Defense budget leaves winners and losers.

The White House's record $438 billion dollar defense budget proposes a makeover for the nation's military equipment structure--a shift that could greatly benefit Los Angeles' defense businesses.

The budget set to go before Congress shows a continuing shift in priorities away from a Cold War model that required large standing armies, big bomber wings and defensive missiles, and toward a surgical strike model geared to fight terrorism.

"The new budget proposals and the new philosophy seem to play to our strengths here," said Jack Kyser, the chief economist at the Los Angeles Economic Development Corp. "Though there are some great potential gains, there are some worrisome losses as well."

Those potential losses include a possible shuttering of Boeing Co.'s C-17 cargo jet plant in Long Beach and the aging U-2 spy plane and F-117 stealth fighter plants in Palmdale operated by Lockheed Martin Corp. The new budget includes no new future funding for the C17; production on the initial order of 180 planes is expected to be completed in 2008.

However, Defense Secretary Donald Rumsfeld's strategy could benefit the region's defense industry, especially Northrop Grumman Corp.'s Integrated Systems branch in El Segundo.

Northrop declined comment, but the Los Angetes-based contractor stands to gain significantly from full funding of advanced-fighter aircraft, specifically, the F-35 Joint Strike Fighter that is under development and will be shared by the Air Force, Navy and European allies. Also targeted for funding: the Navy's F-18 Hornet, which is being upgraded, and the Air Force's super advanced F-22 Raptor.

Local operations

All three platforms have facilities in El Segundo. The budget projects spending nearly $10 billion through 2007 on the development and manufacture of the F-35, whose fuselage and electronic systems are manufactured locally. The budget earmarks $6 billion to bring 68 new Hornets into operation, while the Air Force's F-22 Raptor should be flush with funds with $7 billion in proposed funding for 25 jets through 2007.

Also, Nonhrop's B-2 Stealth Bomber facility in Palmdale will see a jolt of $700 million proposed thru 2007 for procurement of spare parts and radar modifications.

"It's easy to see where the Air Force's priorities are: fighters, fighters and more fighters," Dan Goure, the vice president of the Virginia-based defense brain trust The Lexington Institute, said. "Fighters are much sexier than tankers and transport planes."

Unmanned aerial vehicles are also new favorites of the Defense Department and are aimed at eventually replacing the 51-year old U-2 spy plane and possibly some light bombers. The development and production of UAVs will benefit Lockheed, Boeing and Northrop, which has developed five of the vehicles, including the Global Hawk, now operating in Iraq.

The budget contains $3 billion in funding for UAVs, and though a great majority of manufacturing may take place elsewhere, there are still years of research and development work to be done--with L.A. a potential hub for that.

"There are already a deep talent pool and an extensive high-tech-focused infrastructure in place, making the implementation of new R&D programs relatively easy and logical," Kyser said

However, the greatest local gains may stem, from space-based communications systems. The budget proposes funding for a handful of systems that will eventually form an advanced communications network.

The first phase of this system is the Advanced Extremely High Frequency satellite, which Lockheed started in 2001 and which Northrop is currently helping develop in Redondo Beach. It is scheduled for launch in 2008 and recently received another $633 million in funding. The second phase of the network is the Transformation Communications Satellite (TSAT) system, with some language in the budget hinting that Northrop's Redondo facility will land a chunk of the work as well.

Also, there is more than $1 billion in the books for the Mobile User Objective System, one of the final pieces of the complex, ultrasecure system that Lockheed says will change the nature of military communication by allowing real-time video, audio and broadband communications between all military branches.

"With the Jet Propulsion Lab, and the strength of the L.A. Air Force Base space program, this area is a natural attraction for the space industry. I wouldn't be surprised to see Los Angeles play a major role in the development of the next generation of space-based technology," Kyser said.

Closer to earth, the Defense Department issued a request for information this month to kick off the bidding process for a replacement of the Air Force's geriatric air tanker fleet. These aircraft, which refuel bombers, fighters and cargo planes mid-flight, have about $8 billion in funding proposed through 2011.

"At an average age of 45, which in aircraft years is like 100, the Air Force tankers are in dire need of replacement, and this is a huge step in the right direction,'" said Goure, who added competition will be fierce between Lockheed and a team of Northrop and European Aeronautical Systems, makers of the Airbus aircraft.