The US military and other agencies still face spending cuts estimated at more than $108 billion in FY2013 alone, but were spared immediate action as a result of the fiscal compromise achieved on 2 January between the Obama Administration and Republicans in Congress.
The deal that led to higher tax rates on Americans earning more than $400,000 per year also delayed a round of mandatory budget cuts - known as the sequester provision - for two months.
Sequestration is a legislative device that was inserted into the Budget Control Act in August 2011, which mandated $1.2 trillion in automatic spending cuts on 3 January after the two US political factions failed to agree on a compromise deal last November.
The prospect of sequestration has loomed over the defence industry for more than a year. In October, Congressional appropriators warned the budget cuts in FY13 alone could reduce procurement of five Boeing CH-47s, eight Sikorsky UH-60s, a total of five F/A-18E/Fs and EA-18Gs, one Boeing P-8A Poseidon and four Lockheed Martin F-35s. The same process also could force the Federal Aviation Administration to cut 2,200 jobs.
Instead, the 2 January agreement delays sequestration for two months. According to the White House, the delay is intended to give Congress one more chance to reach a compromise agreement on spending cuts, rather than resort to the blunt mechanism of the sequester, which imposes across-the-board rather than targeted spending cuts.
The two-month postponement is financed by an agreement to reduce spending by $12 billion, with the cuts divided equally between defence and non-defence accounts in the federal budget.
But after so much Congressional gridlock, it remains unclear if a sweeping compromise can be achieved by 1 March, even as more sensitive issues such as raising the debt ceiling must also be accomplished within roughly the same period.