* Budget knife cuts industry clout
* Has spent billions to cultivate Congress
By Andrea Shalal-Esa and Marcus Stern
WASHINGTON, Sept 19 (Reuters) - To grasp how much the budget wars have altered the natural order of things in Washington, consider this: One of the most powerful lobbies in town, the defense industry, is feeling a bit powerless.
It is trying to head off automatic across-the-board cuts in the Pentagon budget of $54 billion next year alone, produced by a 2011 bipartisan budget deal. But it has made little apparent progress in blocking or tempering the so-called "sequestration" of funds set for January.
With traditional lobbying efforts hampered by congressional gridlock, the industry has added Facebook and Twitter to its usual arsenal.
And like activists of the left and right, the industry is engaging in direct action, holding protest rallies in the home districts of members of Congress and symbolic marches on Washington.
The latest of these efforts is this week, with the Aerospace Industries Association orchestrating a "march to Capitol Hill" by small and medium-sized businesses, which will be hard hit by the looming defense cuts.
AIA President Marion Blakey urged hundreds of military and industry officials during the annual Air Force Association conference on Tuesday to join in the group's "Second to None" campaign, telling them, "This is no time to stand on the sidelines."
Things could change after the Nov. 6 election: Some members are discussing wiping out across-the-board cuts in favor of an additional $200 billion to $300 billion in targeted cuts to defense.
But nothing has actually occurred to make the automatic cuts go away.
It's difficult, says Guy Hicks, vice president of government relations for aerospace giant EADS, "not knowing what the future looks like and knowing that you have a certain lack of control."
"Everyone is nervous and worried. There's a hopelessness with regard to the federal government and Congress generally," said Caren Turner, a lobbyist who used to work for companies that build components for Lockheed Martin's F-35 Joint Strike Fighter.
Interest groups representing non-defense categories of spending stand to lose from the across-the-board cuts too. But defense is used to winning, to the point that Congress sometimes authorizes expensive weapons systems the Pentagon does not want.
And it has spent billions of dollars over the past few decades on lobbying fees and millions in campaign contributions to keep winning.
While weapons makers have been outspent in recent years by other sectors, including health care and financial services, defense punches above its weight politically by arguing that its programs are vital to national security and job security in the many Congressional districts where its employees vote.
Big defense contracts are often spread across dozens of states, which magnifies the companies' clout on Capitol Hill.
Congress kept the Boeing C-7 transport plane going for many years longer than the Pentagon wanted by getting members to add funds to appropriations bills.
Successful lobbying also first created and then sustained work on a second engine for the F-35 Joint Strike Fighter program, which benefited General Electric, and it took a presidential veto threat to ultimately block it.
But these were very specific program initiatives - this is an order of magnitude more complex, beyond the influence of any one committee or member.
That may explain why the industry isn't placing the rallies in key congressional districts, which would be traditional. Rather it is placing them in presidential swing states: Virginia, Florida, New Hampshire and North Carolina.
Political demographics may ultimately give the industry some additional leverage, with some companies warning that they might have to issue layoff notices to large numbers of employees.
But after a year of fly-ins, rallies, campaign contribution and lobbying fees, the defense industry and its allies in Congress and the Pentagon find themselves frustrated and largely helpless in the face of the first defense budget cuts since the 1990s.
At a recent rally in New Hampshire, the head of BAE's electronic systems sector - Dan Gobel - likened sequester to a hurricane, adding that "its path is still somewhat unpredictable and its effects are being felt now before it even reaches us."
Erin Moseley, the company's chief lobbyist, said the challenges facing the industry amounted to "a perfect storm" that included the expiration of the Bush-era tax cuts, sequestration, the lack of a fiscal 2013 budget and polarized politics.
Many smaller companies in the sector have abandoned their lobbying efforts because they don't see any resolution in sight, she added.
Jay Johnson, chief executive of General Dynamics Corp , last week told analysts that companies were doing what they could to prepare for leaner times until they got through the current "fog bank."
TRADITIONAL ALLIES HAVE LESS CLOUT
Part of their dilemma - also faced by lobbyists in other industries - is that the whole game has changed with increasing polarization because they depended on members of Congress talking to each other and breaking down partisan barriers.
"How effective can lobbying be?" said one defense industry executive who asked not to be named. "There's complete paralysis on the Hill right now. Normally you could talk to staffers, but they don't seem to be in the loop on this stuff. Members aren't talking to members. Congress isn't talking to the White House and vice versa," said an industry executive who asked not to be named.
Even committee chairmen in Congress can't get much done when the House and Senate are in the hands of warring parties that refuse to compromise.
The Aerospace Industries Association has budgeted $1.7 million separately for this year's anti-sequestration campaign, including the rallies.
AIA argues that those efforts are showing some results: A recent survey it sponsored in five swing states, including Florida and Ohio, showed that 80 percent of people surveyed knew what sequestration was, and 77 percent believed it should be addressed before the election, according to AIA President Blakey.
But other polling suggests that the industry cannot count on much public support, particularly when programs such as Medicare- the health program for the elderly - are at stake.
In a recent Reuters-Ipsos poll, no more than 10 or 11 percent of the respondents said the nation could afford cuts to Social Security, Medicare, law enforcement and education.
But 34 percent agreed that defense could be cut.
The defense lobby has seen this all before, especially after the end of the Cold War. Defense spending has gone up and down repeatedly in the past hundred years, not so much with the relative clout of the industry in Washington, but as threats to the United States rise and fall.
No one expects that pattern to change, whatever happens with the budget this year or next.
Defense Lobby Exhibits Diminished Power As It Seeks To Head Off Large Budget Cuts