Young refused to say how big an increase was being recommended to Obama, who will be sworn in as president on 20 January. He said the advice applied to the 'top line' of a Defense Department budget plan for 2010 through 2015, and represented a jump from what the Bush administration had projected for 2009 through 2013. Asked about reports that the recommendation for the Pentagon's core fiscal 2010 budget, due to be sent to congress by 2 February, would be about $56bn above previously planned levels, he said: "I've seen a number like that."

In remarks to reporters at the breakfast, Young said 'significant portions' of the proposed increase would go to operations and maintenance tied to the US-declared global war on terrorism. The Pentagon, he said, was intent on rolling more war costs into its core budget rather than fund them through supplemental requests, as in the past.

The incoming administration must make early decisions on more than $100bn in major arms acquisition programmes, including the possible purchase of more Lockheed Martin F-22 fighter jets and Boeing C-17 transports. It also must decide how to start buying a new fleet of aerial refuelling aircraft and combat rescue helicopters.

Young said he and Gates would advise Obama's team to take a two-step approach to the marathon, $35bn refuelling-plane competition between Boeing and a team of Northrop Grumman and EADS. The proposed new approach would hinge on the best-priced offer after the bidders had shown an ability to meet a stripped-down set of military requirements. He said the complexity of valuing some 800 requirements had been a 'mine field' in the last abortive attempt to award a contract.

"And I can tell you for sure, I think, that this is the path that [Gates] and I and others will recommend to the new administration," Young said.

The air force has been trying for seven years to start replacing its tanker fleet, which averages nearly 50 years old. In June, the Government Accountability Office upheld Boeing's challenge to an air force award to Northrop Grumman. In September, Gates cancelled plans to rerun the competition this year, leaving the decision to the next administration.

Young was asked about a Northrop Grumman advertisement in the Washington Post on Wednesday that quoted an unnamed senior US Defense Department official as saying Northrop's original proposal to build the next tanker came in almost $3bn less than Boeing's rival bid. "I said some of those things," he told the breakfast session, "because I think the public was entitled to know."

By Jim Wolf, Reuters.