While many American companies are at Farnborough looking for new customers, they will have one eye back on events at home and a major talking point at the show is the potential impact of the US Presidential election on US Defence Spending Paul Edwards, Managing Director, aerospace and defence at, the investment bank, Jefferies gives his view.
The US defence budget this year is close to $500 billion with an additional $185 billion earmarked for Iraq and Afghanistan, which adds up to military spend of $685 billion against a backdrop where the budget deficit has reached $311 billion for the first six months of this year.
Leaving aside Iraq for a moment, economics at the macro level usually dictates planned levels of US defence spending, not the person who gets to be president.
The new president will be under tremendous pressure to reallocate government resources to meet the immediate needs of US taxpayers making higher defence expenditure over the medium term is unlikely, although neither candidate is giving much away at this stage and will probably avoid doing so for as long as possible. We also need to remember that more spend equals more jobs.
Afghanistan’s resource requirements are increasing and overall, Europe is supportive of a continued operational presence. The US electorate is starting to take note of the reduction of US security incidents in Iraq. The reality is that the US is likely to maintain a presence to enable the Iraqi government to get its sea legs and so that it can act as a bulwark against any Iranian adventurism in the Gulf.
Will the election impact military expenditure in the short term? Probably not, as neither campaign will want to be seen as ‘soft’ on national security by offering defence cuts. And whilst both candidates are at odds over Iraq, if Senator Obama wins, there is unlikely to be an immediate ‘Iraqi war dividend’ given the significant costs associated with a withdrawal and the subsequent repair and replacement of combat equipment.
As for specific defence programmes and budget fund allocation, again, both candidates are keeping their cards close to their chest, and the conflicting and ambiguous statements emanating from each camp are confusing, making it harder to draw a bright line between the candidates on polarising issues such as missile defence.
We can however expect, a defence review after the election, followed by high profile defence programme casualties as all commentators seem to agree that there are insufficient funds available for programmes that are already planned .
As we know, making a proposal is one thing, but terminating a programme is something quite different as the Bush administration found out with C-17 and the F-22.
Now that the Obama-McCain election battle is into its 6th week, defence and national security will take a more high profile role and, for those of us in the industry, we can hope for more clarity and detailed policy plans, but let’s not hold our breath.