The Pentagon is trying to balance demands for restoring readiness and pushing for next-generation technologies in its fiscal 2015 budget request, despite congressional spending limits imposing a $45 billion cut to its expected plan.

But amid the grim fiscal environment, Defense Secretary Chuck Hagel last week announced a $1 billion initiative in the forthcoming fiscal plan to fund a competition to produce a new engine capable of improved efficiency and thrust. The funds likely will build on the Adaptive Engine Technology Development, through which Pratt & Whitney and General Electric are designing a potential replacement for the Pratt F135 that powers the F-35. It also could feed into future tactical aircraft programs such as the Air Force's next-generation bomber and the Navy's F/A-XX.

This is a nod toward the industrial base, one senior defense official says. It is “$1 billion that was not there last year,” says Air Force Undersecretary Eric Fanning. It is unclear how much are new funds or what it adds onto existing efforts. But it reflects a hard choice for Pentagon leaders. Frank Kendall, Pentagon procurement chief, said he worries about creating a hollow force by gutting funding for technology advances. With an edge already in stealthy platforms and avionics integration, he singled out engine technology as an area in which the Pentagon has—and must maintain—an advantage.

Likewise, USAF spending in classified procurement priorities—probably reflecting technology efforts—is second only to its obligation to the Joint Strike Fighter, which cost about $4.5 billion in fiscal 2014, says Lt. Gen. CR Davis, USAF deputy for acquisition.

However, spending on technology is only possible if Congress is willing to approve a separate, $26 billion wish list in fiscal 2015 (with another $115 billion through fiscal 2019). Sixty percent of it is intended to replenish depleted readiness accounts, says Pentagon Comptroller Robert Hale. These include flying-hour accounts that, due to the last-minute implementation of sequestration in fiscal 2013, were required in some cases to fully stand down flight training and delay supply orders and depot work. Thus, proficiencies have suffered greatly.

Although the Bipartisan Budget Act that passed last December provided some relief from sequestration's deep cuts in fiscal 2015, it remains law for 2016 unless Congress takes action, which it has rarely done on budget matters without severe pressure.

Air Force Secretary Deborah Lee James says the service's portion of this account is $7 billion in fiscal 2015, growing to another $34 billion through fiscal 2019.

The budget request, which will be delivered to Congress March 4, will also make good on a Congressional demand that the Pentagon outline what cuts would take place with and without sequestration. Hagel plans to mothball 283 Air Force aircraft, including the high-flying U-2 and close-air-support A-10, and the Army will shelve hundreds of TH-67s and OH-58D Kiowas, even if sequestration stays in place in 2016. Shelving the A-10s alone would provide $3.5 billion of cost avoidance through fiscal 2019, Hagel says.

But if sequestration spending limits are not lifted, he says, the Pentagon will be forced to retire another 80 USAF aircraft—the entire KC-10 refueler fleet—operate only 45 combat air patrols of Predator and Reaper aircraft (10 fewer than without sequestration) and shelve the newly fielded Global Hawk Block 40, optimized to carry a sophisticated active, electronically scanned array radar for ground surveillance.

The worst-case scenario also calls for delaying the Navy's buy of F-35Cs by two years (pushing its operational debut to 2021) and buying 24 fewer F-35As for USAF in five years.

Either plan relies on congressional support for proposals to curb the rate of military pay increases and on another round of base closures in 2017. Base Realignment and Closure requests have not stood a chance in the polarized Congress since the last round in 2005; lawmakers have denied proposals for two years. Representatives are especially solicitous to constituent concerns about jobs during an economic slump.

Likewise, they are resistant to proposals to retire aircraft, especially the A-10s and OH-58Ds that are heavily used by the Guard and Reserve. In some cases, these aircraft are the only major missions at a small base, anchoring the workforce there.

Guard and Reserve forces are concerned that the retirement proposals will leave them with too few aircraft to maintain relevance. These forces have strong influence with home-state politicians as they serve state governments in crisis situations.

The opportunity and growth fund is also prone to draw scrutiny. Some lawmakers will undoubtedly demand that the Pentagon replenish its readiness accounts out of the base budget rather than requiring an additional fund to do so. Also, this account will rely on what Hagel calls a “balanced package of spending and tax reforms,” both of which have been lightning rods in Congress since President Barack Obama took office in 2009.

Also in question is just when the Air Force would retire the U-2; Davis says this will not happen until the unmanned Global Hawk achieves “U-2 parity,” meaning it can collect the same quality and type of intelligence as the high-flying, manned reconnaissance aircraft. This is likely to prompt strong debate because combatant commanders in the Asia-Pacific, Middle East and Europe and at Strategic Command (which oversees global intelligence aircraft) favor the U-2.

The Army's plan to shift all scout missions to the more costly Apache will also generate questions. Another unknown is whether the Pentagon will continue to fund Boeing's work building more F/A-18E/F Super Hornets or EA-18G Growlers in fiscal 2015 as a gapfiller until the F-35C buys ramp up; without more funding, Boeing will have to underwrite its production facility and, possibly, reduce its rate by as much as half—to 24 annually.

Finally, the Pentagon is likely to reveal in another rollout of fiscal 2015 plans slated for March 4 just how quickly it will start a program to replace the E-8C Joint Stars. The service wants to house a future ground-surveillance system on a business jet, says Steven Wert, command and control program executive officer. Likewise, Air Force officials are eager to start a T-38 replacement effort. But it is unclear how soon it can begin these, given funding restraints.

For the latest on the Obama administration's fiscal 2015 budget proposal, go to AviationWeek.com