For defense industry, the path forward is still clouded by uncertainty.

• Author: Farrell, Lawrence P., Jr.
• Position: President's Perspective

With the release of the president's 2012 budget, one now begins to see an outline of the future awaiting the defense industry. There are no surprises. The picture looks quite similar to the downturn of the Reagan budgets about 1986. The curve is heading down. Members of Congress now are increasingly calling for the defense budget to be on the table as part of future deficit reductions.

[ILLUSTRATION OMITTED]

For industry, what does this all mean? One industry professional has described the current environment as "Eisenhower's big nightmare." Could a reasonably competitive industry survive large reductions in funding?

First, let's review the broad outlines of the 2012 budget proposal. One notes right away that Defense Secretary Robert Gates is nervous about where we are. "We face a crisis on our doorstep if the Department of Defense ends up with a year-long continuing resolution," he said. "This would damage procurement and research programs, causing delays, rising costs, no new program starts and serious disruptions in the production of some of our most high demand assets, such as unmanned aerial vehicles."

Any major reductions in 2011 would hurt operations and maintenance accounts, aircraft would be grounded, there would be cutbacks in training and a subsequent loss of readiness. "That is how you hollow out a military," Gates said. His minimum number for 2011 is $540 billion. A full year continuing resolution would fund the department at $526 billion.

The secretary is worried, and justifiably so. The year is half over with no budget. Even if a budget were passed today, there is too much broken glass to sweep up. We are already in the hurt locker.

And recall, the $540 billion is already factoring $178 billion in efficiencies across fiscal years 2012-2016. If the savings don't materialize, the situation gets worse.

Industry is already feeling the pinch, and many companies have already made adjustments.

It is important for industry to preserve its fighting form. First, a number of critical industrial capabilities must be secured. Most companies only do defense. If funding dries up for a program, it goes away along with the industrial expertise that created and sustained it. Careful industrial planning is essential. Examples of critical skills are aircraft, ship and submarine design. Prime contractors also have to make tough decisions about which of their sub-tier suppliers they should protect.

Over the coming years, it is expected that war...