If the military actually mistook a civilian airliner for a bomber, it's counterproductive to punish them for admitting to the error by taking away the funds they would need to retrain and re-equip to prevent such errors in the future. Beyond the bad morale implications of punishing integrity like that, reducing the military in response to the error also risks making the error more likely to recur in the future by under-equipping them. Major organizations in the real world understand that they have to minimize punishments of people cooperating with procedure in the aftermath of devastating errors.
There should be an option that increases integrity while funding retraining and new sensor equipment for the military, similar to how in Issue #654 it's possible to react by increasing funding for (oversight and bureaucratic administration of) foreign aid in response to corruption issues arising in foreign aid programs.
I wrote up this dispatch about the event and how I imagine Polis Diamonil handling it: https://www.nationstates.net/page=dispatch/id=1307881