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Defense Modernization
Readiness Now and for the Future
A Report and Recommendations Prepared by the Aerospace Industries Association April 2008
Modernization of key national defense capabilities will require a generationlong national security investment strategy providing sufficient and stable resourcing to recapitalize all defense sectors, including aerospace.
establishment and the defense industrial base that supports it. The forthcoming resource competition will pose critical defense policy and planning choices for the next administration. The United States has a long history of demonstrated ability to fund defense at much higher levels than its current 4 percent share of Gross Domestic Product (GDP). However, federal deficits, growing entitlement programs, pent-up demand for other domestic spending and the cost of the GWOT will place increased pressure on future defense spending. Indeed, there could be domestic political pressures to level off, if not pull back, defense spending as U.S. involvement in Iraq is reduced. In a larger sense, national budgetary forces are present that, if not addressed, will structurally inhibit our ability to effectively supply the modernized military equipment essential for maintaining our technological advantage over the long term. AIA is deeply concerned that three ongoing developments within the defense budget will give U.S. decisionmakers far less latitude and flexibility to respond to long-deferred aerospace modernization and recapitalization needs and requirements. The three are: Inexorable growth in operations and maintenance costs. Rising personnel expenditures, including future costs of recent increases in active duty end strength. Simultaneous needs for reset and recapitalization. These three developments, working in combination, will require the next administration to carefully formulate a national strategy for sustained, adequate and balanced resourcing for national defense capabilities. AIA believes that while the investment resources proposed in the fiscal 2008-2013 Future Years Defense Program (FYDP) represent a modest start towards assuring future national security needs, the FYDP itself doesnt effectively address growing structural challenges within the U.S. defense budget or the mounting modernization and recapitalization bills coming due as a result of years of deferred investment. During the past 45 years, investment spending has gone through peaks and valleys exhibiting a cyclical pattern largely consistent with that of overall defense spending. Twice during this period investment spending has dipped significantly with the end of the Vietnam War and the end of the Cold War. These were periods in which defense spending also fell in real terms. Investment spending rose during the late Cold War years of the 1980s and post-9/11 period as defense spending itself was increased and sustained politically. Despite recent increases, base budget procurement is still running well below the historic averages shown prior to the end of the Cold War (see Figure 1 and Table 1). The procurement account dropped in real terms for a 12-year period between fiscal 1986 and fiscal 1997, only to slowly rise again beginning in fiscal 1998. Since then, there have been moderate increases in investment spending, heavily influenced recently by growth in RDT&E and transformational programs. These increases while welcome have come against a smaller investment spending base that has not kept up with long-term recapitalization demands. Congressional Budget Office analysis indicates the need for steady procurement funding of $120150 billion per year, in constant dollars, to modernize the current force. While the investment accounts have been increasing, procurement is still well below the required level and comprises only about 20 percent of the defense budget. There still is much catching up to do that will require additional resources well above the current level.
DoD requires steady procurement funding of $10150 billion per year, in constant dollars, to accomplish modernization of the current force.
This brief analysis underscores that the health of investment spending is highly dependent on the overall level of defense spending. It is our view that the next administration must be much more aggressive in bolstering out-year defense funding projections, which have been constrained to meet tax policy and deficit reduction objectives at the expense of defense modernization requirements. Now is the time to stabilize defense spending and the investment portfolio and focus on modernization and recapitalization for the future. The next administration should focus priority attention on this issue and also show increased diligence in addressing the resource challenges within the defense budget that could negatively impact force modernization.
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Figure 1. DoD Investment Funding in Constant FY2008 Dollars, Excluding GWOT Supplementals Procurement 250 Korean War 9/11 RDT & E
93
81
96
75
99
02
05
84
51
66
60
54
45
48
57
63
69
72
78
87
FY
90
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
Source: Office of the Under Secretary of Defense (Comptroller), National Defense Budget Estimates for FY2008, March 2007, Table 6-8, pp. 113-115. GWOT Supplementals are excluded.
