Hagel Says Budget Cutbacks Offer Chance to Pare Weapons | Bloomberg

By Gopal Ratnam

Defense Secretary Chuck Hagel said the Pentagon must use defense budget cuts as an opportunity to excise waste, reexamine weapons systems and reorganize 30-year- old command structures.

Hagel, who already has ordered a review of strategic choices facing the Defense Department, said today in his first major policy speech as secretary that the exercise can’t be limited to “just tweaking or chipping away at existing structures and practices, but where necessary fashioning entirely new ones.”

The strategic review being conducted by Deputy Defense Secretary Ashton Carter and Army General Martin Dempsey, the chairman of the Joint Chiefs of Staff, is due May 31. It must “challenge all past assumptions, and we need to put everything on the table,” Hagel said, according to prepared remarks for the address at the National Defense University in Washington.

A defense official has described Hagel’s directive to Carter and Dempsey as a hunting license to comb through the Pentagon budget from top-to-bottom in the face of spending constraints, such as the across-the-board cuts called sequestration, and in light of the latest threats.

Among defense programs likely to get fresh scrutiny are the number and mix of Lockheed Martin Corp. (LMT) F-35s the services will require, the number of aircraft carrier battle groups the Navy needs and whether cruise missiles make unnecessary a new penetrating long-range bomber for the Air Force, according to the official, who asked not to be identified discussing Hagel’s thinking.

Doing so would mean that the former enlisted veteran of the Vietnam War would have to take on the Pentagon brass, the defense contractors with lobbying clout and congressional supporters of weapons programs. Hagel won Senate confirmation on a 58-41 vote on Feb. 26 after a prolonged fight.

‘Defining’ Challenge

While the U.S. military emerges from a decade of wars in Iraq and Afghanistan, it continues to face threats from extremists in the Middle East and North Africa, weapons proliferation and cyberattacks that “barely registered as a threat a decade ago,” Hagel said. Risks from computer attacks have “grown into a defining security challenge,” he said.

Striking a different tone than his predecessor Leon Panetta, who referred to sequestration as a “doomsday” scenario, Hagel said today that while cuts of as much as $1 trillion in planned spending over the next decade present “challenges and uncertainties,” the Pentagon also must “recognize the opportunities inherent in budget constraints.”

Taking aim at the Pentagon bureaucracy, Hagel said that “despite good efforts and intentions, it is still not clear that every option has been exercised or considered to pare back the world’s largest back office.”

Corporate Lessons

Although the Pentagon can’t be run like a corporation, the department should learn from business practices over the last three decades in which “reducing layers of upper and middle management not only reduces costs and micromanagement, it also leads to more agile and effective organizations and more empowered junior leaders,” Hagel said.

Hagel isn’t the first defense secretary who vowed to go after the bureaucracy. Defense Secretary Donald Rumsfeld warned on September 10, 2001, in a Pentagon Town Hall meeting against “an adversary that poses a threat, a serious threat, to the security of the United States” that “stifles free thought and crushes new ideas” and places “the lives of men and women in uniform at risk.” The threat he identified was “the Pentagon bureaucracy.”

Rumsfeld’s push for an overhaul was set aside after the terrorist attacks the next day and the surge in defense spending that followed.

‘Vastly More Expensive’

Pentagon acquisition programs, which consume about one- third of defense spending, remain bloated even after reforms have culled many weapons, Hagel said.

“Despite pruning many major procurement programs over the past four years, the military’s modernization strategy still depends on systems that are vastly more expensive and technologically risky than what was promised or budgeted for,” Hagel said.

Any effort to rein in weapons costs could add to the difficulties facing defense contractors in a time of declining federal spending. Pentagon spending on contracts fell 3.1 percent in fiscal 2012 to $360.8 billion, from $372.2 billion the prior year, according to data compiled by Bloomberg.

Lockheed is the biggest Pentagon contractor, with $30 billion in defense work last year. It was followed by Boeing Co. (BA) with $28.7 billion in contracts and General Dynamics Corp. (GD) with $13.9 billion.

‘Lean’ Years

Challenging a belief that reduced defense spending leads to poor military preparedness, Hagel offered examples of new technology developed in times of declining budgets.

In the “lean interwar years between World War I and World War II during the Great Depression, a group of far-sighted officers — with virtually no-funding or prospect of promotion – – conceived important new platforms” in armored warfare, amphibious assault, aircraft carriers and long-range bombers, he said.

Again during the so-called procurement holiday of the 1990s, when defense spending fell, the military invested and developed satellite guidance systems, and remotely piloted aircraft “that have been game changers during the last decade of war,” Hagel said.

Hagel also called for reforming the military command structure, which was last reorganized in 1986 under the Goldwater-Nichols Act.

The law strengthened the “Joint Chiefs and the Combatant Commands, but it went about doing this by layering joint organizations and processes atop service organizations and processes,” Hagel said.

While the operational forces of the military have been steadily shrinking since the end of the Cold War, “three- and four-star command and support structures sitting atop these smaller fighting forces” have been “actually increasing in size and rank,” he said.

via Hagel Says Budget Cutbacks Offer Chance to Pare Weapons | Bloomberg.