UPDATE 1-Despite warnings on U.S. defense cuts, little action to stop them

David Lawder and Roberta Rampton and Andrea Shalal-Esa

* Partisan divisions harden

* Defense secretary cites "callous" attitude

* Industry CEOs meet with White House officials

WASHINGTON, Feb 6 (Reuters) - U.S. defense officials and

their allies in Congress did their best on Wednesday to create a

sense of crisis about steep impending budget cuts, but their

warnings failed to produce any visible result.

Instead, partisan divisions hardened over how to avoid the

automatic spending reductions set for March 1, with Democrats

and Republicans offering solutions that appeared irreconcilable

and trading accusations designed to shift the blame across the


If Congress fails to act by March 1, across-the-board

spending cuts of $85 billion over seven months will hit federal

agencies, split evenly between military and domestic programs.

Defense contractors and economists are predicting hundreds of

thousands of jobs could be lost within a matter of months.

The positions are much the same as they were during the New

Year's "fiscal cliff" drama: Republicans want to pay for a

short-term delay with other spending cuts, while Democrats want

the wealthy to pay more in taxes to help cover the gap.

Missing is the atmosphere of doom or worry about a market

reaction that pervaded the fiscal cliff controversy.

"It's not like on March 2 something horrible happens like a

market crash," said a U.S. Senate aide, attempting to explain

the inactivity in Washington. "It'll be cumulative, unlike the

cliff," said the aide, who asked not to be identified.

Evidently concerned about that attitude, the defense sector

ratcheted up efforts on Wednesday to sound the alarm.

Defense Secretary Leon Panetta told students at Georgetown

University that a "a dangerous and callous attitude" was

"developing among some Republicans and some Democrats, that

these dangerous cuts can be allowed to take place in order to

blame the other party for the consequences. This is a kind of

'so what?' attitude that says, 'Let's see how bad it can get in

order to have the other party blink.'"

He said the cuts, known in budget jargon as a "sequester,"

would force the Pentagon to put as many as 800,000 civilian

employees on unpaid leave for 22 work days, reduce Navy

operations in the Western Pacific by up to one-third and cut Air

Force flying hours.

Later on Wednesday, Panetta delayed deployment of an

aircraft carrier strike group to the Middle East because of the

budget uncertainty, and the Pentagon said it would seek a

smaller-than-expected pay increase for services members in the

2014 fiscal year that begins in September.

At the White House, a day after Obama urged Congress to pass

a small package of spending cuts and tax reforms to avert the

sequester, senior officials met with six major defense

contractors and the head of the Aerospace Industries

Association, the industry's largest lobbying group.

"The focus of their conversation was the potentially

devastating impact of the sequester going into effect," White

House press secretary Jay Carney told reporters.

Carney noted that one of the companies, Northrop Grumman

Corp, had a supply chain of 20,000 small businesses that

would also be hurt by the broad cuts.

One industry executive said last week's fourth-quarter GDP

report, which showed a 22.2 percent drop in defense outlays, had

unnerved White House officials. "The recent GDP report helped

them realize how much of a role defense spending and aerospace

play in the overall economy," the executive said.


Separately, the U.S. Air Force told Congress it would have

to curtail its orders for Lockheed Martin Corp's F-35

fighter jet, restructure a $52 billion tanker contract with

Boeing Co and reduce its flying hours by 18 percent if

lawmakers did not avert the cuts.

In a draft presentation to the House of Representatives

Armed Services Committee obtained by Reuters, the Air Force said

it faced shortfalls of $1.8 billion in war funding and $12.4

billion overall if Congress did not forestall the cuts.

While leaders of both parties say they share the concern

about the cuts, the proposals they continued to advance on

Wednesday were far apart.

Aides said Democratic lawmakers had reached a consensus to

join Obama in demanding more revenues as part of any deal.

Democrats believe that the American public backs that

position. At a retreat in Annapolis, Maryland, they discussed

new polling data showing that a strong majority of voters wants

the wealthiest 2 percent of Americans - and large corporations -

to pay more in taxes, even after the fiscal cliff deal raised

tax rates on income above $450,000.

Republicans say that they have already given ground on more

tax revenue, and any deficit reduction from here on out must

come from spending cuts, a position repeated on Wednesday by

Republican House of Representatives Speaker John Boehner.

In the U.S. Senate, a group of Republicans on the Armed

Services Committee proposed delaying the spending cuts, known as

a sequester, until the 2013 fiscal year ends on Sept. 30.

But their plan would replace the $85 billion in cuts with

savings achieved by shrinking the federal workforce by attrition

over a multi-year period, an approach unacceptable to Democrats.

As government workers left their jobs, they would not be

replaced. The plan also would extend a congressional pay freeze

that was put in place as part of the Jan. 1 fiscal cliff deal.

Those lawmakers said their plan would protect vital defense

programs and military readiness.

"To my Republican colleagues ... if you feel comfortable

with cutting the government this way, then you have lost your

way as much as the president," said Senator Lindsey Graham of

South Carolina, issuing a challenge to those in his party

willing to accept the cuts.

"I am sure Iran is very supportive of sequestration. I am

sure al Qaeda training camps all over the world must be pleased

with the fact that sequestration will gut the CIA and the

intelligence platforms that follow them around," Graham said.

Lawmakers whose districts have heavy concentrations of

military installations and defense manufacturing are growing

nervous about the looming cuts.

Representative Rob Bishop, a Republican member of the Armed

Services Committee, said he would support a postponement of the

cuts without any offsetting savings.

"I'll take any kind of postponement I can get," Bishop said,

worried about the defense workers in his Utah district. "I feel

for my constituents who have had their salaries frozen for