REUTERS SUMMIT-U.S. defense industry says global turmoil swaying budget hawks

(For other news from the Reuters Aerospace and Defense Summit, click on http://www.reuters.com/summit/Aero14)

By David Alexander and Andrea Shalal

WASHINGTON, Sept 12 (Reuters) - Images of two Americans being beheaded and of Russian tanks rolling through Ukraine have boosted pressure on Congress to roll back $1 trillion in mandatory defense cuts that the defense industry blames for almost 100,000 job cuts in recent years.

U.S. lawmakers this week signaled support for President Barack Obama's plan to take action against Islamic State extremists in Syria and Iraq.

For now, the Pentagon is working on the assumption that the fiscal 2016 budget will include deep spending cuts that were partially offset in 2014 and 2015, and further reductions in personnel.

But executives from Lockheed Martin and Boeing , government officials and industry analysts told the Reuters Aerospace and Defense Summit this week that more lawmakers now recognize that current global crises meant a different approach was needed - in part because of relentless lobbying by the industry.

Military leaders have warned that lower troop numbers pose a bigger security risk and could even force the abandonment of elements of Obama's defense strategy.

"The more peaceful world that the Obama administration anticipated when their second term began has disappeared," said Loren Thompson, analyst with the Lexington Institute think tank.

"It's one thing to cut technology when you're fighting enemies that have no planes and no tanks," Thompson told the Reuters summit in Washington. "It's quite another when your concerns have been refocused on countries like Russia and China (which) are rapidly expanding their investment in nuclear and conventional weapons, not to mention cyber."

The Lockheed and Boeing (NYSE: BA - news) executives, as well as government officials and industry analysts, told the Reuters Summit that resumption of the cuts would mean new business risks to major defense companies and the hundreds of firms in their supply chains.

Marion Blakey, chief executive of the Aerospace Industries Association, the industry's largest trade group, said budget reductions and uncertainty about future funding resulted in a loss of 97,000 jobs from the U.S. defense industry between 2010 and 2013, or 11 percent. Cuts hit smaller companies particularly hard, she said.

But fiscal conservatives in Congress - the Tea Party wing that led the drive to sequestration - have started to realize that spending on defense, and on weapons systems in particular, has been cut too much, Blakey said.

"There was a lot of wishful thinking in 2010 that we could drive the budget down and still maintain a strong defense, and that's just proven to be untrue," she said. "Many of those members are going to have to make some tougher choices."

Dennis Muilenburg, Boeing's chief operating officer, said lower military spending had forced Boeing to cut about 15,000 workers in its defense and space division over three years, with more to come. The cuts were part of a drive to lower overhead by $4 billion, with another $2 billion still to come, he said.

Analyst Richard Aboulafia with the Virginia-based Teal Group said the tide was shifting away from the deficit hawks clamoring for unending military spending cuts.

"Current events are strong enough to remind people that the defense budget can't just go back to where it was in the 1990s. Even (Taiwan OTC: 6436.TWO - news) the Tea Party is starting to lose traction with its 'deficit first' message," he said.

Orlando Carvalho, executive vice president of Lockheed's aeronautics division, said his company continued to push for the repeal of the mandatory budget cuts, and hoped that U.S. lawmakers would find a way to do so.

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(For video of Muilenburg: http://reut.rs/1rYpMWb)

(For video of Thompson: http://reut.rs/1p80Tj1)

(Reporting by David Alexander and Andrea Shalal; Editing by Ros Krasny and Leslie Adler)