of the defense budget by 2013, well below the 41 percent level of fiscal 1988 (see Table 2). This isnt a mere percentage shift. It translates into tens of billions of dollars migrating from the investment portfolio into operations and support (O&S) costs. These trends suggest an ongoing, permanent change in composition of the defense budget, one in which operations and support consumes an ever-increasing share of the defense budget. Continuing this trend beyond current projections will make it even more difficult for defense planners to adequately resource the investment spending upon which our military superiority and technological edge depends. The next administration should address this serious future resource challenge in developing long-range
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FY
defense plans and in budget guidance to the next Quadrennial Defense Review (QDR). The United States cannot afford to pull back investment spending as it has done during past postwar defense drawdowns the nature of the security environment strongly mitigates against taking such a risk during what may be a generation-long war on terrorism. Instead, the next administration should seek to reform DoD business management practices and processes to ensure that they support, rather than compete with, long-range defense modernization and recapitalization requirements. Inexorable Growth Trends in Operations and Maintenance (O&M) Costs. For more than 40 years we have seen steady growth in defense O&M costs above the rate of inflation, despite continued efforts of several administrations to constrain that growth (see Figure 2). Future sources of further O&M cost growth
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08
include rapid escalation in health care costs, growth in non-capital purchases (supplies and material, energy, facilities and equipment repairs), installation O&M backlogs, improved pay for DoD civilians, O&M costs associated with growth in active duty end strength and funding for equipment reset. Left unchecked, these inexorable O&M growth trends will generate more funding demands than the current FYDP can support. Therefore, unless the defense top line rises accordingly, funding will likely have to migrate from materiel investment to O&M to cover the cost growth. AIA believes that the next administration, in order to minimize pressures on the investment portfolio, must make a dedicated effort to contain O&M costs and eliminate the root causes of O&M cost growth above the rate of inflation. A concerted effort should be made to develop a long-term plan to reduce O&M costs by a few percent annually by promoting DoD-wide management efficiencies (including expansion of competitive sourcing, performance-based logistics, performancebased agreements, service contracting, more energyefficient systems, etc.) and adopting more integrated supply chain management. For example, DoD studies indicate that sustainment accounts for up to 75 percent of a weapon systems life cycle cost and that broadly applying government/industry partnerships integrating cost containment principles across all phases of weapon system life cycles could reduce O&M costs by at least 20 percent. Rising Personnel Expenditures. The recent decision to increase the active duty end strength of the Army and Marine Corps through fiscal 2012 (65,000 and 27,000, respectively) was largely related to the increased operating tempo in the wars in Iraq and Afghanistan. The number of Army Brigade Combat Teams (BCTs) will increase from 42 to 48 and Marine Expeditionary Forces (MEF) will grow from 2.5 to 3.0 balanced MEFs. The Congressional Budget Office (CBO) estimates the total incremental cost of the end-strength increase between fiscal 2007 and fiscal 2013 as being $108 billion above previously planned levels (see Table 3). CBO also identified the overwhelming majority more than 75 percent of the costs as unrelated to the investment
portfolio (military personnel, O&M, military construction and family housing). For this reason, the fiscal 08-13 FYDP was increased to accommodate these end-strength costs. Without such an increase, the modest investment growth path that was laid out could not have been sustained.
