save about $60 billion over the same period.

The budget for the 2013 fiscal year, which begins on October 1, slashes spending to develop and buy new weapons systems to $178.8 billion, a drop of 7.5 percent.

It requests $9.17 billion for the Pentagon’s biggest weapons program, Lockheed Martin’s F-35 Joint Strike Fighter, down slightly from $9.25 billion requested in fiscal 2012. But it restructures the program to slow procurement, reducing spending by $15.1 billion over five years.

The budget also would delay development of the Army’s ground combat vehicle, saving $1.3 billion over five years, and reduce the Navy’s shipbuilding program, for savings of $13.1 billion.

The spending plan terminates one version of the Global Hawk unmanned surveillance drone, a defense weather satellite system and the C-27A transport plane for total savings of $9.6 billion over five years.

The budget would maintain basic pay raises for military personnel through 2014 but begin to slow them thereafter. It also proposes new or increased fees on healthcare for military retirees. Proposed spending on military pay and benefits would drop by $29 billion over five years, Pentagon documents show.

The budget also asks Congress to begin two new rounds of base closures, one in 2013 and one in 2015, a proposal that has already drawn sharp criticism from lawmakers whose districts would be hurt.

(Additional reporting by Andrea Shalal-Esa; Editing by Mohammad Zargham)

The State Department last month quietly warned the company, Thales Alenia Space, that export licenses needed by its U.S. suppliers might be denied, absent greater cooperation in an

investigation of the matter, a department email obtained by Reuters showed.

License refusals could crimp the 2 billion euros ($2.65 billion) in worldwide civil and military sales that the company, known as TAS, posted in 2010.

They also could force a costly product-line revamp and strain U.S. ties with France.

The threat escalates the United States’ multi-year push for details on the design and components of a watershed telecommunications satellite that TAS has labeled as free of U.S. parts and therefore exempt from U.S. export controls.

The State Department holds that the satellite is not free of license-requiring U.S. parts, and that TAS illegally exported it to China, according to a department summary of actions in the case provided to two congressional committees.

The issue is especially sensitive because U.S. intelligence officials have accused Beijing of wide-ranging covert efforts to steal U.S. technology secrets for economic and military advantage over the United States.

Washington bars satellites containing U.S. parts and U.S. design know-how from launch by China as part of sanctions imposed after the 1989 crushing of the pro-democracy movement at Beijing’s Tiananmen Square.

Such U.S. technology is subject to so-called International Traffic in Arms Regulations, or ITAR, a set of State Department-enforced rules governing arms trade.

TAS describes its Spacebus 4000C2 as the West’s first commercial communications satellite without so much as a U.S. bolt, screw or piece of insulation subject to U.S. control. The company said it has sold eight such “unrestricted” satellites to international customers, five of them already launched by China with the other three to follow.

LICENSE DENIALS

The U.S. warning of possible export-license denials was contained in a January 24 letter to TAS, a joint venture of France’s Thales Group, which owns 67 percent, and Italy’s Finmeccanica SpA Group, 33 percent.

The letter acknowledged TAS’s position that a French “blocking” law limits the company’s ability to cooperate with U.S. investigators.

The law bars data release that could undercut French sovereignty or be used in administrative or judicial proceedings abroad.

But the letter, as described by State Department officials in an emailed memo to U.S. congressional staff, urged TAS to reconsider its stance and hand over more data on the makeup of the satellite billed as exempt from U.S. licensing requirements.

Failure to provide the information within 30 days “would lead to consideration of license denials,” said the memo obtained by Reuters. It said the department had sought the data over the past two years.

This opens the way for possible blanket denials that could be “a big blow” to the Thales Group and to its U.S. suppliers, said George Grammas, who leads the international trade and export controls practice at Squire Sanders, a law firm. Grammas has served on an industry panel that advises the State Department on defense trade issues.

The Thales Group, headquartered in Neuilly-sur-Seine, generates close to 80 percent of its sales outside France, with operations in 50 countries, according to information on its website.

