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Air National Guard Chief Worries as Aircraft Fleets Age
By Sarah Sicard

As Air National Guard fleets continue to age and budget constraints slow procurement, it is growing more difficult to maintain older aircraft, the service's top leader said Dec. 19

"I tell people about my 1961 Corvette. I love my '61 Corvette. It's red … turns on a dime. I don't trust it beyond 10 miles," he said. "To that point, we're asking airmen to fly 1961 model airplanes across thousands of miles of open ocean, at night, into combat areas without hesitation," said Lt. Gen. Stanley "Sid" Clarke, director of the Air National Guard, said in a speech before the Air Force Association's Mitchell Institute in Arlington, Virginia.
The Air National Guard intends to meet minimum modernization criteria to ensure that all aircraft are "safe, reliable and compatible" with the needs of the total force, he added. 

"It's going to be tough, no doubt," he added. But "the Air National Guard is a proven choice."

The passage of the National Defense Authorization Act left some questioning the future of older aircraft such as the C-130, of which the Air National Guard has the largest share.

"Obviously working under sequestration is going to be a difficult environment; prioritization becomes important," he said.

"We are finding ourselves in a unique situation of where we have a lot of legacy airplanes," he said. 
Of the current aircraft, he added, "They're going to have to be modernized until we can get to the point where we can recapitalize with new airplanes."

Clarke, though confident in the Air National Guard's ability to rise to all challenges in the coming years, said that the Air Force would ultimately need to turn its focus onto fielding new aircraft.
Until that is possible, however, the Air National Guard will work to ensure that all legacy systems meet necessary compliance requirements. That means that the focus must be on modifying, maintaining and upgrading its aging aircraft, he said. The Air National Guard would never require airmen to fly aircraft that don't meet basic safety standards, he stressed.

"This issue affects the whole United States Air Force," he said. "We've got multiple platforms that [will] need modifications to be compliant with … regulations."

The overall goal is to continue to be a seamless member of the total force, he said. Currently, the Air National Guard has three focus areas: war-fighting operations, homeland operations, and security cooperation with foreign countries.

"It's only appropriate that we are re-modernizing and recapitalizing on par with the United States Air Force," he added. Air National Guard aircraft should have the same capabilities as the regular Air Force's aircraft, he said. Its personnel are often called upon to carry out the same missions. 

"The Air Force does not hesitate [in] mobilizing our people for any task or assigning any task… and they do that on a regular basis," Clarke said.
Photo Credit: Defense Dept.
Blackwater Founder Erik Prince: What Is He Up To These Days?
By Sandra I. Erwin

Blackwater Worldwide founder Eric D. Prince once made handsome profits as a private security contractor to the U.S. government. He no longer sees a future in that industry, though, and has shifted gears to the economic development business, mostly in Africa.

It was an abrupt change of direction for Prince, a former Navy SEAL who became the poster boy for private security excesses at the height of the Iraq war. He sold Blackwater — now called Academi — in 2010 to private investors following years of lawsuits, congressional investigations and criminal complaints against the company.

Prince is currently managing director of Frontier Resource Group, a small private equity fund, and also chairman of Frontier Services Group, a Hong Kong-based public company that specializes in construction, road building, trucking, barging and air transport services mostly to companies that want to operate in Africa.

The shift from war contractor to peacetime developer was a straightforward business decision, Prince told National Defense in a recent interview. There are huge opportunities in Africa for investors who are willing to take a risk, he said. "I started investing in Africa and I saw the amount of opportunities there were to build roads, mines, infrastructure, oil fields ... and the large amounts of money that would be needed to do that."

Asian investors, especially the Chinese, are fueling much of the growth and have poured billions of dollars into Africa. They see the continent both as a fountain of natural resources and as an increasingly important trade partner.

"Asian investors have the appetite to take on that level of risk," Prince said. But others, too, see a future in Africa. "Whether it’s a Western mining company or a European oil company or a Chinese firm, they all have similar needs and requirements to operate there."

While everyone recognizes Africa's potential, the operating environment is challenging, with a weak and undependable infrastructure. Travel and transportation in many areas are difficult and expensive, and many countries in Africa create legal and regulatory risks for businesses. Prince's company, he said, is all about making it easier for corporations to do business in Africa. "We have built strong relationships with trusted local partners across the continent."