Table 1. FY19652010 Investment Spending, in Billions of Constant FY08 Dollars FY 1965 Procurement Proc as % DoD 87.5 FY 1970 89.8 FY 1975 56.5 FY 1980 77.7 FY 1985 162.5 FY 1990 114.9 FY 1995 55.4 FY 2000 65.4 FY 2005 103.7 FY 2010 110.0
23.2%
20.4%
16.6%
21.0%
30.2%
24.2%
15.1%
17.7%
19.6%
22.1%
End-strength increases bring RDT&E 37.9 36.0 29.0 29.8 54.0 52.8 44.6 46.3 74.1 73.8 with them the added costs of RDT&E 10.0% 8.2% 8.5% 8.0% 10.0% 11.1% 12.2% 12.6% 14.0% 14.8% as % training, health care and force DoD modernization associated with the Invest125.4 125.8 85.5 107.5 216.5 167.7 100.0 111.7 177.8 183.8 expansion of the force. These costs ment $B are must pay bills and, unlike DoD 377.3 440.0 339.8 369.4 538.1 474.5 366.1 368.7 528.8 498.0 procurement and RDT&E, are not Total $B as amenable to annual funding Invest33.2% 28.6% 25.2% 29.1% 40.2% 35.3% 27.3% 30.3% 33.6% 36.9% ment % adjustments. Consequently, the DoD decision to increase active duty Source: Office of the Under Secretary of Defense (Comptroller), National Defense Budget Estimates for end strength carries with it added FY2008, March 2007, Table 6-8. long-term cost burdens if the DoD top line is not sustained or increased additional end strength ultimately Table 2. Operations and Support Versus Investment as Percent of DoD Budget translates into an increase in fixed personnel costs in the form of pay and benefits. These increased FY2008 FY2013 costs must be accommodated via an increasing top Budget Category FY1988 Request Projection line in order to preclude erosion of investment and, DoD Budget Total $283.8B $483.2B $548.5B hence, creation of a hollow force. Military Personnel 76.6 118.9 145.2 In a volunteer military system, raising and sustaining larger military forces is more expensive than in the past. Even after recent increases, however, we currently have a much smaller military than those that fought in WWI, WWII, the Korean War, the Vietnam War, the Cold War and even the Gulf War. To counter the dangers of the 21st century with highly capable but historically smaller forces, the U.S. military must be equipped with modern hardware that multiplies their force effectiveness and provides greater reliability and survivability. Our emphasis should continue to be on leveraging the application of advanced military technologies to maintain our superiority. The investment portfolio should not be viewed as a discretionary bill
Operations & Maintenance Operations & Support (O&S) Total O&S Percent of DoD Total Procurement RDT&E Investment Total Investment Percent of DoD Total 81.6 158.2 55.7% 80.0 36.5 116.5 41.1% 165.3 284.2 58.8% 101.7 75.1 176.8 36.6% 196.0 341.2 62.2% 125.2 68.1 193.3 35.2%
Source: Office of the Under Secretary of Defense (Comptroller), National Defense Budget Estimates for FY2008, March 2007, Table 6-8.
payer. Rather, modernization programs should be resourced and managed in a manner that continues to foster technological innovation and sustains military lead-time advantages over our adversaries. At the same time, U.S. defense planners must
provide for a balanced defense posture across all services, capabilities and portfolios. Simultaneous needs for both reset and recapitalization. The DoD base budget is a peacetime budget. Base budget expenditures must fit within annual discretionary spending limits set by the administration and Congress. Combat operations in Iraq and Afghanistan, however, are treated as emergency spending and are not subject to annual discretionary spending ceilings. These combat operations currently cost on the order of $170190 billion per year. Within that total figure, procurement for war-related replacement of materiel consumed, destroyed or prematurely worn out by the war in the fiscal 07 and fiscal 08 supplementals amounts to $5070 billion per year. Thus far, supplemental appropriations to separately fund replacement of war-related losses have protected the recapitalization program in the baseline defense budget. Absent a significant top line increase, any attempt to fund reset requirements out of the baseline budget (i.e., without supplementals) would place tremendous stress on other service investment needs by forcing absorption of wartime reset and recapitalization within the normal budgeting process. Such an approach could ultimately break essential modernization programs. Thus, reset must be funded as an increment above baseline defense needs through supplemental defense appropriations. As former Army Chief of Staff Peter Schoomaker noted in testimony before the House Armed Services Committee in June 2006, Reset is a cost of war that must not be borne at the expense of our modernization efforts. We must not mortgage the future readiness of the force by focusing our resources solely on current challenges. Supplementals should continue as long as necessary to reconstitute wartime losses of all the services, especially the Army and Marine Corps. The current operational tempo in Iraq and Afghanistan will require continued supplementals for reset and recapitalization for several years after the redeployment of U.S. forces.
