Monday, April 06, 2009

SECDEF Announces budget for 2010

Wow. Just wow. Secretary Gates has just announced a major remodeling of the entire Defense budget. I live-blogged as best I could on Twitter, but I'm sure I didn't get it all. Transcript is not yet available. Highlights of the Navy stuff, which I'm sure will be explored in much more detail by Galrahn et al.:

  • VH-71: dead. Replacement needed but the requirements need to be fixed.
  • DDG-1000: two ships in Bath, none in Pascagoula. Option for a third.
  • DDG-51: try to restart the line in Pascagoula, if they can get the right contract terms
  • LCS: plus one in 2010 (3 total), build the 55-ship program
  • F-35: accelerate to 30 aircraft in 2010
  • F/A-18: buy 31 in 2010 (I'm not sure if this is an increase)
  • More $$$ for SM-3 production
  • Upgrade six more Aegis ships for BMD
  • Delay 11th LPD-17 to 2011
  • Delay MLP to 2011
  • Delay CG(X) program (and re-scrub the requirements)
  • Drop to 10 carriers by 2040
  • Begin a program for the replacement of the Ohio Class SSBNs
I think the move of DDG-1000 to Bath is probably the most significant decision in the short term. I never understood the concept of splitting production of lead ships between two yards, bearing the pain of first-in-class twice for what would necessarily be a small production run.

The market impacts of these announcements are interesting. A major Lockheed program is completed (F-22), and others are cancelled (VH-71, TSAT), but LMT is up 5.6% as I write. Similar big gains are seen across the defense industry -- GD 2.6%, Raytheon 5.0%, Northrop 5.3%, while the Dow is off 1.5%. Even Boeing, which is less dependent on defense, is flirting with positive territory on the news. I think this is probably a reaction to the reduction in uncertainty that was priced into the markets, rather than to any specific program changes.

Update: The transcript is available here and at the USNI Blog.