In a blog post on his company's website, Prince champions the idea that economic development is the key to peace, stability and security. "Fragile countries in Africa have been historically trapped in a vicious cycle of instability and poverty," he said. Development over time can help end the continent's brutal wars. "Even the most basic forms of infrastructure delivered in a quality and reliable manner greatly improve people’s lives. And people who see a path forward for economic development and a future for their families are less likely to fight."

Investors are bullish on Africa despite the tough environment, said Prince. "Africa comes with a higher risk, they expect quicker returns in the projects they invest in. ... Investors are in it to make money. There is not enough charity in the world to develop Africa."

While Prince spends most of this time overseas, he was recently in the United States promoting his book, "Civilian Warriors: The Inside Story of Blackwater and the Unsung Heroes of the War on Terror." Prince said he wrote the inside story of his former company to "dispel myths" and push back on relentless political attacks on the private security industry. 

Prince still believes that four Blackwater guards who were convicted in September of killing 17 Iraqi civilians eventually will be exonerated. The guards in 2007 opened fire on a crowd of unarmed people.  

He continues to insist that private security employees working for the U.S. government in warzones should be tried under the Uniform Code of Military Justice, instead of the civilian criminal justice system. "It’s quite different for a jury that is 7,000 miles away from the warzone, looking at a split-second decision made seven years earlier in a warzone, minutes after a large car bomb goes off." Prince said he hopes the guards' convictions can be successfully appealed. "The last chapter is not written yet."

Although he quit the business, Prince still sees a future for the private security business. "The world is a much more dangerous place, there is more radicalism, more countries that are melting down or approaching that state." At the same time, the Pentagon is under growing pressure to cut spending and the cost of the all-volunteer force keeps rising, Prince said. "The U.S. military has mastered the most expensive way to wage war, with a heavy expensive footprint." Over the long run, the military might have to rely more on contractors, as it will become tougher to recruit service members. Prince cited recent statistics that 70 percent of the eligible population of prospective troops is unsuitable to serve in the military for various reasons such as obesity, lack of a high school education, drug use, criminal records or even excessive tattoos. In some cases, Prince said, it might make more sense to hire contractors.

F-35 Program Weighs Security Concerns as It Creates Global Supplier Base
By Sandra I. Erwin

The U.S. military's most technologically sophisticated aircraft was designed to overwhelm enemies in combat but also as a novel multinational business consortium. A dozen countries so far have signed up for the F-35 either as buyer or as co-producer. Six nations recently were selected to provide depot maintenance for future F-35 fleets based in Europe and Asia.

Pentagon officials and executives from F-35 manufacturer Lockheed Martin Corp. have hailed global partnerships as essential to the success of the program and, as stated in Lockheed's marketing materials, as a model for "unprecedented technology transfer and innovation that is invaluable to the development of the F-35."

But once the program kicks into high gear over the coming years, a spirit of cooperation will have to coexist with stringent security policies and tight controls over the aircraft's most sensitive technologies that the United States wants to keep from its rivals.

The Pentagon signed carefully negotiated technology transfer agreements with F-35 partners, each based on the country's political and economic ties to the United States. Despite tight controls, industrial espionage has been a major concern, particularly in the F-35 program.

Recent decisions to assign Italy, Turkey, the Netherlands, Norway, Japan and Australia major roles in future F-35 maintenance are meant to be seen as proof that the program's global scope is not just a slogan. As partner countries sign up hundreds of new suppliers, however, it will be up to the U.S. government to make sure secrets are protected.

"We have to be careful how we expose those technologies to the bigger world," said Air Force Lt. Gen. Christopher Bogdan, F-35 program executive officer.

More than 3,000 F-35s are projected to be built over several decades. There are 1,200 domestic suppliers and hundreds more will be joining the program outside the United States. Bogdan's office reviews proposed vendors, and as more maintenance facilities and depots are built around the world, the U.S. government intends to keep an eye on each one. Under a so-called global sustainment plan, the F-35 office divided aircraft buyers into three regions — North America, Europe and the Pacific.

Lockheed Martin and engine maker Pratt & Whitney are the primary contractors that will support and maintain U.S. aircraft.

