U.S. defense officials urge dialogue with industry

* Cost, weight and energy efficiency critical factors

* Greater efforts by Pentagon to rein in requirements

By Andrea Shalal-Esa

NATIONAL HARBOR, Maryland, April 11 (Reuters) – Top U.S.
defense officials on Monday said the tough budget environment
underscored the need for honest dialogue with the defense
industry, as well as greater discipline by the military
services in setting requirements for new weapons.

Assistant Marine Corps Commandant General Joseph Dunford
said growing concerns about U.S. budget deficits meant that
defense companies would need to focus more on cost, weight and
energy efficiency as they developed new weapons systems.

“Those three questions increasingly are important to us,”
Dunford told the annual Navy League conference. “We’ve got to
take a look at those capabilities that are most relevant.”

Dunford and officials with the U.S. Navy and U.S. Coast
Guard welcomed congressional passage of a stopgap bill funding
the federal government for another week, and said they hoped
the fiscal 2011 budget would be finalized this week.

Industry executives are bracing for tighter budgets and
pressure on profit margins given the current climate.

Defense analyst Rob Stallard of RBC Capital Markets said he
had modest expectation for defense stocks heading into the
first quarter earnings reports, but said nominally weak
revenues and bookings due to the budget impasse would largely
be forgiven by investors.

“Despite the potential for soft toplines, we think cost
cutting and buybacks may help keep EPS (earnings per share) on
pace with consensus,” Stallard said in a note to investors.

Officials at the Navy League conference agreed that the
Pentagon would face increasing budget pressures in coming years
and said that meant defense officials and industry executives
needed to work even more closely together to lower weapons
costs and keep programs on schedule.

Dunford said the military was already reforming the way it
defined its needs, saying that in the past senior leaders had
largely been “spectators” to that process.

But now cost was increasingly being factored into decisions
as military requirements were being established.

“I’d appreciate frankness when we’re doing something
stupid,” said Navy Admiral Jonathan Greenert, vice chief of
naval operations, urging industry executives to speak up if
military officials were demanding a technical capability that
could not be realistically achieved.

He said consolidation in the industry left the military
with limited choices, and said he wanted to see more
innovation, particularly in the area of unmanned aerial and
underwater propulsion systems.

Stable budgets and stable requirements were imperative, he
said, as well as good partnerships with industry, such as those
that had been able to drive down the cost of the Virginia-class
submarine and the DDG-51 destroyer in recent years.

“We owe frankness and clarity about where we’re really
heading,” he said.

Dunford said the Marine Corps was trying to improve its
energy efficiency, noting that one battalion had just returned
from Afghanistan where troops successfully operated two bases
that used zero fossil fuels.

The Marine Corps was now “buying out the shelves of all the
products that are available” to equip other battalions heading
to the war zone in coming months and years.

The bigger challenge in coming years would be to improve
the energy efficiency of new ground combat vehicles still in
development, including the Joint Light Tactical Vehicle.

Dunford said the Marines remained committed to developing a
new amphibious assault vehicle after Defense Secretary Robert
Gates canceled work on the General Dynamics (GD.N: Quote, Profile, Research)
Expeditionary Fighting Vehicle in February.

He said Marine Corps Commandant James Amos was also keeping
close tabs on the F-35B Marines Corps version of the Lockheed
Martin Corp (LMT.N: Quote, Profile, Research) Joint Strike Fighter, and officials were
pleased with progress seen on that program in recent months.

Amos was “personally and decisively engaged” and his
approval was needed for any changes that added even a pound of
weight to the airframe, Dunford said.
(Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn)

U.S. defense officials urge dialogue with industry