Export denials to a rival could be a boost to U.S. manufacturers such as Lockheed Martin, Boeing, Orbital Sciences and Space Systems/Loral, a unit of Loral Space & Communications , that have lost as much as half their global satellite market share in recent years

The U.S. share of global satellite exports has dropped from about 75 percent in 1995 to between 35 percent and 50 percent in the past seven years, according to Patricia Cooper, president of the Satellite Industry Association, a U.S.-based trade group.

ITAR-FREE

Edgar Buckley, a Thales Group senior vice president and former NATO assistant secretary-general, said in an emailed statement to Reuters this week that TAS is trying to help the State Department “to resolve any outstanding concerns it may have.”

A French Embassy spokesman in Washington, Luis Vassy, said the embassy had been involved both to “explain the regulations in place in France with regard to the protection of sensitive items and technologies, and to detail the steps taken to make sure no restricted item or technology imported is unduly exported to a third party.”

“To our knowledge, no violation by TAS has been observed on ITAR components,” he said by email.

The new U.S. squeeze on TAS followed a December 20 letter to Secretary of State Hillary Clinton from Ileana Ros-Lehtinen, chairwoman of the U.S. House of Representatives’ Foreign Affairs Committee, and two fellow senior Republican lawmakers.

“We are concerned that the department is not moving aggressively enough to punish violations of” ITAR, the letter said.

The State Department is continuing to look into U.S. exports to TAS to determine whether the company improperly bundled U.S.-controlled technology into the satellites marketed as “ITAR free,” a department official said.

Department officials have been meeting with TAS and “continue gathering information with an eye toward resolution of this matter,” the official said.

(Reporting By Jim Wolf; Editing by Maureen Bavdek)

The State Department last month quietly warned the
company, Thales Alenia Space, that export licenses needed by its
U.S. suppliers might be denied, absent greater cooperation in an
investigation of the matter, a department email obtained by
Reuters showed.

License refusals could crimp the 2 billion euros

($2.65 billion) in worldwide civil and military sales that the
company, known as TAS, posted in 2010.

They also could force a costly product-line revamp and
strain U.S. ties with France.

The threat escalates the United States’ multi-year push for
details on the design and components of a watershed
telecommunications satellite that TAS has labeled as free of
U.S. parts and therefore exempt from U.S. export controls.

The State Department holds that the satellite is not free of
license-requiring U.S. parts, and that TAS illegally exported it
to China, according to a department summary of actions in the
case provided to two congressional committees.

The issue is especially sensitive because U.S. intelligence
officials have accused Beijing of wide-ranging covert efforts to
steal U.S. technology secrets for economic and military
advantage over the United States.

Washington bars satellites containing U.S. parts and U.S.
design know-how from launch by China as part of sanctions
imposed after the 1989 crushing of the pro-democracy movement at
Beijing’s Tiananmen Square.

Such U.S. technology is subject to so-called International
Traffic in Arms Regulations, or ITAR, a set of State
Department-enforced rules governing arms trade.

TAS describes its Spacebus 4000C2 as the West’s first
commercial communications satellite without so much as a U.S.
bolt, screw or piece of insulation subject to U.S. control. The
company said it has sold eight such “unrestricted” satellites to
international customers, five of them already launched by China
with the other three to follow.

LICENSE DENIALS

The U.S. warning of possible export-license denials was
contained in a Jan. 24 letter to TAS, a joint venture of
France’s Thales Group (TCFP.PA: Quote, Profile, Research), which owns 67 percent, and
Italy’s Finmeccanica SpA Group (SIFI.MI: Quote, Profile, Research), 33 percent.

The letter acknowledged TAS’s position that a French
“blocking” law limits the company’s ability to cooperate with
U.S. investigators.

The law bars data release that could undercut French
sovereignty or be used in administrative or judicial proceedings
abroad.

But the letter, as described by State Department officials
in an emailed memo to U.S. congressional staff, urged TAS to
reconsider its stance and hand over more data on the makeup of
the satellite billed as exempt from U.S. licensing requirements.

Failure to provide the information within 30 days “would
lead to consideration of license denials,” said the memo
obtained by Reuters. It said the department had sought the data
over the past two years.

This opens the way for possible blanket denials that could
be “a big blow” to the Thales Group and to its U.S. suppliers,
said George Grammas, who leads the international trade and
export controls practice at Squire Sanders, a law firm. Grammas
has served on an industry panel that advises the State
Department on defense trade issues.