Italy was selected to provide regional maintenance, repair, overhaul and upgrade work for all F-35 airframes based in Europe. The United Kingdom would be a back-up supplier if additional capacity were needed. Turkey was picked to perform heavy engine maintenance, with Norway and the Netherlands in line to take up some of the work two to three years later.

In the Pacific region, F-35 airframe maintenance and repairs will be performed by Japan for the Northern Pacific and Australia for the Southern Pacific. Australia was the top choice for heavy engine maintenance, with Japan as a backup.

Italy and Japan are building cutting-edge manufacturing sites known as "final assembly and checkout" facilities. Each FACO will be run by local suppliers selected by the host country. But Lockheed Martin representatives will be responsible for overseeing the technical aspects of the manufacturing process and U.S. government officials will be onsite to ensure security protocols are followed.

Allowing other countries to tear down fifth-generation airframes and engines "comes with some risk," Bogdan said Dec. 17 during a conference call with reporters.

The Pentagon considers the F-35 a technological crown jewel. It is coated with ultra-secret materials that help the aircraft evade enemy radar. It also is packed with advanced information systems, sensors and electronic warfare technologies that make the aircraft a flying command center. And its software source code is said to be its secret sauce.

As more countries set up maintenance facilities, the United States will have to ensure that none of the top-secret technology is leaked. "There are certain things we will not let any of our partners or FMS [foreign military sales] customers have, even at the national level," Bogdan said.

Consolidating depot maintenance at the regional level allows for better oversight, Bogdan said. FACO sites in Italy, Japan and Australia will serve as maintenance hubs for Europe, the North Pacific and South Pacific regions, respectively. Heavy airframe and engine maintenance only will be done at the regional level under the oversight of the U.S. government, he said. "We are not going to stop partners or FMS customers from doing their own sovereign, national level work on their airplanes. But only up to the level to which the United States would let them do that work."

The United States has not agreed to let any one country do heavy airframe maintenance on its own, even for their own airplanes, said Bogdan. "That is going to be done at a regional level with U.S. government oversight or by the United States."

Bodgan said he was in Japan six months ago when Lockheed and partner Mitsubishi Heavy Industries broke ground on the new FACO, which is expected to be up and running by 2018. "Japan is setting up the facility [at its own expense] and ensuring the space is allocated appropriately," he said. "The next step is to ensure that the security aspects of the facilities are built in."

One notable feature of Japan's FACO is its vertical design. Whereas Lockheed's plant in Fort Worth, Texas, and Italy's facility at Cameri Air Base are expansive mile-long factories, Japan opted to build its assembly in multiple levels to make more efficient use of its limited square footage.

Two countries were selected to maintain aircraft in the Pacific region because the distances are daunting. Australia's F-35, for example, would have to travel 7,000 miles to get depot maintenance in Japan. That would create significant aerial refueling and logistics demands, said Bogdan. Operational considerations also were factored. "If they need a rapid upgrade, moving 7,000 miles to do a mod has an operational risk." Australia is projected to buy 72 aircraft, and Japan 42.

The Defense Department surveyed all F-35 partner nations for interest in doing the work. Bogdan said candidates were selected based on their financial investment in the program and technical merit, and the Pentagon also factored in issues like geography and the projected location of aircraft. It is not clear that regional tension between Japan and South Korea was considered in the selection of Japan as an F-35 maintenance hub. South Korea officials already have announced that they will only send their F-35s to Australia for maintenance work.

Photo Credit: Lockheed Martin

Navy to Start Competition for New Fire Scout Radar
By Valerie Insinna

The Navy is planning to start a competition next year for a new maritime search radar to be installed on the MQ-8C Fire Scout unmanned helicopter that will conduct surveillance off the littoral combat ship.

A request for proposals could be released as early as the first quarter of calendar year 2015, said Capt. Jeff Dodge, program manager for the Navy’s PMA-266, the program office for multi-mission tactical unmanned air systems.

“We're … looking for something that is relatively off the shelf, but that has some of the modern capabilities,” he told reporters Dec. 17. “Some of the modes that we would be interested in would be synthetic aperture, reverse synthetic aperture and … motion tracking.”

The Navy began testing the MQ-8C-variant Dec. 16 aboard the USS Jason Dunham, an Arleigh Burke-class destroyer, Dodge said. It executed 22 landings and recoveries in less than four hours of flight tests.

