After months of speculation and leaks, the Obama Administration released the fiscal 2013 department of defense (DoD) budget of $613.9 billion, a 5 percent drop from the 2012 budget.
The base budget also declined about 1 percent to $525.4 billion and the majority of the cuts came from the Overseas Contingency Operation budget, which is projected to decline to $88.5 billion from $115.1 billion.
With the fiscal 2013 budget, the Future Years Defense Plan was updated to include $259 billion in spending reductions required under the Budget Control Act.
Jefferies said the DoD's fiscal 2013 budget and out-years plan seems to have been reasonably well telegraphed and the proposed procurement and research and development request indicates only modest aggregate changes to the top 30 programs, which account for 36 percent of the investment accounts.
"It seems to us that the DoD is eliminating overlapping missions and sharpening program focus, : analyst Howard Rubel wrote in a note to clients.
The systems that work seem to get funding and the systems that are core to the individual service's mission are supported. Where possible, there are cuts to units to reflect a smaller force structure, but the downward slope is modest, as opposed to a drastic slash. This should help industry manage its manufacturing base.
In most cases, defense contractors were on both sides, with some positives and some negatives.Many of the cuts, delays, and terminations were opportunistic, with lower quantities needed due to declining outyear troop levels.. Of the $45 billion in savings in 2013, about $24 billion or 53 percent of cuts came from the Investment Accounts, Rubel said.
Lockheed Martin's (NYSE:LMT) F-35 contributed to a large proportion of the cuts. In fiscal 2013, Navy and Air Force F-35 savings totals $1.6 billion and and $15.1 billion through fiscal 2017. The lower funding cut the F-35 volumes by 13 and 179 aircraft, respectively over these time periods.
For General Dynamics (NYSE:GD), the budget is mixed. On the positive, the Warfighter Information Network-Tactical (Win-T) program was well supported with funding of $1.23 billion, up from $1.06 billion last year. However, Abrams remains an uncertainty. The proposed funding of $74 million is down from $453.1 million last year as the Army believes that it will be cheaper to shutdown the line in fiscal 2014 for three years, as opposed to providing minimal funding. GD makes M1A1/2 Abrams main battle tank.
The recent budget proposes the cancellation of Northrop Grumman's (NYSE:NOC) Global Hawk 30 drone. However, it supports other programs. The Navy plans to cancel the Medium-Range Maritime Unmanned Aerial System competition. In addition, the budget funds about $200 million for 3 NATO Alliance Ground Surveillance Systems, which are based on the Global Hawk block 40.
Jefferies said a number of Boeing (NYSE:BA) programs were restructured or spread out. Funding for the KC-46A was cut by $1 billion in fiscal 2013 or $2.4 billion through 2017. From fiscal 2013-2017, the DoD plans to cut 10 aircraft and $5.2 billion in funding for the P-8A program. Restructuring will slow down aircraft deliveries in the outyears. The budget calls for $3.3 billion of funding for 13 aircraft.
"Despite a slower ramp, the program has a nice growth trajectory, reaching 20 aircraft in FY2015," Rubel added.