What’s Happening in the Defense Market? Amy Motko President, NDIA-CFL Chapter April 21, 2011

1. What’s Happening in the Defense Market? Amy Motko President, NDIA-CFL Chapter April 21, 2011

2. OVERVIEW • Observations of DoD’s Major Defense Acquisitions • The Defense Budget Cuts • What’s In Store for the Future?

3. GAO’s Observations of DOD’s Major Defense Acquisitions • Since 2008, the number of programs in DOD’s portfolio of major defense acquisition programs has increased from 96 to 98. • DOD’s total planned investment in these programs has increased by $45 billion to $1.68 trillion. • Thirteen programs with a total estimated cost of $174 billion left theportfolio. • Fifteen programs with an estimated cost of $77 billion enteredthe portfolio. • A small number of programs are driving most of this cost growth. Source from the Government Accountability Office, GAO-11-233SP Assessments of Selected Weapon Programs

4. Observation #1 of the Overall Portfolio • The total cost of the programs in DoD’s portfolio has grown by about $135 billion (9%) over the last 2 years, of which about $70 billion cannot be attributed to quantity changes. Source from the Government Accountability Office, GAO-11-233SP Assessments of Selected Weapon Programs

5. Observation #2 of the Overall Portfolio • Over half of the portfolio’s total cost growth over the last 2 years is driven by 10 of DOD’s largest programs, which are all in production. • Changes in Total Acquisition Cost and Program Acquisition Unit Cost for 10 of the Highest-Cost Acquisition Programs Source from the Government Accountability Office, GAO-11-233SP Assessments of Selected Weapon Programs

6. Observation #3 of the Overall Portfolio • About half of the programs in the portfolio have experienced cost increases that exceed cost performance goals agreed to by DOD, OMB, and GAO. Source from the Government Accountability Office, GAO-11-233SP Assessments of Selected Weapon Programs

7. Observation #4 of the Overall Portfolio • Almost 80 percent of the programs in the portfolio have experienced an increase in unit cost when compared to their original estimates. (reduces DOD’s buying power on these programs) • Change in Planned Quantities and Program Acquisition Unit Cost for the • F-22 Raptor and DDG 51 Destroyer Source from the Government Accountability Office, GAO-11-233SP Assessments of Selected Weapon Programs

8. Observation #5 of the Overall Portfolio • On average, the majority of cost growth materialized after programs entered production. (meaning they continued to experience significant changes well after the programs and their costs should have stabilized) • For the 56 major defense acquisition programs, the average program experienced the majority of its research and development and procurement cost growth after its production decision. • 52% of the average program’s research and development cost growth was incurred after production start. • 65% of the average program’s procurement cost growth materialized after production start. • Given the age of the programs in this group (average of 14 years), most of them were started before DOD acquisition polices were revised to promote a knowledge-based, acquisition approach. • Assumption: newer programs that follow a knowledge-based approach may be better positioned to avoid cost growth this late in the acquisition cycle. Source from the Government Accountability Office, GAO-11-233SP Assessments of Selected Weapon Programs

9. Federal Research & Development Funding • President Obama has requested $147.911 billion for research and development (R&D) in FY2012, a $772 million (0.5%) increase from the FY2010 actual R&D funding level of $147.139 billion. • Six federal agencies would receive 94.8% of total federal R&D spending: Department of Defense 51.8% Department of Health and Human Services 21.9% National Aeronautics and Space Administration 6.6% Department of Energy 8.8% National Science Foundation 4.3% Department of Agriculture 1.5% • The DoD would receive the largest reduction in R&D funding, $3.969 billion (-4.9%) less than its FY2010 level. • Department of Energy would receive the largest R&D dollar increase for FY2012 of any agency, $2.153 billion (19.9%) above its FY2010 funding level. Source from the Congressional Research Service Report for Congress, March 21, 2011

10. Federal Research & Development Funding The Good News • The FY2012 budget includes $147.911 billion for R&D in FY2012. • 0.5% increase over the actual FY2010 R&D funding level of $147.139 billion The Not-So-Good News • Adjusted for inflation, the FY2012 R&D request represents a decrease of 2.2% from the FY2010 level. Source from the Congressional Research Service Report for Congress, March 21, 2011