A smaller version of the Fire Scout — the MQ-8B — is already operational, having been deployed on frigates and alongside an MH-60R helicopter on LCS 3 Fort Worth. The Navy has chosen the Telephonics AN/ZPY-4 radar to be installed on some B-models, Dodge said.

The larger MQ-8C uses the same data links and ground control station as its little brother, but can carry more than three times the payload and fly twice as long, according to manufacturer Northrop Grumman. It leverages the airframe of a Bell 407 helicopter.

The Navy plans to buy 40 MQ-8C aircraft and begin deploying them in 2016.

"We will be ready for [initial operating capability]. The question is going to be ship availability,” Dodge said. "We'll have all of the material available. We'll have the supplies and the training and the aircraft ready."

While the existing electro-optical/infrared sensors allow a Fire Scout to hone in and conduct surveillance once a target is found, having a radar is helpful for locating that target on the expansive surface of the sea, he said. Some of the modes on the Telephonics radar allow the MQ-8B to see more detail at longer ranges, such being able to determine how big or what class a ship is.

The Navy intends the Fire Scout to carry both a radar and an EO/IR system at the same time, which means that size and weight will be important considerations going into the radar competition, he said. Generally speaking, a larger system has more range, but the weight decreases the endurance of the aircraft.

The service is considering additional payloads for both the B and C variants. It plans on testing a version of the advanced precision kill weapons system, or APKWS, on the MQ-8C, he said. The Navy already completed shore-based weapons testing for the MQ-8B and is deciding whether to move forward with further testing or to deploy the armed capability.

Two mine countermeasure payloads are also in the works, he said. One, called COBRA, takes the place of the EO/IR ball to detect surface mines.

The other payload would provide a data link between the LCS and any unmanned surface or underwater vehicles launched from it, thus extending their range. "We anticipate it’s going to go on a weapons station as a podded solution so that it wouldn't take the place of a different payload,” he said.

Last week, the Navy and the Coast Guard tested the radar-version of the MQ-8B aboard a national security cutter, he said. “They're interested in the capabilities of [unmanned aerial systems]. They want to better understand how that fits into their concept of operations."

Although if both services were to buy Fire Scouts together, they could garner cost savings, the Coast Guard is still evaluating potential UAS concepts and has not yet decided which platforms it wants to aquire. There have been no discussions on a joint purchase of MQ-8Cs, Dodge said.

Photo Credit: Northrop Grumman
Army Rethinking Tactical Radios As It Tries to Lighten Soldier Load
By Sandra I. Erwin

Before he was promoted to oversee Army strategy and soldier equipment needs, Lt. Gen. H.R. McMaster threw a wrench into long-standing plans to buy thousands of new radios.

Following a spring 2014 field evaluation of prototype handheld and backpack-size radios that the Army had been developing and buying for several years, McMaster wrote a memo in which he called for a review of radio procurements, especially the manpack device that he considered too bulky and heavy for soldiers to carry and use in combat.

McMaster's critique rattled program offices that had spent years working on these radios. The problem, as he sees it, is that the Army is overloading soldiers with complex gear that puts them at a disadvantage in combat.
Heavy radios mean less "tactical mobility," said McMaster, who as director of the Army Capabilities and Integration Center has a strong say in what hardware the service should buy.

"We want to lighten the load to restore tactical mobility," he said Dec. 16 at the Center for Strategic and International Studies.

The problem is not just radios, he added. Soldiers are burdened by heavy body armor, infantry weapons and other gear that should be made lighter, McMaster said. "We need to have a proper combination of mobility, protection and firepower across all our formations." In future wars, the Army wants infantry squads that are not slowed down by heavy equipment.

How McMaster's guidance will influence radio procurements still remains to be seen. Officials said existing requirements for new handheld and manpack radios will not change, but procurement plans are being scrubbed as Army leaders debate how best to provide tactical communications to soldiers in combat zones.

The Army has spent a decade and an estimated $9 billion on the pursuit of a modern wireless network for troops at war, but the effort has proceeded in fits and starts. Setbacks have been blamed on budget cuts, political interventions and technical misfires.

Soldiers can use commercial mobile phones in garrison and in forward bases that have access to cell towers. But they do not have reliable voice and data communications that work without an infrastructure, and behind rocks and trees.