Figure 2. O&M Costs Per Service Member, in Constant FY2008 Dollars 180,000 160,000 140,000 120,000 100,000 GWCT 1973: Beginning of All Volunteer Force 1967: Buildup to 463,000 US troops in Vietnam March 8, 1965: First US combat troops (3500 Marines) land in Vietnam 1975: Fall of Vietnam Reagan Era Buildup
The Role of Air Power in the 010 QDR and Defense Planning
AIA believes that the United States needs to conduct within the context of the 2010 QDR a full reassessment of the proper role of air power as the most versatile component of national security. The 2006 QDR, with its primary emphasis on irregular warfare, defeating terrorist networks and weapons of mass destruction, tilted toward the kinds of operations currently experienced in Iraq and Afghanistan. Consideration of needs for the rest of the broad spectrum of conflict has been minimized, with procurement planning discussed largely in the context of a hedge against any potential near-peer competitor. The 2010 QDR should assess the appropriate balance among security challenges, such as
FY 4 FY 5 4 FY 7 4 FY 9 5 FY 1 5 FY 3 55 FY 5 FY 7 59 FY 6 FY 1 6 FY 3 6 FY 5 6 FY 7 6 FY 9 71 FY 7 FY 3 75 FY 7 FY 7 79 FY 8 FY 1 8 FY 3 8 FY 5 8 FY 7 8 FY 9 9 FY 1 FY 93 9 FY 5 9 FY 7 99 FY 0 FY 1 0 FY 3 0 FY 5 07
Source: AIA Analysis of data in Office of the Under Secretary of Defense (Comptroller), National Defense Budget Estimates for FY2008, March 2007, Tables 6-8 and 7-5.
planning for near-peer regional conflicts while also engaging in the Global War on Terrorism. The enduring role of air power needs to be thoroughly re-examined as a part of this assessment. In particular, the 2010 QDR should re-evaluate the role of air power in all potential conflict regions. Modernization of military aerospace should be done in a manner that eliminates the decadeslong phenomenon in which entire sectors are out of production and not being modernized. All military services face substantial aerospace recapitalization funding challenges in the decade ahead. Thus, the next administrations plan should address modernization requirements across all key aerospace sectors of all the military services airlift, unmanned air vehicles, rotary wing aircraft, missiles, space launch, precision-guided munitions and command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) systems.
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payer for a top line too low or for operations and support costs that are insufficiently funded.
Table 3. Incremental Costs of Army and USMC End Strength: Increase Above QDR 2006 Force Level
Acknowledge that defense 2007 2008 2009 2010 2011 2012 2013 Total modernization is already Army - $ ES Level $4.5B 9.5 12.1 12.9 11.2 10.0 9.4 $69.6B 36K 43K 50K 57K 64K 65K 65K long overdue. We must not USAR & ANG/ES $0.0B 0.8 1.0 1.1 1.3 1.5 0.9 $6.7B fall into the trap of thinking _ 1.3K 2.6K 3.9K 5.3K 6.8K 9.2K that our military need be USMC -$ $2.2B 4.1 5.3 5.7 5.9 5.0 3.5 $31.7B capable in only that portion ES Level 9K 14K 19K 24K 27K 27K 27K of the spectrum of potential Total/Yr $6.7B 14.4 18.4 19.7 18.5 16.5 13.9 $107.9B conflict in which it finds itself Source: CBO, Estimated Cost of the Administrations Proposal to Increase the Armys and the Marine currently engaged. To meet Corps Personnel Levels, April 16, 2007, p.2 21st century challenges and sustain our military superiority in all areas of potential conflict, Foster innovation and stability in DoD modernization must be a priority across the investment planning. This can be best board. As part of adequately funding national accomplished by establishing for the fiscal defense, DoD needs to increase annual 2010 budget submission a Stable Program procurement spending to a steady state range Funding Account, similar to that proposed of $120150 billion, in constant dollars, simply by the Defense Acquisition Performance to modernize an aging, increasingly obsolete Assessment Panel, for all Acquisition Category and potentially vulnerable force. Defense I programs from Milestone B through initial modernization is the predicate for military operating capability. A pilot program for aerospace modernization. capital budgeting is currently underway in DoD. The time is right to apply this proposal Realistically address the growing bow wave on a broader scale in order to bring enhanced of modernization requirements in military budget and program stability to the DoD aerospace. This should be done by providing acquisition process. growth and stability in not only aerospace procurement but also in RDT&E. Aerospace Support the concept of a floor for defense technologies are integral to the electronics spending. Incorporate into broad national revolution occurring in military capabilities budget planning the goal of defense being no whether they are in aircraft, missiles, precision less than 4 percent of GDP in order to prevent munitions or the command and control, the budget being drawn down to increase communications, computers, intelligence, funding for non-defense programs following surveillance and reconnaissance systems the eventual withdrawal of forces from Iraq essential for future combat operations. The and Afghanistan the precise time when next administration should develop a coherent modernization and recapitalization of our modernization plan to realistically address forces will be most critical to our national aerospace requirements that can last for security. decades to come. AIA will provide extended discussion and support for these positions for consideration by the next administration. Also, the association is prepared to assist the Defense Department by providing data concerning industrial capacity and industrys ability to respond to increased resource investment.