11. Federal Research and Development • Funding by Agency, FY2010-FY2012 Budget authority, dollar amounts in millions Source from the Congressional Research Service Report for Congress, March 21, 2011

12. The Defense Budget Cuts • The Goal: To sustain the military’s size and strength over the long term by reinvesting those efficiency savings in force structure and other key combat capabilities.  Specifically, the military services were directed to find at least $100 billion in savings that they could keep and shift to higher priority programs.  • Service leaders undertook the normal process of setting priorities and assessing risks in preparing the fiscal 2012 budget request – which led to the recommended termination or restructuring of a number of troubled or unneeded weapons programs. • The services will keep the savings they were motivated to find and reinvest in the needed capabilities each service needs to support the Warfighter.  • The bulk of the savings will be used by the service departments to make key investments in areas such as ship building, long-range strike, missile defense, intelligence, reconnaissance and surveillance (ISR), wounded warrior care and facilities, and more. Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

13. Department of the Navy Use efficiencies savings to: • Accelerate development of a new generation of electronic jammers to improve the Navy’s ability to fight and survive in an anti-access environment; • Increase the repair and refurbishment of Marine equipment used in Iraq and Afghanistan; • Develop a new generation of sea-borne unmanned strike and surveillance aircraft; • Buy more of the latest model F-18s and extend the service life of 150 of these aircraft as a hedge against more delays in the deployment of the Joint Strike Fighter (JSF); • Purchase additional ships – including a destroyer, a littoral combat ship, an ocean surveillance vessel and fleet oilers;  • Fill the gap created from the slip in the Marine Corps JSF production schedule, the Department of the Navy will buy more Navy F/A-18s. Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

14. Department of the Navy Proposed efficiencies savings of more than $35 billion over five years to include: • Reducing manpower ashore and reassigning 6,000 personnel to operational missions at sea; • Using multi-year procurement to save more than $1.3 billion on the purchase of new airborne surveillance, jamming, and fighter aircraft; • Disestablishing several staffs (but not the associated platforms) to include submarine-, patrol aircraft-, and destroyer-squadrons plus one carrier strike group staff; • Disestablishing the headquarters of Second Fleet at Norfolk, Va., and transferring responsibility for its mission to the Navy’s Fleet Forces Command; • Terminating the Marine Corps’ Expeditionary Fighting Vehicle; • Placing the Marine Corps’ short take-off and vertical landing (STOVL) variant of the JSF on the equivalent of a two-year probation because of significant testing problems.  As a result, the development of the Marine variant will be moved to the back of the overall JSF production sequence.  Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

15. Department of the Air Force Use efficiencies savings to: • Buy more of the most advanced Reaper UAVs and move essential Intelligence, Surveillance, and Reconnaissance (ISR) programs from the temporary war budget to the permanent base budget;  • Increase procurement of the Evolved Expendable Launch Vehicle to assure access to space for both military and other government agencies while sustaining our industrial base; • Modernize the radars of F-15s to keep this key fighter viable well into the future; • Buy more simulators for JSF air crew training; • Develop a new long range, nuclear-capable penetrating bomber, which will be designed using proven technologies. (an approach that should make it possible to deliver this capability on schedule and in quantity) Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

16. Department of the Air Force Proposed efficiencies savings of more than $34 billion over five years to include: • Consolidating two air operations centers in the United States and two in Europe; • Consolidating three numbered Air Force staffs; • Saving $500 million by reducing fuel and energy consumption within the Air Mobility Command; • Improving depot and supply chain business processes to sustain weapons systems, thus improving readiness at lower cost; • Reducing the cost of communications infrastructure by 25%. Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

17. Department of the Army Use efficiencies savings to: • Provide improved suicide prevention and substance abuse counseling for soldiers; • Modernize its battle fleet of Abrams tanks, Bradley fighting vehicles, and Stryker wheeled vehicles; • Accelerate fielding to the soldier level of the Army’s new tactical communications network; • Accelerate procurement of the service’s most advanced Grey Eagle UAVs; • Buy more MC-12 reconnaissance aircraft to support ground forces, and begin development of a new vertical unmanned air system to support the Army in the future. Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