The Thales Group, headquartered in Neuilly-sur-Seine,
generates close to 80 percent of its sales outside France, with
operations in 50 countries, according to information on its
website.

Export denials to a rival could be a boost to U.S.
manufacturers such as Lockheed Martin (LMT.N: Quote, Profile, Research), Boeing (BA.N: Quote, Profile, Research),
Orbital Sciences (ORB.N: Quote, Profile, Research) and Space Systems/Loral, a unit of
Loral Space & Communications (LORL.O: Quote, Profile, Research) , that have lost as much
as half their global satellite market share in recent years

The U.S. share of global satellite exports has dropped from
about 75 percent in 1995 to between 35 percent and 50 percent in
the past seven years, according to Patricia Cooper, president of
the Satellite Industry Association, a U.S.-based trade group.

ITAR-FREE

Edgar Buckley, a Thales Group senior vice president and
former NATO assistant secretary-general, said in an emailed
statement to Reuters this week that TAS is trying to help the
State Department “to resolve any outstanding concerns it may
have.”

A French Embassy spokesman in Washington, Luis Vassy, said
the embassy had been involved both to “explain the regulations
in place in France with regard to the protection of sensitive
items and technologies, and to detail the steps taken to make
sure no restricted item or technology imported is unduly
exported to a third party.”

“To our knowledge, no violation by TAS has been observed on
ITAR components,” he said by email.

The new U.S. squeeze on TAS followed a Dec. 20 letter to
Secretary of State Hillary Clinton from Ileana Ros-Lehtinen,
chairwoman of the U.S. House of Representatives’ Foreign Affairs
Committee, and two fellow senior Republican lawmakers.

“We are concerned that the department is not moving
aggressively enough to punish violations of” ITAR, the letter
said.

The State Department is continuing to look into U.S. exports
to TAS to determine whether the company improperly bundled
U.S.-controlled technology into the satellites marketed as “ITAR
free,” a department official said.

Department officials have been meeting with TAS and
“continue gathering information with an eye toward resolution of
this matter,” the official said.

(Reporting By Jim Wolf; Editing by Maureen Bavdek)

((jim.wolf@thomsonreuters.com)(+1 202 898 8402))
Keywords: USA FRANCE CHINA/SATELLITE

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The work, running into the 2020s, will extend the service life of select F-16 airframes. Other upgrades include advanced radar, sensors, cockpit display, electronic warfare and communications capabilities, the service said.

“We have worked through the implications of the delays in the F-35 Joint Strike Fighter program,” Air Force Secretary Michael Donley told the Air Force Association earlier in the day. “And we have made a further commitment this year to modernize about 350 F-16s in the fleet going forward.”

Ann Stefanek, an Air Force spokeswoman, said the upgraded F-16s would receive active, electronically scanned array (AESA) radar. Northrop Grumman Corp and Raytheon Co build rival systems and are likely to compete for the work.

“Overall, the program will run into the 2020s and have an estimated total cost of $2.8 billion,” Stefanek said in an emailed reply to queries from Reuters about Donley’s remarks.

The Air Force will pick the “best of the fleet” to undergo the modernization for later-model Block 50 and some Block 40 F-16s, Stefanek said. The program is “scalable” based on the service’s fighter needs, she added.

The Air Force has just over 1,000 F-16s in its current inventory, of which about 640 are Block 40/50s, distributed among active, Guard and Reserve components. None has yet undergone the structural “service life extension program” or capability upgrades now planned, the service said.

Lockheed Martin Corp builds both the F-16 and three versions of the radar-evading F-35, which is in low-rate initial production in a program co-financed by the United States and eight partner nations.

More than 4,450 F-16s have been delivered to 26 nations since the program started more than 30 years ago, including 54 follow-on buys by 15 customers, according to Lockheed, the Pentagon’s No. 1 supplier by sales.

The U.S. F-16 modernization could point the way for modernization of many such F-16 fleets worldwide.

