Tuesday, January 20, 2009

How much will President Obama spend on defense technology?

Posted by John McHale

The inauguration of Barack Obama is exciting as he is our nation's first black president. It makes me proud to be an American. However, practical questions remain about where he will spend money on defense.

A colleague of mine said he heard that defense spending under the Bush administration increased by about 73 percent. That trend is unlikely to continue under Obama.

In his inaugural address the new president said he will push to turn Iraq over to its own government in about 16 months, while renewing efforts in Afghanistan. However, even with a build-up in Afghanistan it is unlikely defense spending will increase or even continue at current levels.

What does this mean for defense electronics industry? Will less money spent on boots and bullets mean more dollars for research and development?

Will fewer troops on the ground favor funding for embedded electronics in reconnaissance and surveillance applications such as unmanned systems?

Many suppliers I talk to are cautiously optimistic based on their projected backlogs for 2009 and solid funding in the last budget of the Bush Administration. Come January 2010 will things be as positive? Will President Obama make deep cuts in his first defense budget, even canceling large programs such as Future Combat Systems? Or will he just cut back on procurement?

One of my conference advisory board members says he believes that it is republican administrations that cut programs, while democrats just cut back. That they are loathe to eliminate large programs as it could mean eliminating thousands of jobs.

While today was definitely a historic day for change, many defense industry players are nervous about how they will navigate potential changes to their market.

At an Army Aviation press conference I attended in October, one official was asked what funding will be like under Obama or his opponent at the time, John McCain.

He responded "your guess is as good as mine."

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