President-elect Trump Aims To Reign In Defense Spending

President-elect Donald Trump is now taking aim at defense spending in his latest tweets and interviews. Mr. Trump wrote on Twitter this weekend, “Billions of dollars can and will be saved on military (and other) purchases after January 20th,” referring to the day he is sworn in as president. Mr. Trump also told a Fox News Sunday interviewer that the F-35 Joint Strike Fighter program, one of the Pentagon’s costliest programs, was “out of control.”

Mr. Trump also criticized the F-35 program while on the campaign trail. Lockheed Martin Corp. (NYSE:LMT), the government’s largest defense contractor, is the developer of the F-35 program. Shares of Lockheed Martin slumped after the president-elect’s latest tweet, dropping 3.6 percent to $250.11 at 9:31 a.m. in New York. Other defense stocks also dropped sharply. On Sunday, a Lockheed Martin spokesman said, “We look forward to working with the president-elect and his administration to further build on the F-35 program’s record of demonstrated performance and affordability.”

The Pentagon plans to buy more than 2,400 planes to replace many of its combat jets. The Obama administration called for the F-35 to replace the F-22’s in the fleet in 2009, citing its low cost as one of the reasons. The Pentagon wanted three versions of the plane: an Air Force version designed to use runways, a Marine Corps version that could take off and land vertically like a helicopter, and a version for the Navy designed to launch with a catapult and land with a hook.

However, the contract has received fierce criticism from lawmakers as well as many in the Pentagon. The costs for the replacement planes have doubled to almost $400 billion due to design and production problems. According to reports, the pilot’s helmet alone could cost around $400,000.

Mr. Trump has shown a willingness to single out specific companies for praise or criticism since winning the election. Last week, Mr. Trump took on Boeing Co. (NYSE:BA), the government’s second-largest defense contractor, over costs to replace the aging Air Force One jets. He tweeted, “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!”

Earlier this year, Trump took on United Technologies Corp. (NYSE:UTX) over a plan to move some U.S. jobs to Mexico in its Carrier air-conditioning unit. After the election, the company struck a deal with the state of Indiana to keep about 800 jobs in the state, while still sending roughly 1,300 to Mexico. United Technologies unit Pratt & Whitney is the sole supplier of engines for the F-35.

 

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