The U.S. Defense Department, in its third F-35 program restructuring in as many years, is set to trim 179 Joint Strike Fighter planes from production between 2013 and 2017. This would pare the number built for the U.S. military to 244 from 423 during this time.

The F-35 slowdown will help satisfy a congressional mandate to cut $479 billion from the Pentagon’s budget over 10 years as part of a U.S. deficit-reduction push.

The service will focus on “common configurations” for its key aircraft to maximize operational flexibility and minimize sustainment costs, Donley told the Air Force Association audience.

Bill McHenry, director of business development for Lockheed Martin’s F-16 program, said Block 40 and Block 50 models were originally projected to have 8,000 hours of service life, depending on loads carried and other factors.

But they were exceeding original expectations and may be capable of as much as 12,000 hours of service, for instance with new bulkheads and other structural changes typically costing less than $1 million per plane, he said in a telephone interview.

The United States is about to pit Raytheon Co against Northrop Grumman to supply the AESA radar for a potential $5.3 billion retrofit of Taiwan’s 145 F-16A/B Block 20 aircraft. The Taiwan deal also includes 128 Joint Helmet Mounted Cueing systems, upgraded electronic countermeasure pods plus a range of munitions, parts and logistical support.

McHenry said the Taiwan upgrade could benefit the United States and other F-16 customers to the extent it would shed light on common integration issues.

“Clearly, whatever integration is done would be able to be applied elsewhere,” he said. One of the key objectives among F-16 users is to prepare to be “interoperable” with the F-35, for instance with increased computer processing power, seamless communications and greater sensor capability, McHenry said.

(Reporting By Jim Wolf; Editing by Dave Zimmerman and Steve Orlofsky)

The funding request, which includes painful cuts that will
be felt across the country, comes at a historic turning point
for the military as it winds down 10 years of war in Afghanistan
and Iraq and shifts its strategic focus to the Asia-Pacific
region and the Middle East.

The budget plan, sharply criticized by some lawmakers, sets
the stage for a new struggle between President Barack Obama’s
administration and Congress over how much the Pentagon should
spend on national security as the country tries to curb its
trillion-dollar budget deficits.

“Make no mistake, the savings that we are proposing will
impact all 50 states and many districts, congressional districts
across America,” Defense Secretary Leon Panetta told a news
conference at the Pentagon on Thursday.

“This will be a test of whether reducing the deficit is
about talk or action.”

Panetta, previewing a budget to be made public Feb. 13, said
he would ask for a $525 billion base budget for the 2013 fiscal
year, the first time since before the Sept. 11, 2001, attacks
that the Pentagon has asked for less than the previous year.
That compares with $531 billion approved this year.

Panetta said he would seek $88.4 billion to support overseas
combat operations, primarily in Afghanistan, down from $115
billion in 2012 largely due to the end of the war in Iraq and
the withdrawal of U.S. forces there at the end of last year.

Congress ultimately controls the Pentagon’s purse strings
and regularly intervenes to change the size and detail of
military spending as it sees fit. The Defense Department’s
budget accounts for about 20 percent of total federal spending.

Republican lawmakers who oversee military affairs on Capitol
Hill sharply criticized the plan.

Senator John McCain said it “ignored the lessons of history”
by imposing massive cuts on the military, and Representative
Buck McKeon said it reflected “Obama’s vision of an America that
is weakened, not strengthened, by our men and women in uniform.”

MORE CUTS TO COME?

The 2013 budget is Panetta’s first as defense secretary and
is the first to take into account the Budget Control Act passed
by Congress in August that requires the Pentagon to cut $487
billion in projected spending over the next decade.

The budget plan does not take into account an additional
$600 billion in defense cuts that could be required after
Congress failed to pass a compromise agreement to cut government
spending by $1.2 trillion. The Pentagon could face cuts of
another $50 billion a year, starting in 2013, unless Congress
changes the law.

Panetta said he hoped once lawmakers understood the
sacrifice involved in reducing the defense budget by almost a
half a trillion dollars, they would make sure to avoid another
$500 billion in additional cuts that would “inflict severe
damage to our national defense for generations.”

The budget begins to flesh out a new military strategy
announced by the Pentagon earlier this month that calls for a
shift in focus from the ground wars of the past decade towards
efforts to preserve stability in the Asia-Pacific region and the
Middle East.

