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

Thu Jan 6, 2011 1:48pm EST

* $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 (Reuters) - 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) 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).



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