ELECTIONS ‘94: IMPACT ON BUSINESS : GOP Sweep May Not Reverse Tightening of Pentagon Budget : Military: Despite party’s plan to restore $20 billion in spending, financing for new programs is still inadequate. : NEWS ANALYSIS

When the Republican Party swept into power in Congress this month, hopes were initially raised that weapons systems like the B-2 bomber, built by Northrop Grumman Corp., would get a new lease on life.

The Los Angles-based aerospace firm wants to sell the Pentagon 20 more B-2s for $11.4 billion. According to the company, that’s a bargain basement price that would be a lot cheaper than alternative high-technology missiles and would preserve 13,000 jobs in California.

And Defense Secretary William Perry has quietly arranged to take his own demonstration flight in a B-2 bomber early next month--the first time a non-pilot will fly in the two-seat cockpit and a signal about his interest in the future of the plane.

But even if Perry comes away ready to change his longstanding opposition to buying more B-2s and Republicans continue to press for a stronger military, the program still faces long odds--just like the rest of the U.S. defense industry.

Despite recent Republican rhetoric about beefing up defense, the impact over the next few years is likely to be minuscule and certainly will do little to rescue California from the misery of its eight-year-long aerospace bust.

“Anybody in the defense industry who thinks this election is the salvation of their industry doesn’t understand how the world has changed,” said Loren Thompson, a defense industry consultant. “Being a conservative means many different things, and only one of those is pro defense. A lot of conservatives want to cut the deficit, cut taxes and cut government.” At best, the new GOP majority may end the downward spiral in defense spending sooner than if the Democrats had remained in power, but it is hardly clear that even the Republicans are ready to immediately stop the spending decline.

Senate Republicans have released a vague plan to add $20 billion to President Clinton’s planned defense spending over the next five years--a proposal that would still have the Pentagon budget going down until the end of the century after adjusting for inflation.

Said Steven Kosiak, an analyst at the Defense Budget Project, an independent watchdog group in Washington: “$20 billion doesn’t do squat. If you wanted to freeze defense spending at today’s level in real terms, you would have to add roughly $100 billion over the next five years.”

Even with $20 billion in extra money, the Pentagon does not have the funds to buy all the weapons it has under development and, by some estimates, has $40 billion to $150 billion in future programs that it might be unable to finance.

Another wrinkle in the outlook is that the Republicans would get their first shot at increasing funding in the fiscal year starting in October, 1995, but the actual “outlay” of that spending and its impact on the aerospace industry could take two years to be felt because of normal acquisition delays. So, it could be 1997 before anybody in Southern California sees some extra cash.

In nearly two weeks since the Republican landslide, the sobering reality of the defense budget crunch has extinguished much of the initial optimism.

Byron Callan, Merrill Lynch aerospace analyst, said that he has not raised a single earnings estimate for defense firms and has not upgraded his recommendations on any defense stocks.

“People can talk, but there is no money in the bank,” Callan said. “The November election didn’t change the fiscal picture.”

In large part, the rationale for Pentagon budgets has nothing to do with partisan politics, experts say.

“The threat is the same today as it was last month and what we need to do about that is the same,” said Booz Allen & Hamilton consultant John Harbison. “If you are leading one of these defense companies, the general direction is still cutting capacity.”

One Pentagon official surmised that the new Republican majority will be less interested in voting large funding increases than in stopping non-military tasks and humanitarian missions--which should free up funding for readiness and may take pressure off to further cut weapons production.

But even here it is hard to see how far Republicans can go.

About $3 billion of the Pentagon budget, for example, goes to defense conversion, aid to communities hurt by base closures and incentives for early retirement by military officers. Those activities do little for direct national security, but they have important political constituencies all over the country.

Likewise, cutting funding for such things as environmental cleanup, contaminated defense sites and helping with drug interdiction will not free a lot of money and would require changing a lot of different laws.

Amid such tough choices, Northrop Grumman’s proposal for the Pentagon to buy more B-2s strikes some analysts as far-fetched. And yet, among all the defense programs, it has a better chance of success than many others.

As Republicans shake up the government, the Pentagon may be more likely to look seriously at reassigning its traditional “roles and missions” divided among the services. B-2 proponents think a good case can be made to rely on the B-2 for missions now performed by Navy nuclear missile submarines and aircraft carriers.

A study by retired Gen. Jasper Welch, conducted for Northrop, asserted recently that in fighting two major regional wars, the Pentagon will spend $70 billion for advanced munitions, double the cost compared to what a fleet of 40 B-2s would cost.

In addition, the Navy will spend an estimated $4 billion to $8 billion to refurbish Trident submarines that carry nuclear missiles, a job that more B-2s could also perform.

Sen. Strom Thurmond (R-S.C.), the designated chairman of the Senate Armed Services Committee, has been a longtime supporter of the B-2 bomber. And with B-2 critic Rep. Ronald V. Dellums (D-Oakland) out of his job as chairman of the House Armed Services Committee, prospects for additional B-2 orders could improve.

Senior Republicans were also a key force in the tough Senate fight earlier this year to provide Northrop with $125 million in funding to keep B-2 subcontractors ready to resume production. Sens. Robert Dole, Ted Stevens, Alfonse D’Amato and Thurmond were among those who voted against an amendment to kill the funding.

“The B-2 may get another look,” said one Air Force official knowledgeable about the Air Force’s procurement agenda. “But we are still operating under the assumption that the Clinton budget cuts are in place. I don’t see anybody doing handsprings down the hallway.”