“To ensure an agile and ready force, we made a conscious
choice not to maintain more force structure than we could afford
to properly train and equip,” Panetta said.

The budget plan would provide new challenges for the
Pentagon’s top suppliers, such as Lockheed Martin (LMT.N: Quote, Profile, Research),
Boeing (BA.N: Quote, Profile, Research), General Dynamics (GD.N: Quote, Profile, Research), Northrop Grumman (NOC.N: Quote, Profile, Research)
and Raytheon (RTN.N: Quote, Profile, Research). The Arca index of defense stocks
closed Thursday down 0.7 percent.[ID:nL4E8CQ5FI]

The plan retains but slows the purchase of weapons like
Lockheed’s F-35 Joint Strike Fighter, the Pentagon’s largest
procurement program, as well as submarines, amphibious assault
ships and other vessels. It would retain a fleet of 11 aircraft
carriers. [ID:nL2E8CQHK2]

The Pentagon would boost its emphasis on special operations
forces like those who carried out the raid in Pakistan that
killed al Qaeda leader Osama bin Laden last year and rescued two
aid workers this week from kidnappers in Somalia.
[ID:nL5E8CP09M]

It would also increase its emphasis on cyber operations,
expand its work on drone aircraft, go ahead with a long-range
bomber and proceed with other weapons that would allow it to
project power from a greater distance.

Those capabilities are needed as countries like Iran and
China develop arms that could threaten U.S. aircraft carriers in
international waters near their shores.

General Martin Dempsey, the top U.S. military officer as
chairman of the Joint Chiefs of Staff, warned against “parsing
through each cut, each change, to look for a winner or loser,”
saying the plan should be judged for how it adapts the military
to a changing security environment.

While the cuts announced on Thursday would affect all major
defense contractors, consultant Loren Thompson said shipbuilders
would be hit particularly hard because of the plan to cut 16
vessels from the total planned for the next five years.

The plans could affect work flow at Huntington Ingalls’
(HII.N: Quote, Profile, Research) shipyards in Pascagoula, Mississippi, and Newport News,
Virginia.

The size of the active-duty Army would be trimmed to 490,000
over five years from its wartime peak of 570,000 in 2010 and the
size of the Marine Corps would fall to 182,000 from its high of
about 202,000.

Military pay increases would begin to slow after two more
years of growth, and fees would be increased on healthcare
benefits for military retirees, those who served more than 20
years, both above and below the age of 65.

In addition, the Pentagon would:

– Delay development of a new ballistic missile submarine by
two years.

– Eliminate six of the Air Force’s tactical-air fighter
squadrons and retire or divest 130 aircraft used for moving
troops and equipment.

– Retire seven Navy cruisers and two smaller amphibious
ships early, postpone the purchase of a big-deck amphibious ship
by one year and postpone the planned purchase of a number of
other vessels for several years.

– Eliminate two Army heavy brigades stationed in Europe and
compensate by rotating U.S. based units into the region for
training and exercises.

– Study the possibility of further reducing the size of U.S.
nuclear arsenal.

– Begin a new round of talks on closing bases made
unnecessary by the smaller force.

(Additional reporting by Phil Stewart and Andrea Shalal-Esa;
Editing by Tim Dobbyn)

((David.Alexander@thomsonreuters.com))
Keywords: USA DEFENSE/BUDGET

(C) Reuters 2011 All rights reserved. Republication or redistribution of
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and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

The funding request, which includes painful cuts for many states, sets the stage for a new struggle between President Barack Obama’s administration and Congress over how much the Pentagon should spend on national security as the country tries to curb trillion-dollar budget deficits.

“Make no mistake, the savings we are proposing will impact all 50 states and many districts across America,” Defense Secretary Leon Panetta told a news conference at the Pentagon. “This will be a test of whether reducing the deficit is about talk or action.”

Panetta, previewing plans that will be formally announced next month, said he would ask for a $525 billion base budget for the 2013 fiscal year, the first time since September 11, 2001, that the Pentagon has asked for less than the previous year.

