(FORTUNE Magazine) – THE U.S. MILITARY'S biggest triumph under the Reagan Administration has not been the invasion of Grenada or the raid on Libya but the $1.3 trillion it has won from Congress over the past five years, about 50% more than in the previous half decade. That's not to mock the victory. The troops are standing tall, as the sergeants say, and the ammo bins are full. The country is stronger than it was at the start of the 1980s. The question now is, How much more money does the Pentagon need? Defense Secretary Caspar Weinberger insists the rebuilding job is far from complete. He wants $320 billion for fiscal 1987, an inflation-adjusted increase of about 8.5%. Congress is saying enough. In a nonbinding budget resolution passed at the end of June, Congress allotted only $292 billion for defense. That won't even cover inflation. Weinberger is almost sure to keep trying to get the money he thinks he needs from individual appropriations committees. FORTUNE believes Congress is almost on target. A better figure, however, would be $295 billion, which would provide for inflation but no real growth. That conclusion is based on extensive interviews with present and former Pentagon officials and scholars at such places as the Brookings Institution and Georgetown University's Center for Strategic and International Studies. In fact, if Weinberger got his big number, he might have trouble finding enough fresh personnel to man all the new planes and ships he wants to buy. The Pentagon would be back in the fix it was in when Reagan took office. Strapped for cash and facing soaring fuel bills, the military managed to keep buying the weapons it wanted by cutting back on pay and operations. The result was the so-called hollow force. Airplanes didn't fly, ships didn't steam, and many units were under strength. The ranks were fleshed out with raffish high school dropouts, not only ill educated but also difficult to discipline. A retired Army lieutenant colonel recalls that when he took Defense Secretary Harold Brown out to inspect bases, he made sure the troops stayed in the background. The trick is to cut $25 billion out of the Administration's proposal without wounding the forces. The Pentagon wants an $11-billion increase in its operations and maintenance (O&M) budget, to $86 billion. But it could get by with a rise of just $6 billion and still have enough to increase combat readiness. For starters, when the Pentagon prepared its budget last winter it figured on paying an average of $33 a barrel for the 180 million or so barrels of oil it plans to use next year. The collapse in prices should save $2 billion. , There is plenty more padding in the O&M account. ''It's one of several places where the Pentagon builds in some insurance against severe budget cuts,'' says Richard Stubbing, who analyzed defense spending at the Office of Management and Budget for 20 years. He estimates that about half of O&M spending is for routine administration and maintenance that have little to do with combat readiness. The Pentagon can stand to sharpen its buying practices not only to save money but also to save face. Revelations that the Air Force bought $7,600 coffee makers for its bombers and paid $436 for hammers have done as much damage to the Pentagon's case for more money as the deficit. To find a cure for such outrages, the President appointed a commission last year headed by industrialist David Packard, a founder of Hewlett-Packard and a onetime Deputy Secretary of Defense. The commission's final report, soon to be published, recommends among other things that a new position be created within the Pentagon. An acquisitions czar would supervise all procurement. The report also asks defense contractors to create codes of ethics that make it clear to employees that chiseling the government is not company policy. Outright fraud, however, may be a relatively small problem. William Perry, a commission member who was an Under Secretary of Defense in the Carter Administration, thinks bad buying habits by bureaucrats waste more money. Perry, now president of a high-tech consulting firm, discovered that the military was paying $4 for an integrated circuit that civilian customers were getting for 40 cents. The 900% markup was due to the military's habit of demanding detailed documentation and testing of the chips. Such cautionary practices made sense back in the 1970s when many chips failed, but chips are so reliable these days that testing a few in a batch is enough. On the assumption the military will be a better shopper in 1987, figure on saving $1 billion, or about 1% of the procurement budget. Larger cuts are harder to find. Military pay is one place to look. Big savings would result from, say, a pay freeze. But it would heavily damage morale and make recruitment all the harder. FORTUNE thinks a better place to look is in major weapons programs. A few new weapons are duds and deserve to be killed. Others are admirable devices, but either are not urgent or are based on overambitious strategies. Here are savings that would result from slowing down or canceling hardware purchases in the Pentagon's major areas: STRATEGIC NUCLEAR FORCE -- $6.19 billion in savings. The U.S. has been strengthening all three legs of the land-, sea-, and air- based nuclear arsenal so it can take the biggest punch the Russians can throw and counterpunch with pulverizing force. The inventory consists of 1,014 intercontinental ballistic missiles, most of them single- or triple-warhead Minutemen; by the end of the year some of those Minutemen will be replaced by ten Peacekeeper missiles (also called the MX), with up to ten warheads each. The sea-based nuclear force includes eight Trident submarines, each carrying up to 192 warheads, and 28 Poseidon subs, with as many as 160 warheads each. Meanwhile, the bomber force is made up of 263 B-52s, each with up to 12 Cruise missiles or a mixture of bombs and short-range missiles, and ten B-1B bombers, which can carry up to 24 nuclear bombs. Neither the U.S. nor the Soviet Union reveals just how many warheads it actually deploys. But the U.S. probably has about 11,000 ready to fire and the Russians 10,000. The U.S. can safely put a ceiling of 50 on the number of Peacekeepers for now, the amount already ordered. At the same time, the Pentagon can reduce the number of Peacekeepers it buys just for testing from 21 to 12 for 1987 and save $1 billion. The country also has no pressing need for the Midgetman, a small intercontinental missile that can be moved around by truck. The Midgetman is the current answer to a question that has perplexed American strategists for two decades: how to protect land-based missiles from a sneak attack. The Defense Department estimates that Soviet SS-18 missiles can destroy 65% to 80% of the U.S. missile silos. Perhaps, but even if a Soviet strike were able to wipe out 90% of the silos, the U.S. would still have enough missiles left in the ground and on planes and subs to obliterate every Soviet town and city of more than 15,000 people. The Midgetman program should not be killed because someday Soviet missiles may be plentiful enough to destroy the whole land- based missile force. For now the Pentagon should freeze research and development on Midgetman at $600 million a year rather than raise it to $1.4 billion. The U.S. can get along without Northrop's Stealth bomber, the plane that is supposed to baffle Soviet radar with its smooth contours and fuselage made partly of carbon fiber and graphite. Rockwell International's B-1B already incorporates enough stealth technology to give it a good chance to pierce $ Soviet airspace undetected. B-52s can stay outside Soviet airspace and launch Cruise missiles that skim along below 500 feet and are all but impossible for radar to pick up. And future B-1Bs will be able to do the same.