L-3 Communications LAI International, Inc. LMI Aerospace, Inc. Lockheed Martin Corporation Lord Corporation Martin-Baker America Inc. Meggitt Vibro-Meter Inc. Micro-Coax, Inc. MicroSat Systems, Inc. McKechnie Aerospace MOOG Inc. Natel Engineering Co., Inc. National Machine Group National Machine Company National Aviation Products, Inc. National Technical Systems The NORDAM Group Northrop Grumman Corporation NYLOK Corporation Omega Air Inc. Oracle USA Pall Aeropower Corporation Parker Aerospace Pinkerton Government Services, Inc PRIMUS Technologies Corporation Proficiency Inc. Raytheon Company Remmele Engineering, Inc. Rockwell Collins Rolls-Royce North America Inc. RTI International Metals, Inc. Satyam Computer Services Ltd Science Applications International Corporation SITA Space Exploration Technologies Corporation Sparton Corporation Spirit AeroSystems Textron Inc. Timken Aerospace Transmissions, LLC Purdy Systems United Technologies Corporation Hamilton Sundstrand Pratt & Whitney Sikorsky Vought Aircraft Industries, Inc. Woodward Governor Company Ancon Gear & Instrument Corporation Arkwin Industries, Inc. Arrow/Zeus Electronics, A division of Arrow Electronics Astronautics Corporation of America Astronic Athena Technologies, Inc. AVChem, Inc. Avnet Electronics Marketing Ballistic Recovery Systems, Inc. Banneker Industries, Inc. Blenheim Capitol Services Brogdon Tool & Die, Inc. Brookfield Atlantic Brush Wellman Inc. BTC Electronic Components Burton Industries Aerospace Heat Treating, Inc. California Manufacturing Technology Consulting Capo Industries Inc. Celltron Inc. Chandler/May, Inc. Cherokee Nation Distributors Cincinnati Machine, A UNOVA Company CMC Electronics Coalition Solutions Integrated, Inc. Co-Operative Industries Defense, LLC Consolidated Precision Products CPI Aero, Inc. Crestwood Technology Group Cytec Engineered Materials Dassault Systems of America Data Conversion Laboratory, Inc. Dayton T. Brown Inc. Delphi Corporation Designed Metal Connections Doyle Center for Manufacturing Technology DynaBil Industries, Inc. East West Associates EDAG Inc. Electronic/Fasteners, Inc. Emhart Teknologies, A Black & Decker Company Endicott Interconnect Technologies, Inc. ENSCO, Inc. Exotic Metals Forming Company LLC Fenn Technologies The Ferco Group Ferguson Perforating and Wire Company Forrest Machining, Inc. Frontier Electronic Systems Corporation GEAR Software Greene, Tweed & Company G.S. Precision, Inc. GuardianEdge Technologies H&S Swansons Tool Company Harvard Custom Manufacturing HDL Research Lab, Inc. Heartland Precision Fasteners Aerospace Plating Company Heizer Aerospace Hitachi Consulting Hi-Temp Insulation Inc. Hobart Machined Products, Inc. Hughes Bros. Aircrafters, Inc. IDD Aerospace Corp. Industrial Metals International LTD Infotech Enterprises America Inmedius Integrated Sourcing ION Corporation JRH Electronics, LLC. KPMG LLP-Risk Advisory Services Kreisler Manufacturing Corporation Kulite Semiconductor Products, Inc. M/A-COM, Inc. McCann Aerospace Machining Corporation Meyer Tool Inc. Microsemi Corporation Mid-State Aerospace Inc. Millitech, Inc. Mil Spec Sales Co. Morris Machine Company, Inc. MPC Products Corporation Navigant Consulting, Inc. New Breed Corporation NMC Group, Inc. Nor-Ral Plastics Inc. Norfil Manufacturing, Inc. ONeil & Associates, Inc. Ohio Aerospace Institute Orion Industries P3-North America, Inc. Parkway Products, Inc. PCA Aerostructures PCC Airfoils, LLC Performance Software Corporation Perillo Industries, Inc. PGM of New England, LLC Plexus Corporation Plymouth Extruded Shapes Plymouth Tube Company Powerway, Inc. Precision Gear Precision Aircraft Machining Company Precision Machine & Manufacturing Co. Precision Tube Bending PRTM Management Consultants, LLC PTC QuEST Radant Technologies, Inc. Ranal
