Padding: Is this really a "Professional Option" ?

Here is a situation to consider: A company has identified a need - there is a demand for more product and they are in a position to supply that additional product but they need more manufacturing capacity. They hire a professional analyst to undertake a business case for an expansion project. The analyst likes the project but the cost estimate may jeopardize the approval by making it un-affordable. The analyst request the cost estimator to trim down the cost estimate, essentially negative padding. His rationalization is that 1) savings will be found, and/or 2) more money will be found "once we get into it".
Is there a professional or ethical concern here? If so, who would be considered unprofessional? Does collusion between the two (analyst and estimator) make it alright? Does it make a difference if the project is ultimately successful?

Thanks for shedding a light on this Suhail - Definitely Padding is something that should not be used at all, no matter what because it has so many disadvantages and not a single advantage !

I think you've partially answered your own question - padding or perhaps referred to more professionally as contingency is added to cover unknowns. Over and above that, it might also be included to increase the profit on a project to make it commercially attractive, or to make it so expensive that the customer rejects the bid. Another reason for including it is to protect profit margins if you're expecting the customer to want a lot of technical support beyond what has been budgeted for in the contract.
It might also be added to protect a reputation or to give the PM an easy ride - allows you to under promise and over deliver on a project = still deliver on time and to budget even after delays. The extent you might do that depends somewhat on the culture of the organisation you're working for, or perhaps how aggressive you view your customer.
You might need to do this where you are uncertain of resource availability - in a weak matrix organisation where the PM has little control over resources and the projects he's responsible for are viewed as lower priority in the organisation, it's practically impossible to accurately schedule a project and therefore padding is really only pointing out a realistic situation.
I'm sure other members can add other reasons but I've given a few to get the discussion started.

Sorry Gray and everyone trying to justify padding. You all are trying to prove padding is another name for reserve or contingency, which it definitely is not. Padding a a project management crime and just like scope creep it has absolutely no justification, no matter how you try to defend it. Risk Management is a separate and kosher subject we all study and I am sorry to say that when it comes to using it, we drift back to old rotten style of working using padding where you need not justify the reasons. Better correct your good selves and do not introduce error in a perfect standard, just due to your ignorance or misunderstanding. I will stand by my statement while you may give any number of superfluous arguments.

I think you've partially answered your own question - padding or perhaps referred to more professionally as contingency is added to cover unknowns. Over and above that, it might also be included to increase the profit on a project to make it commercially attractive, or to make it so expensive that the customer rejects the bid. Another reason for including it is to protect profit margins if you're expecting the customer to want a lot of technical support beyond what has been budgeted for in the contract.
It might also be added to protect a reputation or to give the PM an easy ride - allows you to under promise and over deliver on a project = still deliver on time and to budget even after delays. The extent you might do that depends somewhat on the culture of the organisation you're working for, or perhaps how aggressive you view your customer.
You might need to do this where you are uncertain of resource availability - in a weak matrix organisation where the PM has little control over resources and the projects he's responsible for are viewed as lower priority in the organisation, it's practically impossible to accurately schedule a project and therefore padding is really only pointing out a realistic situation.
I'm sure other members can add other reasons but I've given a few to get the discussion started.