2017 Defense Budget Storm May Be Smooth Sailing

Department of Defense and the Defense Budget

For many whose offices and businesses are directly affected by the dealings of the Department of Defense (DOD), the Defense Budget Proposal can often be a source of tension.

According to National Defense Magazine in an online post regarding the 2017 Defense Budget Proposal, some military contractors and officials are disillusioned with the proposal’s procurement numbers. This includes manufacturers, economists, as well as military officials. The article quotes Air Force Deputy Assistant Secretary for Budget Maj. Gen. James F. Martin as saying, “Delay in modernization has become a trend that allows our competitors to close the capability gap.”

However, while many challenges face the current administration in their endeavors to increase military spending budgets, namely the Budget Control Act (BCA), there is reason to believe that such tensions may soon be alleviated.

The 2017 Defense Budget Proposal suggests a near 15 percent increase in Missiles and Munitions. Furthermore, the Shipbuilding and Maritime, Ground Systems, and Missile Defense Program budgets are all expected to increase. Moreover, Defense Secretary Ashton Carter and the Pentagon’s “Third Offset Strategy” is included in the 2017 Defense Budget Proposal. The Third Offset is a research and development program into next generation technologies designed to usher in U.S. military superiority to a new and increasingly competitive era, marking the beginning of what National Defense Magazine calls, “…a new wave of innovation…”

Interview about the Defense Budget Proposal

In a brief questionnaire, Jim McCorry, AGM’s Director of Business Development, offers his opinion on a few aspects of the recent defense budget proposal as they affect the manufacturing and logistics sector surrounding the DOD. McCorry has been with AGM for 36 years, serving in different positions, including Purchasing Manager and Sales Manager, before assuming his current position in 2008. McCorry remains in constant contact with members of the manufacturing and supply industries, often traveling internationally to meet with the heads of current and potential clients, as well as with other manufacturers. Accordingly, McCorry’s responsibilities include the long-term expansion and everyday growth of AGM.

AGM Container: The proposed 2017 US Defense Budget projects a roughly 15 percent increase over some previous years in Missiles and Munitions. How do you predict that spending increase will affect AGM and the manufacturing industry? Are there any another potential increases or decreases that may play a significant factor one way or the other?

Jim McCorry: Of the different categories under the Major Weapon Systems budget, we believe that the Missiles and Munitions category likely has the greatest impact on AGM’s business. This is due to the fact that AGM’s custom desiccators are widely used to protect the electro-optics on DOD missile systems. In addition, AGM’s breather valves, humidity indicators, access ports and desiccators are used on many of the DOD shipping and storage containers that house the missiles and munitions.

Other categories that will likely impact AGM’s business are Missile Defense Programs, Ground Systems, C4I Systems and Shipbuilding and Maritime. The budgets for these categories are projected to grow a combined 5 percent in 2017.

The above figures do not include an additional $50 billion in 2017 defense spending recommended by some congressional “hawks” and the new Trump administration.

More importantly, companies involved in the aerospace and defense business hope that the current Congress can eliminate the threat of sequestration and enact a defense budget that supports adequate, stable defense spending over the next four years.

AGM: According to articles in both Popular Mechanics and Navy Times, the United States Navy has communicated to President Trump and his transition team that the Navy desires to not only increase the number of ships in the fleet, but to also acquire a maintenance budget for its current 274 ships. If this were to occur, what do you believe will be the outcome? What would such an increase to the Navy’s budget mean for AGM and others in the manufacturing industry?

J.M: Any business, including AGM, that supports DOD shipbuilding and ship maintenance will benefit from increased spending in these areas. However, like for all proposals, funding must be appropriated to support the increases. The Trump administration is likely to receive push-back from its own party regarding any spending increases without corresponding spending decreases in other areas of the government.

AGM: AGM and many of its competitors deal with big clients in the defense industry, such as Lockheed Martin and Boeing. Many of these companies have come under scrutiny from the new administration due to the costs involved in some programs, such as the F-35. Does the manufacturing industry have anything to fear?

J.M: Despite the Trump administration’s scrutiny of the F-35 program costs, it is highly unlikely that the program will experience any serious funding cuts in the near future. The DOD has invested too much in the F-35 as a pillar of our country’s future defense platform to allow the funding to be jeopardized. Soon after Lockheed Martin’s CEO assured that the F-35’s costs are declining, the DOD announced that Lockheed would soon be awarded a $9 billion contract for the next round of F-35 construction.