SUSIE GHARIB: The Defense Department announces sweeping cuts today that will affect communities and companies around the country. As part of the effort to slash almost half a trillion dollars in military spending over the next 10 years, Defense Secretary Leon Panetta is calling for another round of base closures. But as it reduces spending, the Defense Department also wants to keep key defense companies in business. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is what it looked like the last time the Defense Department slashed its budget. After the cold war ended, the Pentagon needed fewer weapons. Defense contractors closed, leaving behind empty parking lots and an exodus of engineering talent. Defense Secretary Leon Panetta promised this round of cuts will be different.
LEON PANETTA, US SECRETARY OF DEFENSE: Maintaining the vitality of the industrial base and avoiding imposing unacceptable cost or risk on our critical suppliers will guide many of the decisions that we have made.
GERSH: In the late `80s, the Pentagon relied on more than 30 big defense contractors. Now the number is down to a handful, leaving little room for consolidation. Defense analyst Todd Harrison says the Pentagon must figure out which companies are critical to national defense.
TODD HARRISON, SR. FELLOW, CNTR. FOR STRATEGIC& BUDGETARY ASSESSMENTS: So the fear in the Pentagon is that, if we lose some critical skills in our industrial base or some critical capacity to manufacture things, that we might not be able to regain it when we really need it in the future.
GERSH: And the Pentagon has clearly defined the defense future it wants to fund. Unmanned drones, submarines, new stealth bombers and fighters are top priorities even in a time of tight budgets.
PANETTA: The military will be smaller and leaner, but it will be agile, flexible, rapidly deployable and technologically advanced.
GERSH: While the navy and air force will get new systems, the army will get smaller, losing 72,000 soldiers and that will reduce demand for new ground vehicles.
HARRISON: Right now, we are planning to stop upgrades to the M1 Abrams tanks and so that part of the industrial base we may lose temporarily in the coming years. I think the department is willing to take that risk, because they are not placing as much emphasis on ground systems in the future.
GERSH: As arms sales at home slow, U.S. defense contractors are hoping to replace some with more business overseas, particularly in Asia, where U.S. allies are increasingly concerned about China`s military buildup. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
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