"We have not reached the full capabilities of the network," Army Maj. Gen. Cedric Wins said at a news conference this fall. "Problems with the network might have soured some folks within the Army," Wins said. "In some respects, perhaps our ambitions and the timing in which we have been trying to field the network have not come into synch."

Wins, the director of requirements at the Army Capabilities Integration Center, was recently promoted to director of force development on the Army staff.

The lesson from the tactical network effort, he said, is that "we have to look at how we define requirements ... and figure out how to get capability into the hands of soldiers faster."

McMaster is leading a “mission command network assessment and strategy” review to re-evaluate requirements and expectations. The Pentagon gave the Army the green light in May to start production of "handheld, manpack, small form fit" radios. But the procurement plan is still in flux. The manpack has been in development since 2004 and in low-rate production since 2011. It is made by General Dynamics C4 Systems and Rockwell Collins Corp. The Army has bought more than 5,000 radios so far under low-rate production contracts. The handheld variant is made by General Dynamics and Thales Defense. Other suppliers would be eligible to compete for future buys, the Army has said.

Partly in response to McMaster's concerns, the Army is revisiting earlier plans to supply new handheld radios to every soldier and manpack radios to every platoon. There are also talks about cutting back on purchases of single-channel radios and, instead, buy a two-channel handheld for small unit leaders who need both voice and data communications.

Experts who have followed the Army's tactical communications programs believe McMaster will continue to be disappointed by the acquisition process that takes years to produce equipment that, once in the field, might be technologically outdated. The idea of providing soldiers with communications devices sounded simple in theory, but has proven very difficult to plan and manage. The weight of the radios is an issue, but it is just one piece of a bigger puzzle that the Army has yet to solve. "Even Congress is getting tired of this," said an industry source.

Army officials said a top priority is to "simplify" equipment and reduce the logistics burden on soldiers.

Communications for infantry brigades has been especially challenging, said Col. Mark Elliott, director of Army LandWarNet. "How do we enable a mobile force? How do we provide technology to talk from the installation all the way to the operating environment?" he asked during a panel discussion in October. "This is a big deal for the Army," said Elliott. "If I'm in a fixed command post, transitioning to a moving vehicle, transitioning to a handheld environment, I need a common picture of the operating environment."

The officer who oversees network and radio procurements, Maj. Gen. Daniel P. Hughes, agreed that additional work needs to be done to make equipment more functional for soldiers. "We need to give commanders the ability to operate from the enterprise to the foxhole." He said McMaster's criticism of the manpack radios is legitimate. "If the Army says a 14 pound radio may be too heavy for dismounted soldiers, technology will drive us to something lighter and smaller," Hughes said. He noted that the first sincgars combat net radio was the size of a microwave oven and modern ones weigh six pounds.

The Army also might revise its procurements of new radios as decisions are made about how equipment should be fielded. "Does every soldier need a rifleman radio? Maybe no," Hughes told National Defense in October. "There are affordability issues, and issues about how it's employed. ... In some places it makes sense for every soldier to have a radio. In some places it doesn't. The Army will continue to assess."

Simplicity is key, he said, not just in radios, but also in mobile networking systems like WIN-T, the war fighter information network tactical, which provides wireless connectivity to all Army units. After soldiers complained the system was too cumbersome, Hughes asked the contractor General Dynamics to redesign many of the features. "We need easy-to-access networks so commanders can do their business without having to think about the network. I want them to assume it works. By 2020 we are going to have a lot of that done. We have a really solid plan, and it's funded, to get the complexity out of the network."

Critics often don't appreciate how challenging this is, Hughes said. Consumers are accustomed to reliable wireless service because companies like Verizon have thousands of people working to make sure a customer's phone connects to the network. "Think about doing that in an austere environment in the middle of Somalia, where there's no cell tower you want to use and you need secure communications," said Hughes. "That's why it's complex."

Photo: Lt. Gen. HR McMaster
Credit: CSIS

Navy Aircraft Carriers Have Political Backing, But Face Financial Peril
By Sandra I. Erwin

The defense policy legislation Congress passed this month firmly backs the Navy's goal to operate a fleet of 11 aircraft carriers. But that mandate might not be enough to keep the carrier fleet from shrinking as the cost of new ships rises and the Navy's budget gets squeezed.