Panetta said he would seek $88.4 billion to support combat operations in Afghanistan, down from $115 billion in 2012 largely due to the end of the war in Iraq and the withdrawal of U.S. forces there at the end of last year.

The budget begins to flesh out a new military strategy announced by the Pentagon earlier this month that calls for a shift in focus from the ground wars of the past decade towards efforts to preserve stability in the Asia-Pacific region and the Middle East.

It would delay the purchases of weapons like Lockheed Martin’s F-35 Joint Strike Fighter, the Pentagon’s largest procurement program, as well as submarines, amphibious assault ships and other vessels.

The Pentagon would increase its emphasis on drone aircraft and would go ahead with a long-range bomber and proceed with other weapons that would allow it to project power from a longer range, a capability needed in the Asia-Pacific and Middle East.

The size of the active-duty Army would be trimmed to 490,000 over five years from its wartime peak of 570,000 in 2010 and the size of the Marine Corps would fall to 182,000 from its high of about 202,000.

Military pay increases would begin to slow after two more years of growth, and fees would be increased on healthcare benefits for military retirees, those who served more than 20 years, both above and below the age of 65.

In addition, the Pentagon would:

- Delay development of a new ballistic missile submarine by two years;

- Eliminate six of the Air Force’s tactical-air fighter squadrons and retire or divest 130 aircraft used for moving troops and equipment;

- Retire seven Navy cruisers and two smaller amphibious ships early, postpone the purchase of a big-deck amphibious ship by one year and postpone the planned purchase of a number of other vessels for several years;

- Eliminate two Army heavy brigades stationed in Europe and compensate by rotating U.S. based units into the region for training and exercises.

(Additional reporting by Phil Stewart and Andrea Shalal-Esa; Editing by Tim Dobbyn)

(MDA) has made,” she added.

MDA is the Pentagon arm building a layered shield against
ballistic missiles that could be fired by countries like North
Korea and Iran. It said Dec. 30 that it was retaining Boeing as
prime contractor for the system’s hub with a $3.48 billion,
seven-year contract to develop, test, engineer and build out.

A team led by Lockheed and Raytheon Co (RTN.N: Quote, Profile, Research) had vied
against Boeing, the Pentagon’s No. 2 contractor, and partner
Northrop Grumman Corp (NOC.N: Quote, Profile, Research) for the work.
Lockheed receive an MDA debriefing on the loss on Jan. 11,
Fisher told Reuters. The company then had up to 10 days to
launch a formal challenge through the Government Accountability
Office, a non-partisan U.S. congressional arm.
Fisher declined to elaborate on why Lockheed was foregoing a
bid protest, a frequent fall-back for companies that lose
competitions for federal purchases of goods and services.

The contract value to Boeing of the Ground-based Midcourse
Defense, or GMD, has been about $18 billion from January 2001,
when it formally became the system’s prime contractor, through
the end of December, Boeing has said.
GMD uses radar and other sensors plus a 20,000-mile fiber
optic communications network to cue interceptor missiles in
silos at Fort Greely, Alaska and Vandenberg Air Force Base,
California.
The shield has been shaped initially to guard against
ballistic missiles that could be fired by Iran and North Korea.
It is the only U.S. defense against long-range missiles that
could be tipped with chemical, biological or nuclear warheads.

(Reporting By Jim Wolf; Editing by Tim Dobbyn)

((jim.wolf@thomsonreuters.com)(+1 202 898 8402))
Keywords: LOCKHEED MISSILEDEFENSE/USA

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Beneficiaries include Lockheed Martin Corp and Boeing Co, whose respective F-16 and F-15 production lines are being extended by U.S. government sales to Iraq, Saudi Arabia and Oman, among other rich arms deals announced in recent weeks.

The foreign sales will help offset expected cuts in big-ticket purchases by the Defense Department, which is set to lose at least $450 billion in previously projected funding through 2021 as part of a deficit-reduction push. Additional cuts totaling another $500 billion to $600 billion over the same period are scheduled to kick in next year unless a new deficit-reduction plan is adopted by Congress.

The sales of fighters, missiles and other advanced U.S. weapons will help provide jobs as the United States heads into an election campaign expected to focus on the domestic economy. It has been growing at only half the pace needed to get the jobless rate down from 8.6 percent, a problem for Obama as the incumbent.