REMEC Defense & Space, Inc. Renaissance Services Rodelco Electronics Corporation Rubbercraft Sanmina-SCI Corporation Sample Machining, Inc. dba Bitec Sea Air Space Machining & Molding SEAKR Engineering Sechan Electronics, Inc. SELEX Sensors and Airborne Systems US Inc. Senior Aerospace Service Steel Aerospace Servotronics, Inc. Sigma Metals, Inc. Signal International Southern California Braiding Company Spectralux Corporation Spincraft Spirit Electronics, Inc. Starwin Industries Tedopres International, Inc. TEK Precision Co. Ltd Telephonics Corporation Therm, Inc. Thermal Solutions, Inc. TIGHITCO, Inc. Tiodize Co., Inc. TMX Aerospace Tri Polus Inc. TTI, Inc. TTM Technologies TW Metals UGS UMA, Inc. Unicircuit Inc. United Performance Metals Universal ID Systems, Division of Commerce Overseas Corporation University of Tennessee Aerospace Defense Clearing House Unlimited Innovations Vishay Vulcanium Metals Incorporated Waer Systems Welding Metallurgy, Inc. West Cobb Engineering & Tool Co. Inc. The Wharton School Executive Education Wind River Systems Windings, Inc. World Graphics, Inc. Xerox Corporation X-Ray Industries XyEnterprise Yarde Metals
The following is a list of images used in this report: Cover: top row (l. to r.) Next-Generation bomber (Boeing artists rendition) UH-60 Black Hawk helicopter (U.S. Army photo) Predator B unmanned aircraft (Courtesy of General Atomics Aeronautical Systems, Inc. All rights reserved.) center row (l. to r.) Arleigh Burke-class guided missile destroyer (U.S. Navy photo) F-22 Raptor fighter (U.S. Air Force photo) C-17 Globemaster III transport (U.S. Air Force photo) bottom row (l. to r.) Stryker armored vehicle (U.S. Army photo) F-35 Lightning II fighter (Lockheed Martin photo) Global Positioning System 11R-M satellite (Lockheed Martin artists rendition) Pg. 2: Pg. 4: Pg. 6: F-35 Lightning II fighter (Lockheed Martin photo) B-2 Spirit bomber (U.S. Air Force photo) top to bottom Seawolf-class nuclear-powered attack submarine (General Dynamics Electric Boat photo) Atlas V rocket (United Launch Alliance photo) top to bottom U.S. Navy F/A-18C fighter (U.S. Navy photo) CV-22 Osprey tiltrotor (Bell Boeing photo) USS Enterprise nuclear-powered aircraft carrier (U.S. Navy photo)
The Aerospace Industries Association of America The Aerospace Industries Association of America (AIA) was founded in 1919, only a few years after the birth of flight. Today, some 270 major aerospace and defense companies and suppliers are members of the association, embodying every hightechnology manufacturing segment of the U.S. aerospace and defense industry from commercial aviation and avionics, to manned and unmanned defense systems, to space technologies and satellite communications. AIA represents the nations leading designers, manufacturers and providers of: Civil, military, and business aircraft Helicopters Unmanned aerial vehicles Space systems Aircraft engines Missiles Materiel and related components Equipment Services Information technology
Pg. 8:
Pg. 10: top to bottom C-130J transport (Lockheed Martin photo) Shipboard Combat Direction Center (U.S. Navy photo) Patriot missile launcher (U.S. Army photo)
Aerospace Industries Association 1000 Wilson Boulevard, Suite 1700 Arlington, VA 22209-3928 703-358-1000 www.aia-aerospace.org