U.S. Defence industry could face federal cuts under Donald Trump

Federal cuts in the expansive U.S. defence industry is likely to affect many U.S. factory jobs.

The U.S. Defence industry has come, yet again, under intense attack with U.S. President-elect Donald Trump coming down hard on Lockheed Martin Corp for the cost of its F-35 fighter jet program.

Aides to the Trump have made it clear that he will pursue a cost cutting program in U.S. military hardware.

In the latest broadside, that sent Defence shares tumbling down, Trump’s tweets fanned concerns that the incoming administration will see the reduction in Defence contractor’s profit margins and cut federal spending.

The move could threaten U.S. factory jobs, although Trump has promised to boost employment in manufacturing.

“The F-35 program and cost is out of control,” tweeted Trump. “Billions of dollars can and will be saved on military (and other) purchases after January 20th.”

In a similar vein, last week saw Trump taking potshots at Boeing Co for its “out of control” expenses on the new Air Force One planes. He has urged federal government to “Cancel order!”

Jason Miller’s Trump’s transition spokesman has stated the incoming administration’s focus will be on “wide-reaching and impact all of government as we look to come up with better deals. “We’re going to look for opportunities to go back through and make sure that we’re not getting taken advantage of.”

Although, a president cannot cancel a program it can purchase less.

“He can reduce the buy over time, next year, as we look at it again,” said John McCain, chairman of the U.S. Senate Armed Services Committee.

Trump’s tweet has caused sharp reaction in the U.S. Congress.

Senator Richard Blumenthal, who is a Democrat from Connecticut, which is home to the F-35 engine manufacturer Pratt & Whitney, said the program supports 2,000 Pratt jobs and thousands more at suppliers.

“The suggestion that costs are out of control is just plain wrong,” said Blumenthal. He went on to add, Trump should “learn more about the facts” before discussing “arbitrary cuts in the program. He’s the president-elect. What he says matters.”

Trump’s tweets have caused Lockheed’s shares to fall by 2.5%. They were earlier down by 5.4%.

The F-35 fighter jet has been described as the most expensive weapon system in world history. The program has been dogged by problems from its very inception.

In fact, the practice of producing jets before completing development has been described as an “acquisition malpractice”. This practice has led to retrofits which in turn have led to cost escalations upto to an estimated $400 billion.

The weapon system is being used by the U.S. Air Force, the U.S. Marine Corps as well as 6 countries including, Italy, Britain, Australia, Norway, Israel and Netherlands.

Only last week, Japan took delivery of its first jet.

Both Japanese and Australian Defence officials have both said they have no plans to alter their commitments to the F-35 fighter jet.

“We are very confident that the Joint Strike Fighter is the right jet for Australia, and for the United States and the rest of the world,” said Christopher Pyne, minister for Australia’s Defence industry.

On its part, Australia has ordered 72 F-35s. Japan has ordered 42 fighters to replace its aging F-4 fleet.

“We will have to watch Trump’s policies closely when he becomes president, but at this moment, we have no intention of changing direction,” said Tomomi Inada, Japan’s Minister of Defence.


Categories: Economy & Finance, Entrepreneurship, Geopolitics, HR & Organization, Strategy

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