Defense Budget Cuts Begin to Bite

And so it begins.

This week, the Pentagon unveiled its first-draft attempt at reconciling itself to a constrained defense budget, snipping about 5.5% off its initial wish list and requesting $523 billion in funding for fiscal 2013. Planned cuts include everything from delaying orders for a new aircraft carrier from Huntington Ingalls (NYS: HII) , to shrinking the Army by an additional 30,000 soldiers, to slowing down the rate of purchase of Lockheed Martin's (NYS: LMT) new F-35 stealth fighter jet.

So how does America do more with less? In part, by shifting defense dollars from high-cost manned weapons programs to lower-cost robotic ones.

Earlier this month, the U.S. Marine Corps announced a plan to weaponize more Textron (NYS: TXT) Shadow unmanned aerial vehicles. Historically, the Shadow has been used primarily as an observation platform. Unarmed, when it saw a bad guy it had to call for a more robust ally to come in and bomb it. Now, though, the Marines want to cut out the middleman and turn the Shadow into a "shooter" in its own right.

The problem, of course, is that measuring just 11 feet from nose to tail, and with a wingspan of just 14 feet, the Shadow isn't much bigger than many missiles in the Pentagon's arsenal. It's far too small to carry most conventional munitions.

Solution: Build smaller bombs.

The Pentagon has already tasked Alliant Techsystems (NYS: ATK) and Raytheon (NYS: RTN) with developing miniature guided bombs (25 pounds and less), which are small enough to be carried and deployed by the Shadow. Currently, the Marines are testing a third munition "developed and fielded in secrecy" by an unknown third party. If it works, and proves the concept that small UAVs like the Shadow can operate as armed drones in their own right, this should result in new sales opportunities for the major defense weapons makers.

Not just with the Marines, either. The Army and Navy also use unmanned, unarmed drones at present. But proof that the Shadow can be weaponized could result in greater use of drones in armed operations -- and potentially, greater savings over manned weapons systems for the U.S. taxpayer.

At the time thisarticle was published

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