Thursday, November 18, 2004

Getting the money

The Defense Department's operational and maintenance budget is expected to rise in 2005 to $140.6 billion, a considerable increase over $127.6 billion in 2004. From there, operations and maintenance rises to $163.9 billion in 2009, when the total defense budget will near half a trillion dollars.
While supplemental spending programs have covered Iraq and Afghanistan, concerns linger that this source of funding may peter out.
"What classically gives is the supplementals stop coming and the president ends up funding the war through monies that were earmarked for other things, like procurement," said Jon Kutler, chairman and chief executive of Jefferies Quarterdeck, an investment bank.
That could have implications for the defense industry, which counts on procurement spending and research and development contracts, as much as on the production of spare parts and replacements.
High-technology defense and communications programs often capture the spotlight and therefore the federal dollars, Kutler added, but traditional programs cannot be ignored, either -- particularly when they are seeing heavy use as part of extended operations in the Middle East and Central Asia.
Defense giants like Boeing (BA), Lockheed Martin (LMT) and Northrop Grumman (NOC), are counting billions from big-ticket programs like the F/A-22 Raptor, the F-35 Joint Strike Fighter, Aegis cruisers and the V-22 Osprey.
National missile defense is also a White House priority, drawing $9.2 billion in fiscal-year 2005, one of the biggest outlays of any program.
"Now that the election is over and we go from rhetoric to reality, what is going to happen with all the different conflicting issues?" Kutler asked.
The answers to that question are tied to the U.S. strategy in Iraq, and how big a role there is there for the American military.

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