Faced with political impasses and a second round of sequestration, the Pentagon starts to pare
With across-the-board U.S. budget cuts becoming the new norm, and as the largest equipment category inside the 's budget, entire types of aircraft now are being weighed for their military value faster than in living memory.
This month several U.S. Air Force officers, from the chief of staff on down, stressed that the service wants to protect spending on theJoint Strike Fighter, aerial refueling tanker and the proposed Long-Range Strike Bomber. In turn, they are willing to divest whole fleets like the KC-10, A-10 and MC-12W (AW&ST Sept. 23, p. 31). Overall, the could cut about 550 aircraft, or 9% of its total inventory.
“The [Defense Department] is now digging in for a sustained period of budget decline and has finally and perhaps reluctantly read the writing on the wall,” RBC Capital Markets analysts say. With political gridlock foreseen through the Obama administration's term, as well as Republican Party turmoil until the next presidential race, defense hawks are accepting their fate. The result will be years of annual, automatic, non-entitlement budget reductions under the second, sequester-half of 2011 Budget Control Act, with the Pentagon bearing most of the cuts.
Yet, as the military has become more “joint,” no action is isolated. For instance, USAF leaders' statements recently that they would forgo the MC-12W in favor of other programs raises the question of whether the Army would continue work on the Enhanced Medium Altitude Reconnaissance and Surveillance System (Emarss), which is similar in configuration and mission to the USAF MC-12W. For certain, the Army has its own set of challenges and the Air Force move would not make Emarss any more affordable.
While the personnel-heavy Army has unique budget pressures in an era of growing costs for health care and benefits and falling appropriations, it remains perhaps the loudest proponent of the 40-year-old policy decision to end the draft and rely on an all-volunteer, professional force. Yet under long-term cuts, Army Gen. Raymond Odierno says the Army would see an 18% reduction in active, reserve and National Guard soldiers over seven years, and a commensurate drop in their equipment and training.
“We will assume significant risk in our combat vehicle development and delay the fielding of Abrams training simulators by two years,” the chief of staff says. “In our aviation program, we cannot afford to procure a new Armed Aerial Scout program and we will be forced to reduce the production and modernization of 25 helicopters. We will reduce system upgrades for unmanned aerial vehicles. We will delay the modernization of air defense command and control systems.”
Assuming budget caps are not adjusted, “every acquisition program will be affected,” Odierno continues. “These reductions will significantly impact 100 modernization programs by not transitioning to production, terminating their funding, restructuring the program or significantly delaying their completion. This will be necessary to facilitate our ability to concentrate the available funds on priority programs in science and technology, Paladin Integrated Management, Armored Multipurpose Vehicle and the Joint Light Tactical Vehicle.”
The chief of naval operations (CNO), Adm. Jonathan Greenert, echoes the pressures and says the Navy will shrink to 255-260 ships—versus 295 planned under the administration's 2014 budget request—and count 1-2 fewer carrier-strike and amphibious-response groups of ships. Beyond fewer aircraft carriers, Virginia-class attack submarines and Littoral Combat Ships, among others, a smaller fleet would put limits on aircraft acquisition and lead to fewer platforms there, as well. There is also downtime caused by delayed maintenance (see page 43).
The requiredfleet of 117, for instance, would be delayed from 2019 to 2020, and the transition from the P-3C to the P-8A would be deferred from 2019 to 2020. Planned improvements to air and missile defense would be slowed, with 30 fewer F-35Cs than planned, while the new Air and Missile Defense Radar would be delivered on only four ships, compared with the seven expected. What is more, “all components of the improved air-to-air [infrared] 'kill chain' that circumvents adversary radar jamming would be delayed by two years,” the CNO notes.
Top Navy program priorities would be the SSBN(X) replacement nuclear-armed submarine for the current Ohio-class, as well as outer space and cyberspace initiatives. Cyber, in particular, “is a priority in any fiscal scenario,” Greenert says.
Similar to his cohorts, the commandant of thesays his driving motivation is keeping his smaller service—sometimes called the nation's shock troops, for their ability to fight anywhere on “day one”—optimally ready. But the cost will be future superiority in technological capability.
“Sequestration-level cuts in fiscal 2014 will force us to forfeit long-term priorities to fund near-term readiness,” USMC Gen. James Amos says. The Corps' plan simply is to shrink as a whole, from 186,800 active Marines necessary to meet current military requirements to 174,000 allowed under sequestered funding. It would mean, among other things, 14 fewer aircraft squadrons and 11 fewer combat armed battalions, and an equal drawdown in their equipment.
The fifth service, the Coast Guard in the Department of Homeland Security also faces severe cuts. Officials there are proposing to cut one-third of funding for a five-year acquisition program that already was going to support only two-thirds of the service's missions, which range from homeland defense to fishing enforcement (AW&ST July 8, p. 28).
To a person, Pentagon leaders say they would rather sacrifice the size of their forces so that they can use precious taxpayer dollars to invest in new technology and stay ahead of potential adversaries. But each service is responsible under law for its own training and equipping for its part of the national security complex, meaning different priorities and decision-making criteria.
“There will be priorities,” Capital Alpha Partners analyst Byron Callan notes, “but we would be leery of management statements that 'new platforms will be preserved at the expense of older ones,' or 'upgrades of older equipment will be favored over costly new platforms, particularly those in development,'” he says. “There are far more gradations in how [the Defense Department] will assess what it will and won't buy and support in the future than these simple categorizations.”
Regardless, Wall Street analysts like Callan and those at RBC do not see the A&D industry accounting for the profound level of weapons changes that the chiefs of staff now are outlining.
RBC notes that the Defense Department's latest report on sequestration shows a 14% year-over-year cut to so-called investment accounts—research, development and procurement—to the enacted 2013 baseline and supplemental spending levels, after the 2014 sequester. “But this level of decline has yet to be seen in industry toplines, which are only forecast to be down [about] 3% this year for defense primes and 6%” for federal information technology vendors. “We think this shows the lag between budget appropriation and defense company revenues, and suggests that things will get progressively worse in 2014 and 2015,” states RBC.
Everything depends on final funding, of course, and future appropriations have yet to be enacted. But several analysts believe the worst may not be known yet. “Absent a new threat, with a muddling-along economy and no movement in Washington to address core issues regarding the drivers of future deficits, we think deeper cuts than sequester could be more likely for fiscal 2015-17,” Callan says.
Indeed, asked how small the Corps could get, its commandant essentially spoke for the whole U.S. national security complex. Says Amos, “At the end of the day we'll go as low as Congress is willing to, I guess, pay for.”