House Begins to Cut Defense Budget - Page 2
The cuts to OCO mean those companies heavily involved in providing support and equipment for Iraq and Afghanistan will see the first cuts. The Army’s LOGCAP IV contract provides much of this support for deployed forces and companies like DynCorp International, Fluor and KBR have received large contracts as part of it. (http://chadshomepage.com/logcap-iv/) The reduction to OCO may affect LOGCAP and those companies involved in it.
It will also mean less bullets, beans and gas will be bought to support the troops in Iraq especially. Suppliers of basic items may see reductions in the amount of items purchased from them. This includes ATK who make ammunition as well as the various gasoline refiners and providers. As the fighting in Iraq and Afghanistan winds down the DoD will be concentrating on making new weapon systems and repairing and refitting the equipment used by the military in those operations.
If and when all of the U.S. and Allied forces return from the fight there will be no need for OCO funding at all. This seems to indicate that the base U.S. defense budget will sink to about $500 - $600 billion a year. This will provide opportunities for those companies providing new, advanced weapons as well as supporting the U.S. military in its bases in the U.S., Asia and Europe. The next round of cuts though will be to this base budget. That will affect the entire U.S. defense industry and may lead to reductions in the number of contractors either through M&A or just moving to other business lines.
Defense spending has been a major prop to the U.S. economy as a whole as it supports businesses and jobs across all of the states. If the civil market has not recovered sufficiently cuts to this money will have a negative effect on many local economies across the U.S. already being experienced as some contracts are eliminated or reduced.
This HASC vote may be the first step into a period like the Nineties which saw wholesale changes to the U.S. defense industry and the countries’ industrial base as a whole.
Photo from David Paul Ohmer's Flickr Photostream