18. Department of the Army Proposed efficiencies savings of more than $29 billion over five years to include: • Terminating the SLAMRAAM surface to air missile, and the Non-Line of Sight Launch System, the next-generation missile launcher originally conceived as part of the Future Combat System; • Reducing manning by more than 1,000 positions by eliminating unneeded task forces and consolidating six installation management commands into four; • Saving $1.4 billion in military construction costs by sustaining existing facilities; • Consolidating the service’s email infrastructure and data centers, which should save $500 million over five years. Source from the U.S. DoD, Office of the Assistant Secretary of Defense (Public Affairs) News Release

19. Where We’re Headed • TheDoD usually provides a 5 or 6 year plan - the Future Years • Defense Program (FYDP). • Because decisions made in the near term can have consequences for the defense budget well beyond that period, the Congressional Budget Office (CBO) has examined the programs and plans contained in DoD’s FYDP and projected their budgetary impact in subsequent years. • CBO used the FYDP provided to the Congress in April 2010, which covers fiscal years 2011 through 2015 to make projections 2011 through 2028. • CBO’s analysis focuses on DoD’s base budget because it reflects the department’s future plans for manning, training, and equipping the military. • In the current projections, acquisition costs would steadily grow from $189 billion in 2011 to a peak of $218 billion in 2017 (an increase of about 15 percent) before decreasing and leveling off an average of about $200 billion per year thereafter. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

20. Where We’re Headed • Acquisition includes procurement and research, development, test, and evaluation (RDT&E). • Procurement accounts fund the purchase of new weapon systems and other major equipment and upgrades to existing weapon systems. (21% base budget) • RDT&E accounts pay for the development of technology and weapons. (13% base budget) Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

21. Congressional Budget Office Projection • The CBO projection begins with DoD’s plans and applies CBO’s estimates of the costs of the department’s plans through 2028. • The CBO projection is developed using cost factors and growth rates that are consistent with DoD’spast experience. • Neither of the two sets of projections should be viewed as predictions of defense spending in the future; rather, they are estimates of the costs of executing DoD’s current plans. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

22. Congressional Budget Office Projection • To project the costs of DoD’s acquisition plans, CBO tracked the development and procurement of more than 190 weapon systems or major upgrades to existing systems. • Significant systems in DoD’s acquisition plans have been identified by CBO as either systems that would be: • required to maintain weapon inventories; • need to be replaced as existing systems reach the end of their service lives and that would provide new capabilities to meet goals described in the services’ policy statements. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

23. CBO Projection – The Army • Acquisition costs for the Army’s base budget would remain fairly steady, averaging about $33 billion per year from 2011 through 2028. • Programs in five categories of major systems were tracked: ground combat vehicles and trucks; command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems; missiles and munitions; aircraft; and missile defense systems. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

24. CBO Projection – The Army • Combat Vehicles and Trucks • Plans include upgrades to many combat vehicles—including Stryker vehicles, Abrams tanks, Bradley fighting vehicles, and self-propelled 155-millimeter howitzers • Plans also include the purchase of an entirely new ground combat vehicle, which the Army intends to use to replace the infantry carrier version of the Bradley Fighting Vehicles in its combat brigades. • Plans include the purchase of the joint light tactical vehicle, a truck that the Army and the Marines are developing as a replacement for some of HMMWVs in the Army’s inventory. • Plan to rebuild some of its existing HMMWVs and purchase medium tactical vehicles and upgrades to extend the service life of the Army’s heavy trucks. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

25. CBO Projection – The Army • C4ISR Systems • The Joint Tactical Radio System (JTRS) program is scheduled to buy almost 300,000 new radios by 2028. • The three increments of the Warfighter Information Network (WIN-T) program will provide increasingly sophisticated networking hardware and software between 2012 and 2028. • Missiles and Munitions • Intended purchases include missiles and rockets, such as the guided multiple launch rocket system, and munitions, such as the precision-guided Excalibur artillery round. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

26. CBO Projection – The Army • Aircraft • The Army’s plans for aviation programs include both rotary-wing and unmanned aircraft. • Completing purchases of UH-72A Lakota light-utility helicopters, which are replacing the remaining UH-1H Hueys and OH-58C Kiowas. • Exploring options for procuring Armed Scout Helicopters to replace today’s fleet of OH-58D Kiowa Warriors and the canceled Armed Reconnaissance Helicopter. • Start a new program to develop a heavy- lift rotorcraft and programs to upgrade and extend past 2028 the service life of the Army’s Apache, Blackhawk, and Chinook helicopters. • Plan to purchase several types of unmanned aircraft, including the MQ-1C Grey Eagle, which is similar to the Predator aircraft flown by the Air Force. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