The Obama administration announced last week it had finalized a record $29.4 billion Boeing F-15 sale to Saudi Arabia, dwarfing previous individual U.S. arms deals and supporting jobs by increasing exports.

Deliveries of 84 of the most advanced F-15 fighters are expected to start in 2015 with upgrades to 70 others expected to start in 2014, the administration said. Congress had cleared the sale in the fall of 2010, setting the stage for the freshly completed negotiations on the government-to-government contract.

Josh Earnest, a White House spokesman, portrayed the deal as shoring up Saudi air defenses in a region rattled by Iran’s disputed nuclear program as well as supporting more than 50,000 U.S. jobs at a time of high unemployment.

The deal was signed December 24 and unveiled by the White House on Thursday in Hawaii, where Obama has been vacationing.

The program involves roughly 600 suppliers in 44 of the 50 U.S. states and give the economy a $3.5 billion annual boost, Assistant Secretary of State for Political-Military Affairs Andrew Shapiro told reporters at a State Department briefing.

“This will support jobs not only in the aerospace sector but also in our manufacturing base and support chain, which are all crucial for sustaining our national defense,” he said.

The deal is worth about three times more than any other single U.S. arms sale to date, according to a March 10 report on U.S.-Saudi ties by Christopher Blanchard of the nonpartisan Congressional Research Service.

It will extend Boeing’s F-15 production line about five years to late in this decade, Dennis Muilenburg, head of the company’s military, space and security business, said in a telephone interview with Reuters.

“Having that hot production line gives us the base to invest in technology advancements for that platform going forward, he said. “Obviously, that creates a lot of momentum for us on our international growth.”

F-16 NEW ORDERS

Workers on the F-16 fighter production line at Lockheed Martin’s Fort Worth, Texas plant also have received good news for their job prospects. The Defense Department awarded Lockheed a $600 million contract on December 14 to build 12 late-model F-16s for Oman, the second firm order in two weeks.

Lockheed received an $835 million Pentagon contract on December 5 to build 18 F-16C/Ds for Iraq. Only months earlier, the company, the Pentagon’s No. 1 supplier by sales, had warned it would have to start shutting down its supplier base by year end absent new F-16 orders.

On top of the contracts for Iraq and Oman, the Obama administration told the U.S. Congress on December 12 that it was proposing to sell Iraq another 18 F-16s, advanced munitions and related gear for an estimated $2.3 billion. Analysts have questioned whether adding U.S. arms into Iraq could heighten growing sectarian tensions there since the U.S. completed its troop withdrawal last month.

Fighter jets are not the only pricy arms deals, long in the works, to have been brought to a conclusion by the Obama administration as the president prepares to swing more into campaign mode. On Friday, the Defense Department said the United States had reached a $3.5 billion agreement to supply an advanced antimissile interception system to United Arab Emirates.

The U.S. Congress had been notified of the proposed sale of the Lockheed Martin system – known as Theater High Altitude Area Defense — in September 2008 by former President George W. Bush’s administration.

TAIWAN F-16 NO GO

Lockheed and its supporters had sought to play on the election calculus in pushing to meet Taiwan’s request, over China’s objections, for 66 new F-16C/Ds valued at more than $8 billion.

Pushing the sale in October, Rupert Hammond-Chambers, president of the U.S. Taiwan Business Council, a trade group that includes Lockheed, wrote that F-16 associated jobs “could have an important positive impact on local communities around the country – particularly in California, Connecticut, Florida, Maryland, Ohio, Texas and Utah,” possible electoral swing states.

But the Obama administration, apparently in an effort to placate Beijing, has been unwilling to meet that request. Instead, the president offered a $5.3 billion upgrade of Taiwan’s 145 existing F-16A/Bs.

F-16s played a role in a previous U.S. election. George H.W. Bush announced during the 1992 presidential campaign that he would sell Taiwan 150 of the A/B models. He signaled an intent to do so during a campaign rally at the General Dynamics Corp plant then producing them in Texas where jobs had been in danger.

(Reporting By Jim Wolf, editing by Leslie Gevirtz)