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Pentagon official sees 'very, very painful' 2016 budget process

By Andrea Shalal

WASHINGTON, Sept 3 (Reuters) - The Pentagon's chief weapons buyer on Wednesday predicted "very, very painful" negotiations within the U.S. military as it shapes its fiscal 2016 budget this fall, given the resumption of mandatory cuts in U.S. defense spending, and the growing number of national security threats around the globe.

Frank Kendall, undersecretary of defense for acquisition, technology and logistics, said the U.S. military services had submitted their initial budget plans to top Pentagon leaders on Tuesday, but his staff already had a large stack of items that it felt should have been included, but were not.

In coming months, he said, the services and top Pentagon leaders will debate budget priorities and ways to fund them.

Top U.S. weapons makers, including Lockheed Martin Corp , Boeing Co and Northrop Grumman Corp, are keeping a close eye on the Pentagon's fiscal 2016 budget plan as they seek to shore up revenues and maintain profits despite declining defense budgets in the United States and Europe.

"We're going to go through a very, very painful process this fall," Kendall told the ComDef 2104 defense conference. He said no proposals to add programs would be included in the budget unless sufficient offsets - or cuts - were found elsewhere.

Kendall said the task of drafting a budget was made far more complicated by the refusal of U.S. lawmakers to accept the proposed retirement of the Air Force's fleet of A-10 attack planes, base closures and slower growth in military pay rates.

As U.S. commitment winds down in Afghanistan, the Pentagon will lose the additional "war spending budget" that has helped pay for operations and other items, he said.

Kendall said he did not expect Congress to repeal the sequestration law that set up automatic cuts in military spending over the next decade, but said he hoped the administration could negotiate another one- or two-year deal like the one that alleviated those cuts in fiscal 2014 and 2015.

Kendall said he continued to work on streamlining and improving military acquisition practices, and would unveil a new version of his "Better Buying Power" guidelines on Sept. 12.

He said Better Buying Power 3.0 would focus on promoting innovation, increasing the speed with which new weapons get to troops, and encouraging industry to invest in new technologies.

The Pentagon also plans an initiative to take a longer-term look at its annual spending of about $60 billion for research and development, Kendall said, citing concerns about the dearth of new programs in areas from ground combat vehicles to air dominance and warships.

He said the U.S. industrial base was beginning to shrink as a result of the budget cuts, but he was "not terribly worried" since the overall level of military spending remained high.

Kendall said one big challenge in coming months would be balancing the services' desire to maintain and upgrade existing programs versus the need to invest in new technologies.

(Reporting by Andrea Shalal)