U.S. arms buyer expects Congress to delay automatic budget cuts

WASHINGTON, Sept 5 (Reuters) - The top U.S. arms buyer predicted on Wednesday that the Congress would pass a temporary funding measure to stave off automatic across-the-board budget cuts, probably for six months.

If the Pentagon then is required to pare its budget by about 11 percent and given a chance to prioritize, "we will probably end up with a mix" of reduced arms production, slowed research and development spending and program terminations, said Frank Kendall, the undersecretary of defense for acquisition.

The across-the-board cuts, called sequestration, are set to kick in on January 2 unless Congress acts to delay or repeal a mandated $1.2 trillion in deficit-reduction measures by then.

One half of the specified spending cuts would be imposed on national defense, on top of $487 billion in Pentagon budget cuts already mandated over the coming decade.

"We're counting on Congress to avoid this," Kendall told an industry conference known as ComDef. "It doesn't allow us to find the things that are least important to us. It doesn't allow us to avoid some of the damage that would be done by this kind of a mechanism."

The likelihood is that Congress will agree to a continuing resolution, probably for six months, Kendall added without citing his source for this prediction.

A continuing resolution is a measure to fund the government if a formal appropriations bill has not been signed into law by the end of the fiscal year. The measure takes the form of a joint resolution, and keeps existing federal programs funded at current or reduced levels.

Such a measure would buy time for the Pentagon to manage further budget cuts without subjecting it to sequestration-required slashes of about 11 percent in all of its roughly 2,500 budget lines, Kendall said.

Asked to elaborate on the notion that sequestration likely would be delayed, Kendall's spokeswoman, Cheryl Irwin, referred to talks with people on Capitol Hill and other unspecified indications that, she said, point to that possibility.

Kendall said additional cuts, if required, likely would come largely from the Pentagon's so-called investment accounts - the arms purchases and research and development contracts that fuel earnings of contractors such as Lockheed Martin Corp, Boeing Co, Northrop Grumman Corp, Raytheon Co and General Dynamics.

The Defense Department has cancelled a range of major weapons programs over the past few years, chiefly on affordability grounds, as it tightened its belt after a decade during which its budget nearly doubled.

"There really aren't many (programs) left to go after" that are not essential, Kendall said.