Southland May Avoid Brunt of Pentagon Cuts

Pentagon planners are proposing deep cuts in Northrop Grumman Corp.’s multibillion-dollar shipbuilding business as part of a major rollback in defense spending, analysts and government officials said Monday.

But the Century City-based defense contractor could escape a far more devastating blow, because several of its large weapons programs -- many of them based in Southern California -- appear to have been spared, or even enhanced, by the budget planners.

“The proposed budget represents good news for Los Angeles,� said Loren Thompson, a defense policy analyst for the Lexington Institute.

The cuts were outlined in an internal Pentagon document that proposes slashing the military’s budget request by $30 billion over the next six years. The White House, faced with mounting budget deficits and the growing costs of the war in Iraq, has pressed the military services to curtail spending on weapons systems already years in development.

The cutbacks would be the first since the current military buildup -- one of the largest ever -- began four years ago.

The wars in Iraq and Afghanistan are paid for by emergency spending bills and wouldn’t be affected by the Pentagon curbs. The Bush administration soon will present Congress with the war spending bill for 2005, which several sources said could total approximately $100 billion.

Most of the proposed reductions in the Pentagon document are related to big ticket weapons first envisioned during the Cold War, such as radar-evading fighter jets and nuclear submarines, according to Pentagon and defense industry sources.

The cuts sketched out total significantly less than the $60 billion the White House initially contemplated, reflecting pressure from Congress and highlighting the major battle that is likely to be waged on Capitol Hill this spring over the Pentagon’s budget of nearly $500 billion.

According to several sources, the cutbacks would hit Bethesda, Md.-based Lockheed Martin Corp. the hardest. The Pentagon wants to halt purchases of Lockheed’s C-130J cargo planes and slash the number of F/A-22 fighters it buys from the nation’s largest defense contractor to 180 from 277.

The moves, which would save an estimated $15.5 billion over six years, would slam Lockheed’s plant in Marietta, Ga., where the two planes are assembled. In all, Lockheed could lose $18 billion in sales during that period.

Northrop, which employs 27,000 in Southern California, could lose up to $1 billion in annual revenue if Congress approves the shipbuilding cuts. The company is expected to report revenue of about $29 billion for 2004.

Northrop spokesman Randy Belote declined to comment, saying the company hadn’t seen the budget proposal.

The new spending plan suggests buying six next-generation destroyers instead of eight and trimming purchases of nuclear submarines from two a year to one.

The destroyers are under development at Northrop’s Pascagoula, Miss., shipyard and the subs are built at Northrop’s Newport News, Va., facility. The Pentagon plan also would reduce to nine from 12 the purchase of amphibious landing ships, which are built in Pascagoula.

Defense Department planners appear to have saved several large Northrop programs that at one point seemed to be in jeopardy. The Pentagon, according to sources, rejected an Air Force proposal to slash purchases of F-35 fighters by a third to 1,200 from 1,800, and scale back development of a new generation of aircraft carriers.

About 40% of the F-35 is assembled at Northrop’s plant in Palmdale; the carrier is under development in Newport News.

Also on the positive side for Northrop, the Pentagon document says that the budget for the Air Force’s space-based radar system should be boosted by $592 million. The bulk of the work is being performed by Northrop in Redondo Beach.

In addition, under the Pentagon plan, the Navy would get $600 million more to design a top-secret underwater weapon on which Northrop could bid.

Boeing Co., the nation’s second-biggest defense contractor and Southern California’s largest private employer, could be hurt by a decrease in missile defense spending, but the effect would probably be small.

The Pentagon is proposing to cut less than 10% of the annual $10-billion budget to develop a ballistic missile defense system. Boeing is a prime contractor in developing the ground-based system.

Defense stocks have declined sharply in the last week in anticipation of spending cuts. On Monday, Lockheed shares fell $1.34 to $54.21, Northrop slipped 71 cents to $53.65 and Boeing lost 80 cents to $50.97, all in New York Stock Exchange trading.

Analysts cautioned that Congress was unlikely to approve all of the suggested cuts. They pointed out that powerful members of Congress, concerned that the weapons cuts could mean job losses in their home states, may well strive to save endangered programs.

Northrop’s military shipbuilding business, for example, has strong support from powerful senior senators such as John W. Warner (R-Va.), chairman of the Armed Services Committee, and ranking member Trent Lott (R-Miss.). And Sen. Saxby Chambliss (R-Ga.) has vowed to vigorously fight the proposed cuts in the C-130J and F/A-22 programs. Both aircraft are assembled in his home state.

Details of the $30 billion in proposed cuts were first reported Monday by InsideDefense.com, an industry trade publication, and the budget wrangling was first reported last month by The Times.

A Pentagon spokesman declined to provide any details about the proposed cuts, saying only that the military services were examining which of its weapons were best-suited to counter the threats U.S. forces will face in the future.

“The services have been reviewing their budget priorities, given today’s world and the threats we face in the 21st century,� said Pentagon spokesman Eric Ruff. “It’s fair to say we’re looking at programs that were developed several decades ago.�

Steven Kosiak, a budget analyst at the Center for Strategic and Budgetary Assessments, a Washington think tank, said the Pentagon spending plan “should be a bit of a wake-up call for people.�

“I think that the long-term outlook for weapons procurement is less rosy for the next five years than it has been for the past five,� he said.

*

Pae reported from Los Angeles and Mazzetti from Washington.