Just what the pure Stealth bomber will add to the force is difficult to say, because the work on it is classified. Some defense analysts outside the Pentagon suggest that it could fly over the Soviet Union so low and so freely that it could hunt down mobile Soviet missile launchers as they are being shifted about. That's a tall order. The military doesn't disclose how much it spends on the Stealth bomber, but experts outside the Pentagon think that canceling the program might save $2 billion in 1987. The Administration should keep the Strategic Defense Initiative budget at $3 billion a year rather than raise it to $5.4 billion. SDI research will likely toss off benefits even if it does not put a leakproof antinuclear dome over the country. Still, nearly doubling the budget in one year hardly seems warranted. AIR FORCE -- $4.13 billion in savings. In a conventional war the Air Force plans to send fighters hundreds of miles beyond the front to harass reserve divisions and destroy enemy planes on the ground. The plane marked for the mission is the McDonnell Douglas F-15, of which 882 either have been delivered or are on order. For next year the Air Force wants to buy 48 of the latest model, the F-15E, which can fly farther than earlier versions and carry bombs. It will cost about $38 million per plane. Critics argue persuasively that the Air Force has enough planes for the long-range combat mission and in any case ought to concentrate on shooting down Soviet planes closer to the battlefield. The plane for that job is the General Dynamics F-16, at only $17 million each. The Air Force is always eager to widen the performance gap between U.S. and Soviet aircraft. So it is planning the next generation, the Advanced Tactical Fighter, a plane that will fly and fight at supersonic speed for long periods, not just in spurts. But hot planes like the F-15 are already so demanding that pilots have trouble handling them. On-board computers that might help probably are not advanced enough. The ATF's time has not yet come, and the Air Force should not award $290 million for R&D next year. The Air Force's more banal role is transporting equipment for the Army, but there's nothing ordinary about the plane the Pentagon would like for the job, ) the C-17 that McDonnell Douglas proposes to build. One current Air Force transport, the C-5, can fly across oceans but needs a long runway and lots of room to turn around when it arrives. Another, the C-130, is a rugged puddle jumper that can land on short, rough fields or even on a golf course but has a much shorter range. The C-17 would do both jobs; it could fly an M-1 tank and a couple of trucks from Fort Campbell, Kentucky, to any of 132 short airstrips in West Germany, where the weapons would roll off into combat. But the C-17s would cost $133 million each. ''I don't think the Air Force will want to bring a vulnerable, expensive transport plane to the forward edge of the battlefield,'' says Kim R. Holmes, a policy analyst at the Heritage Foundation. The Air Force can do its job with its current fleet of C-5s and C- 130s. Like many other analysts outside the Pentagon, Holmes recommends that the C-17 program be dropped. That would save $830 million next year. Another candidate for elimination is the advanced medium-range air-to-air missile known as the Amraam. Theoretically a pilot can fire the missile and turn to other matters while the projectile tracks down its target. But the cost of developing the Amraam has tripled, and it keeps flunking important exams. Air Force as well as Navy and Marine pilots already have Sidewinder and Sparrow missiles. They don't have the range of the Amraam, but they are reliable. Canceling the Amraam will save over $800 million next year.

