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Panetta Seeks to Reassure Defense Industry on Budget Cuts

By Viola Gienger and Roxana Tiron
September 13, 2011 6:16 PM EDT

Defense Secretary Leon Panetta told a defense industry group it is “essential” to U.S. military superiority and said he will work with executives to establish policy for the industrial base as the Pentagon faces at least $330 billion in budget cuts over 10 years.

Panetta expressed his “desire to work together to formulate a policy for industrial base that I believe we’ve not had in place until now,” Chief Executive Officer Jim Albaugh of Boeing Co. (BA)’s commercial aircraft said today at a meeting of the Aeroclub in Washington.

Establishing policy to guide the industrial base “needs to be addressed, and we both feel very strongly” about getting it done, Albaugh said in a short interview after his speech, referring to Panetta. “We are going to work together to do that.”

For the first time “in 100 years,” the Defense Department lacks any “active manned aircraft design teams,” he said. Lockheed Martin Corp. (LMT)’s F-35 Joint Strike Fighter is the only new fighter jet in the Pentagon’s buying plans. The F-35 is designed to replace older fighter jets over the next 30 years for the Air Force, Navy and Marine Corps. “Having a strong industrial base is not a given,” Albaugh said.

Industry Meeting

Panetta met with members of the executive committee of the Aerospace Industries Association at the Pentagon for about an hour and urged the representatives to help improve efficiency, according to his press secretary, George Little, who characterized the meeting as “productive.” The association represents manufacturers such as Boeing, United Technologies Corp. (UTX) and Northrop Grumman Corp. (NOC)

“The secretary emphasized to this group of industry partners that the Defense Department can’t protect the nation without the support of a strong defense industrial base,” Little told reporters at the Pentagon.

Panetta is seeking to reassure major weapons manufacturers and win their cooperation as the Defense Department considers how to make the spending cuts demanded by the Budget Control Act, signed Aug. 2 by President Barack Obama. The Pentagon faces as much as $500 billion in further reductions if a congressional supercommittee fails to agree on other ways to reduce the federal debt.

‘Devastating’ Cuts

Panetta emphasized again during the meeting that such a cut “would be devastating,” Little said.

The association plans to kick off a campaign tomorrow to highlight the “devastating job losses, national security threats and infrastructure implications that would result from budget cuts put in motion by this summer’s debt-ceiling deal,” according to a Sept. 12 statement on the group’s website.

Association spokeswoman Alexis Allen declined to comment on the meeting or reveal which members of the group’s executive committee attended. She said association President and Chief Executive Officer Marion Blakey will comment at the campaign kickoff press conference tomorrow.

Obama’s nominee to become Panetta’s deputy defense secretary, Ashton Carter, told a Senate committee considering his nomination today that the Pentagon’s weapons-buying system is “not acceptable.”

Carter, the undersecretary of defense for acquisition, technology and logistics, told the Senate Armed Services Committee that further steps will be taken to rein in costs beyond the measures adopted under a 2009 reform law.

Panetta said in his meeting that he considered research and development a priority, according to Little.

‘Creativity and Innovation’

“Creativity and innovation in the private sector are absolutely essential to developing what we need to provide for the nation’s defense,” Little said.

Panetta also discussed efforts to revise and improve the nation’s export-control regulations for defense items. He pledged to the group that the changes would be made “in a way that allows American companies to sell their goods and services and materiel to other countries,” Little said, without providing specifics.

The defense chief plans to conduct regular meetings with the aerospace association and similar groups, Little said.

To contact the reporters on this story: Viola Gienger in Washington at vgienger@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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