Pentagon admits that defense plan would force many firms out of business

WASHINGTON — WASHINGTON -- While President Clinton's long-range defense plan is not intended to pick "winners" and "losers" among U.S. military contractors, it would encourage consolidation within the defense industry and inevitably drive many firms out of business, a senior Pentagon official said yesterday.

"We fully expect many defense companies to go out of business, and we will stand by and see that happen," said Deputy Defense Secretary William J. Perry, the second-highest-ranking administration official at the Pentagon.


Mr. Perry invited reporters to his office to offer the administration's rationale for targeting some segments of the defense industry and not others in what amounts to a multiyear federal subsidy.

He made himself available as part of a larger public relations campaign by the Pentagon to promote Mr. Clinton's plan to restructure the armed forces for the post-Cold War world. Several officials anticipate trouble in Congress, where members often divert defense dollars to pork-barrel programs as their own way of protecting the defense industrial base.


The Clinton plan, which Defense Secretary Les Aspin unveiled Wednesday, would shrink the military to 1.4 million troops (from the current 1.7 million) over the next five years.

Borrowing heavily from the blueprint of President George Bush's administration, the Clinton plan also gives priority to developing smart weapons, acquiring more transport planes and ships, and positioning tanks and other equipment abroad to enable the smaller force to respond if two major regional wars on the scale of the Persian Gulf war erupted within weeks of each other.

But in a sharp break with Bush administration policy, which relied on market forces to decide which companies survive the military drawdown, the Pentagon will protect critical elements of the nation's defense industrial base -- even if that means buying weapons it doesn't need.

Under this new industrial policy, Mr. Aspin said he will ask Congress for $1.8 billion to build a third Seawolf nuclear attack submarine, even though its Cold War mission has vanished and the submarine fleet must be cut from 88 vessels to somewhere between 45 and 55. During his run for the presidency last year, Mr. Clinton's backing of Seawolf production drew criticism from those who said he was merely trying to win votes in the affected states.

Mr. Perry, acknowledging that thousands of skilled workers would stay on the job until the next-generation attack submarine begins production in 1998, said that closing down the General Dynamics Corp.'s Electric Boat Division in Groton, Conn. -- and ultimately, many of its suppliers -- would be hard to reverse.

"You can't mothball technical talent, the brains, the know-how," he said. "Second of all, the problems of trying to recertify a nuclear facility once you've shut it down are really formidable."

With a smaller military and fewer dollars to buy weapons, "our intervention here is only to protect certain military capabilities which are unique, and it's very, very limited," Mr. Perry said. The industrial policy focuses only on "leading edge" technology and specialized products with strictly military uses -- for example, the Seawolf's nuclear reactor and the composite materials that allow stealth aircraft to evade radar detection, he said.

Under this policy, Mr. Aspin will also ask Congress for $3.8 billion in the 1995 budget to enable the Navy to acquire yet another nuclear-powered aircraft carrier from its principal supplier, Newport News Shipbuilding in Virginia, Pentagon officials said yesterday.


Mr. Perry disclosed that another segment of the industry -- armored vehicle manufacturers -- would get support, especially the Lima tank plant in Ohio, a government-owned facility run by General Dynamics' Land Systems Division.

He said the Lima plant would remain open but declined to discuss the cost to taxpayers. But the Army says that it wants to spend $300 million a year from 1994 through 1999 to convert 1,000 M1 tanks into state-of-the-art M1A2 models, complete with new turrets, 120mm cannons and digital electronics.

But Mr. Perry insisted that the administration was not trying to prop up the industrial base simply to save jobs; doing so, he said, would incur "an enormous expense." And he said that firms will be discouraged from thinking that their survival rests with the export market.

"We're not doing this to sustain the jobs. We're not doing it for the basis of protecting a company's shareholders," he said. "This is not a bailout of any companies that are involved here. We do not propose that."

The Clinton plan would actually shrink the nation's defense industrial base to less than half its size when the military buildup begun under President Ronald Reagan ended in the late 1980s, he said. Some parts of the industry would shrink by as much as two-thirds, he said.

"We've already lost hundreds of thousands of jobs, and there are that many more ahead of us to lose," Mr. Perry said. "This plan is not in any way directed to solving that problem."