ARMY -- $3.49 billion in savings. As the labor-intensive service, the Army has relatively few capital projects that can be cut. Weinberger sensibly canceled the Sergeant York computer- controlled antiaircraft gun last year because it had trouble doing its job -- shooting down aircraft. He should eliminate the flawed Bradley Fighting Vehicle as well, which would save about $810 million. The Army designed the Bradley to carry nine infantrymen into combat alongside the M-1 Abrams tank. Unfortunately the M-1 draws the kind of enemy fire that doesn't hurt the M-1 much but can demolish the Bradley. The Army might have to rethink its tactics. The secretary should also cancel, at savings of $250 million, plans to modernize scout helicopters used by forward observers. Currently the observer points a hand-held range finder out the window. The Army wants to mount laser range finders above the rotor blades. The laser devices work fine, but not much better than the cheaper hand-held versions. ; By ending the troubled career of the Aquila, a drone airplane that spots targets with a laser beam, the Army can save another $140 million. The Aquila eliminates the need for a forward observer, but the device needs so much support equipment it would be difficult to move around in a combat zone. The Army can get along with a smaller shipment of new M-1 tanks next year, according to Joshua Epstein, a research associate at Brookings who has worked out an impressively detailed plan of how the military can do its job for less. The Army already has more than 3,000 M-1s in the garage, and has paid for another 2,000 that will be delivered over the next few years. It also has 4,000 or so older but still formidable M-60s. If the Army buys only 540 instead of 840 M-1s in 1987, it can save $800 million and at the same time continue to build up its tank reserves at a robust rate. Epstein also thinks the Army wants to buy too much so-called direct-fire ammunition -- various kinds of guided missiles and rockets that are fired from the ground or from airplanes. Such ammunition is far more effective against tanks than traditional artillery rounds. But the Army is ordering the stuff as if it were no more effective than much cheaper artillery shells. The Army can save $1.5 billion next year by purchasing direct-fire ammunition at the current rate rather than at the accelerated rate it would prefer. NAVY -- $5.49 billion in savings. No service has prospered more under the Reagan Administration. The Navy is just 45 ships short of the 600-ship fleet, including 15 carrier battle groups, Reagan wants. It now has 13 carrier groups with another carrier due for delivery at the end of this year. When Reagan took office, the Navy had 469 ships, including a dozen carriers. In John Lehman, 43, the Navy has the most activist secretary of any of the services. Once a Navy helicopter pilot, Lehman helped write the defense portion of the Republican party's 1980 platform. He was president of Abington Corp., a marketing consulting firm for weapons manufacturers, when he was appointed. Before Lehman, the Navy's assignment in a conventional war with the Soviet Union was to keep sea lanes open. Lehman developed what has become known as the forward strategy. The Navy would send several carrier groups into the Barents Sea to take on Soviet carriers and to attack Soviet air bases around Murmansk. A similar carrier task force in the Pacific would move against bases at Vladivostok and Petropavlovsk. A boatload of military experts outside the Defense Department think the strategy is misguided. ''It's a dumb idea,'' says blunt-talking Richard D. DeLauer, who was Under Secretary of Defense for Research and Engineering for almost four years in the Reagan Administration. ''If we put a carrier force that close to Soviet bases, the Backfire bombers they have now and the Blackjack bombers they'll have soon will sink it.'' Other critics think the strategy might work, but only with more punch, say 20 or more carrier groups. New carriers sell for a pricey $3.4 billion, and the 95 planes they carry and the destroyers, cruisers, and other ships that accompany them run the bill for an average carrier group up to $18 billion. What's more, it takes 6,000 sailors to man the carrier alone. ''Five Presidents before the current one thought 12 carrier groups were enough,'' says former Defense Secretary Robert S. McNamara, ''and they were right.'' The forward strategy is iffy at best, and too costly in any case. The Navy should let the number of carrier groups dwindle back down to a dozen, enough to protect the sea lanes in time of war and punish the Libyas of the world during lesser crises. By retiring ancient carriers like the Coral Sea and Midway rather than reconditioning them, the Navy can save $1.6 billion next year. It can save $700 million by not building escort ships for a 15-carrier fleet and a walloping $2.8 billion by not buying extra planes. Also, the Navy should cancel the tilt-rotor aircraft, a hybrid that takes off like a helicopter and then tilts its engines to fly away like a plane. The Marines want the machine for shuttling troops and gear from ships to beachheads. But the tilt rotor will be expensive, and it can't do anything that a mix of helicopters and planes can't do. Killing it will save $390 million in 1987. Putting together a defense budget takes more than adding up the wish lists of the services. Strength lies in making the right choices. A $25-billion cut will not weaken U.S. forces. On the contrary, it will enable them to stay strong. If the Pentagon got its way this time, it would wind up with an impressive pile of lethal machinery, but not enough money to run it.

CHART: How the Pentagon Can SAVINGS Cut $25 billion IN BILLIONS Save on cheaper fuel $2.00 Freeze routine maintenance $3.00 % Shop smarter $1.00 Cut back or kill these programs: STRATEGIC NUCLEAR FORCE Peacekeeper (MX) missile $1.00 Midgetman missile $ .79 Stealth bomber $2.00 Strategic Defense Initiative $2.40 AIR FORCE F-15 fighter $2.20 Advanced Tactical Fighter $ .29 C-17 transport $ .83 Air-to-air missile $ .81 ARMY Bradley Fighting Vehicle $ .80 Scout helicopter $ .25 Aquila drone plane $ .14 M-1 tank $ .80 Ammunition $1.50 NAVY Aircraft carrier rebuilding $1.60 Carrier escorts $ .70 Carrier planes $2.80 Tilt rotor aircraft $ .39 Total Saving $25.30 BILLION