Budget deal leaves U.S. defense sector in limbo

Wed Jan 2, 2013 6:02pm EST
 

By Jim Wolf and David Alexander

WASHINGTON (Reuters) - Pentagon officials and weapons makers on Wednesday expressed relief after Congress approved a two-month delay in huge budget cuts, but warned that a longer-term fiscal solution is urgently needed to lift the uncertainty hanging over the sector.

"Congress has prevented the worst possible outcome by delaying sequestration for two months. Unfortunately, the cloud of sequestration remains," Defense Secretary Leon Panetta said in a statement. "Congress cannot continue to just kick the can down the road."

Votes by Congress on New Year's Day delayed automatic budget cuts known as "sequestration" until March 27, when lawmakers must vote to increase the U.S. debt ceiling.

The 157-page deal reached on Tuesday to avert the "fiscal cliff" delayed $109 billion in U.S. spending cuts - including $54.7 billion due to come out of military spending, but left many larger issues unresolved.

Defense shares were lifted by a rally in the overall market as investors breathed a sigh of relief about the last-minute deal, but some companies' shares lagged the broad market due to continued uncertainty about future military spending.

"Merely delaying sequestration by a couple of months will do little to resolve the uncertainty and chaos surrounding the defense budget," said Todd Harrison, an analyst at the private Center for Strategic and Budgetary Assessments.

Lockheed Martin Corp (LMT.N: Quote), the Pentagon's biggest supplier, said it hoped the agreement would help eliminate the need for automatic across-the-board cuts it said would harm government programs and national security.

Until then, "there will be an overhang on our industry that stifles investment in plant, equipment, people, and future research and development essential to the future health of our industry," said Jennifer Whitlow, spokeswoman for the maker of F-35 fighter jets and Aegis missile defense systems.   Continued...

 
A F-35 Lightning II Joint Strike Fighter is seen at the Naval Air Station (NAS) Patuxent River, Maryland January 20, 2012. REUTERS/Yuri Gripas