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G LO BAL p ersp ec t ive s | jane s

House Armed Services Committee (HASC) Chairman Ike Skelton

B riefing :

The Janes 2009


US Defense Conference By J e f f re y B r a d fo r d P h D

Washington DC played host in early May to the annual conference focused


upon defence industry issues organized by defence publication, journalist and
consulting company Janes. Along with the main sponsor, transatlantic defence
contractor BAE Systems the conference aimed to understand better the role of,
and opportunities for, the defence industry under the Obama administration.

4 6 | G LO BAL VISION MAGA Z I NE


GLOBAL p e r s p ec t ive s | j a n e s

E
arly sessions in the two day confer- c­ ombination of advanced anti-ship missiles, In terms of the key drivers affecting defence
ence speakers presented their views submarines and aircraft. spending in the first term of the Obama ad-
of the international security environ- ministration through 2012, four key issues
ment faced by the administration and postu- In terms of the views of the Administration were identified.
lated four interesting scenarios which could since taking office one of the factors men-
impact upon current thinking. tioned often was the surprise that despite Firstly, government spending controls. At
the change in tone compared with the previ- present every hour the US government will
The first scenario was concerned with the ous President it had so far translated into spend $200m. The budget deficit is antici-
p­otential collapse of Russia as it is known to- little change from others. Cited examples pated to be in order of $500bn for every year
day. A combination of demographics, poor included NATO declining to increase forces, Obama in power, even if he secures a second
lifestyles and a low oil price were suggested the likes of Iran, North Korea, Russia etc. term of office.
as potential comprising a potent mixture Turning more towards the defense budget

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which would lead to the population level and prospects for US defense contractors econdly, inter-governmental politics
­falling dramatically, placing insurmountable the picture compared to 2008 is more down- leaves the Department of Defense
pressure on the authorities to hold the coun- beat. Entitlement costs for personnel (pen- somewhat exposed. Without the Cold
try as known today together. sions, healthcare, benefits and so forth) is War threat, DoD is fighting to justify its
rising very fast and is politically popular. b­udget level against a variety of threats,
The second scenario involves the Disappear- These costs are contributing to a rapid rise none of which has the magnitude in and of
ance of Europe as a serious international se- in the Operations and Maintenance (O&M) itself to give DoD an advantage in the poli-
curity player. Individual countries have been budget – which casual observers often as- tics of budget allocation.
reducing their expenditures and cutting sume is purely related to military opera-
armed forces since the end of the Cold War in tions. The rising O&M budget in a relatively Third, increasing personnel cost per member
1989. Should this trend continue a point could austere environment is going to translate have risen in excess of 45% above inflation
be shortly reached were the continent can- into cuts in investment in new systems. in the past decade alone. Congress adds new
not meaningfully project power beyond its Such news raises the question as to what benefits for service members which increas-
borders. As the speaker put it succinctly, “no- innovations could be pursued to help offset es personnel costs in the budget. Civilian
one [in Europe] is likely to be able to do so in this negative development. Firstly, the situ- defence employee costs are also up along
the near future, and as a consequence Europe ation presents an opportunity to reform the with the cost of military healthcare which is
will not be America’s partner of choice”. standard setting phase of a defence program up 144% since 2000 (of the order of $80-
known as the requirements phase. Typically 90bn per annum).
The third scenario sought to “think the un- requirements is concerned with the perfor-
thinkable” with regard to the commonly held mance characteristics desired by the mili- Fourth, there are five extremely large pro-
view of Chinese ascendancy seeing China as tary service and although cost is a param- grams making their way through the acquisi-
potentially falling apart at the seams. A eter it is often treated somewhat abstractly tion system which will absorb a great deal of
combination of Rapid demographic ageing by military establishments both in the US political effort from both the DoD and the
and a growth rate below 6.5% which is well and in Europe. political system. These, couple with the
below the levels driven in recent years offers pressure of operations will consume the

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the potential risk of collapse with possibili- owever cost is of considerable i­nterest of major players.
ties for civil unrest and even break-up of the i­mportance to the military in ways
country as known today. they sometimes are oblivious to. At Lastly, Secretary Donald Rumsfeld held no
its simplest high cost affects the numbers of meetings with industry during his tenure at
The last scenario put forward by the speak- an equipment which can be ultimately pur- DoD. The Obama administration is antici-
ers focused on the US role in the Western chased. High cost also increases political pated to be even more inaccessible which is
Pacific as being the flashpoint for future ef- oversight and scrutiny, which can have a de- leading to industry using Congress as the
forts. A relatively benign scenario at one laying effect on the procurement. This con- primary means to get their case across –
level seen as US driven though a stealthy cept is not new. The US Air Force acquisi- leading to increased tension across the
presence. The US Navy fleet of some 500 tion of a new munition called JDAM had at ­acquisition community.
ships today is anticipated to fall to a number the heart of its requirement, “to be a preci-
nearer 300 with some risk in the current sion weapon costing no more than $40,000 For the US and international players in the
budgetary environment of further fall to per unit”. The success of the procurement is defence industry this is making the business
even 200. Challenges in this scenario are such that economies of scale in production environment tougher than ever. For more de-
maritime and Asian based with the principal have reduced the cost per unit to nearer tails on the Janes US defense conference 2009
threat being the acquisition of the means to $17,000 with no loss in performance. and other conferences produced by Janes visit
enable access denial to the US fleet by www.janes.com/events/conferences

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