27. CBO Projection – The Army • Missile Defense • Plans to purchase equipment to defend against ballistic missiles: • Patriot Advanced Capability-3 (PAC-3) system • Patriot/Medium Extended Air Defense System Combined Aggregate Program • Previous projections included funds to purchase Terminal High Altitude Area Defense missiles, which will now be purchased by the Missile Defense Agency rather than the Army. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

28. CBO Projection – The Navy/Marine Corps • Acquisition costs for the Navy and the Marine Corps would rise to $70 billion by 2015, primarily because of planned purchases of ships and aircraft. • Four categories of major systems were tracked: ships, aircraft, ground vehicles (trucks and armored vehicles for the Marine Corps), and missiles and munitions. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

29. CBO Projection – The Navy/Marine Corps • Ships • The Navy’s current plans reflect the goal of expanding the fleet from today’s 287 ships up to a fleet numbering 313 ships. • Planned increase is primarily in the surface combatant force from111 cruisers, destroyers, frigates, and littoral combat ships to 131 ships. • Planning to purchase new DDG-51 destroyers instead of continuing the program for DDG-1000 destroyers. • Plans lead to a smaller submarine force. Fourteen ballistic missile submarines that are in service today will be replaced with 12 new submarines starting in 2019. • Plan calls for an amphibious lift force of 33 ships, including 11 large-deck amphibious assault ships (LHAs or LHDs). •  Plans would maintain a fleet of 11 aircraft carriers. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

30. CBO Projection – The Navy/Marine Corps • Ground Combat • Marine Corps Plans to upgrade/make a new buy for the amphibious assault vehicles. • Plans to buy joint light tactical vehicles beginning in 2014. • Missiles and Munitions • Continue to buy Tactical Tomahawk cruise missiles and the air-launched Joint Standoff Weapon. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

31. CBO Projection - The Air Force • Year-to-year funding would remain fairly steady at about $70 billion through 2021 and then increase to more than $82 billion by 2028. • Three categories of major systems were tracked: aircraft, missiles and munitions, and space systems. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

32. CBO Projection - The Air Force • Aircraft • Plans include purchases of new aircraft and major modifications to existing aircraft. • About 60 percent of those costs would be for the F-35A Joint Strike Fighter and the KC-X replacement for the KC-135 airborne tanker. • Plans to replace the combat search-and-rescue (CSAR) rotorcraft • Increase the number of medium- and high-altitude unmanned aerial vehicles. • Procure a next-generation reconnaissance and strike unmanned aircraft that would be better suited for operations in defended airspace than the Reaper and Global Hawk. • Procure a new long-range bomber program. • Procure a new “Joint Heavy Lift” theater transport aircraft. (Air Force/Army) Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

33. CBO Projection – The Air Force • Missiles and Munitions • Plans include upgrades to existing Minuteman III ICBMs and RDT&E for a new ICBM that would be fielded sometime after 2027. • Procure the Joint Air- to-Surface Standoff Missile, the Joint Direct Attack Munition, and the Small-Diameter Bomb. • Plans also include the Joint Dual-Role Air Dominance Missile. • Space Systems • Global Positioning System III satellites and the Advanced Extremely High Frequency communications satellites. • Purchase 4 new weather satellites. Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

34. “While America is at war and confronts a range of future security threats, it is important to not repeat the mistakes of the past by making drastic and ill-conceived cuts to the overall defense budget.  At the same time, it is imperative for this Department to eliminate wasteful, excessive, and unneeded spending.  Indeed, to do everything we can to make every defense dollar count.” Secretary of Defense, Robert Gates Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program

35. Additional Information • National Defense Industrial Association www.NDIA.org • Central Florida NDIA Chapter www.ndia-cfl.org • May 24th USAF 2011 Advanced Planning Brief to Industry (APBI) • June 15th -16th 2011 Training & Simulation Industry Symposium (TSIS) Source from the Congressional Budget Office (CBO) Long-Term Implications of the 2011 Future Years Defense Program