UPDATE 2-Gates finding $78 bln more in Pentagon cuts-lawmaker

* $78 bln to go toward reducing deficit

* Lockheed’s F-35 programs to be restructured

* General Dynamics’ amphibious craft axed

* Lawmakers ultimately hold the purse strings

* Defense shares up slightly
(Adds further detail from congressional briefing)

WASHINGTON, Jan 6 (BestGrowthStock) – U.S. Defense Secretary
Robert Gates has agreed to $78 billion in budget cuts over five
years that would go to deficit reduction, an amount beyond $100
billion in internal savings that will be redirected to other
military programs, a top lawmaker said.

House Armed Services Committee Chairman Howard McKeon,
speaking to reporters on Thursday after a briefing from Gates,
said the new cuts were more dramatic than defense companies had
previously been bracing for.

“I’m not happy,” McKeon said. Congress ultimately controls
the Defense Department’s budget and may not support the cuts.

The Arca index of defense stocks (.DFII: ) was up 0.6 percent
in early afternoon trade.

Gates began his quest for $100 billion in internal savings
last May to ensure funding for troops and modernization.

Reuters reported earlier this week that Gates was under
pressure from the White House to find additional savings.

The additional $78 billion in cuts means that more weapons
programs could go on the chopping block, as Gates tries to
cancel lower-priority contracts and trim overhead costs.

Gates is scheduled to brief reporters later on Thursday
about the cuts.

Lawmakers often block administration efforts to cancel
pricey weapons programs since they provide high-paying jobs in
their home districts.

For instance, the Pentagon has tried for five years to
cancel an alternate engine for the Lockheed Martin Corp (LMT.N: )
F-35 Joint Strike Fighter that is being developed by General
Electric (GE.N: GE.N, Profile, Research) and Britain’s Rolls-Royce (RR.L: ), but lawmakers
have refused to kill the program.

Lawmakers are already signaling their concerns about the
latest Gates plan, especially a move to terminate the
Expeditionary Fighting Vehicle, a 40-ton amphibious landing
craft being developed by General Dynamics Corp (GD.N: ).

Representative Bill Young, chairman of the House defense
appropriations committee, told reporters after the Gates
briefing that the Marine Corps had long insisted it needed the
vehicle, and had already invested heavily in the program.

“One of the things we’ve got to stop doing here is starting
something — and then spend $2 or $3 billion — and then kill
it,” Young said.

Sources briefed on the Gates meeting with lawmakers said
the Pentagon also planned to cancel a surface-launched missile
system being developed by Raytheon Co (RTN.N: ), and stretch out
the development phase of the Pentagon’s largest arms program,
the F-35 fighter.

Some of the internal savings would be used to start
development of a new long-range bomber and pay for more Boeing
Co (BA.N: ) F/A-18 fighter planes, more unmanned planes, radar
upgrades, and more ships, said sources briefed on the meeting.

Gates is not expected to reveal any specific details of the
fiscal 2012 budget request for the Pentagon, which will be
submitted to Congress as part of the overall federal budget
around Feb. 14.

But industry sources and analysts say the administration
will ask for $554 billion in military spending in fiscal 2012,
not counting overseas fighting, $12 billion less than it
initially intended.

The remaining $64 billion in budget cuts would come over
the following four years, analysts said.
(Reporting by Kim Dixon and Andrea Shalal-Esa; Editing by Tim
Dobbyn)

UPDATE 2-Gates finding $78 bln more in Pentagon cuts-lawmaker