To ensure the fleet stays at 11 carriers, the 2015 National Defense Authorization Act supports the refueling and complex overhaul of the USS George Washington (CVN 73) in 2017. Congress appropriated $483.6 million to begin work on the George Washington’s modernization.

But the refueling of the George Washington still might not avert future cuts to the size of the carrier fleet. Recent estimates from congressional auditors and budget experts continue to raise doubts about the financial viability of an 11-carrier force.

The ability to keep the fleet at its current size over the coming decade rests on budget decisions to fund future ships, and also on whether the Navy can complete the acquisition of its new Ford-class carriers without busting congressionally mandated cost caps.

A contentious debate over the cost of the Ford class is on the horizon next year as one of the program's staunchest critics, Sen. John McCain, R-Ariz., takes over as chairman of the Senate Armed Services Committee.

The Navy said it would spend $43 billion on three Ford-class carriers. The Government Accountability Office reported last month that the Navy cannot afford to buy the first ship of the class, the CVN 78, unless Congress appropriates more money, beyond the $12.9 billion it already agreed to pay.

To make the March 2016 delivery date under the $12.9 billion cost cap set by Congress, the Navy agreed to accept the USS Gerald R. Ford with less capability than originally planned, on the assumption that it would request additional money later. It could take as much as $988 million more to acquire the ship as the Navy envisioned, said GAO. The Navy would have to defer work and costs until after the delivery period. For that reason, GAO suggested that Congress consider revising the cost cap legislation to ensure accountability of Ford-class construction costs. It also said Congress should require that all work included in the initial ship cost estimate is counted against the cost cap.

The Congressional Budget Office, too, raised red flags. In its latest projections, CBO warned the carrier fleet will not be ablet to stay at 11 ships unless the Navy buys them faster. "To prevent the carrier force from declining in the 2040s to 10 ships, the Navy could accelerate carrier purchases after 2018 to one every four years, rather than one every five years," said CBO.

The Navy's goal is to buy six Ford class aircraft carriers between 2015 and 2044. If it builds one carrier every five years, the Navy would have a force of at least 11 almost continuously through 2044 — except in 2015 to 2016, when the number would dip to 10. That temporary drop is because the Enterprise (CVN-65) was retired in early 2013 and the new Gerald R. Ford (CVN-78) will not be commissioned until 2016.
"Any delays in completing that new carrier would extend the period during which the Navy has only 10 carriers," said CBO's analysis of the Navy’s fiscal year 2015 shipbuilding plan.

The Navy projects that the total cost of the lead ship of the class will be $12.9 billion, an amount equal to the congressional cost cap. That equates to $14.3 billion in 2014 dollars, according to CBO. "That amount is 23 percent more than the amount requested in the president’s budget when the ship was first authorized in 2008." The Navy’s estimate does not include $4.7 billion in research and development costs that apply to the entire class.

As the Navy copes with the fallout of cost overruns in the CVN-78, it is in the midst of negotiations with shipbuilder Huntington Ingalls Industries over the cost of the John F. Kennedy (CVN-79), a ship that would be delivered in the 2020s.

Huntington Ingalls CEO Mike Petters said these will be "very tough" negotiations because the Navy is constrained by cost caps set eight years ago.

For the shipyard, the cost cap means having to carefully weigh whether the "scope of work" can be realistically achieved within those constraints, Petters said last week at the Atlantic Council.

"Everyone knows what the budget and the cost cap is, we know what our portion is. When you sit down to negotiate, it's about settling on the scope of work, and reaching an agreement on risk," said Petters. It is a balancing act for the shipyard that relies on Navy contracts as its primary source of revenues, but also for the Navy because HII is the only yard that can make aircraft carriers.

Agreeing to build a ship whose price was set in 2006 and won't be delivered until the early 2020s is potentially a financial risk for Huntington Ingalls, Petters said. He is hopeful that an agreement can be reached that "makes sense for taxpayers and for the company. It's a challenge."

Over the long run, the Navy's carrier construction plan is relatively sound, CBO noted. It estimated the average cost of the six carriers in the 2015 plan at $12.8 billion, compared with the Navy’s estimate of $12.5 billion.

But analysts cautioned that costs have tended to rise more in the latter stages of ship construction, when systems are being installed.

The Navy projected that CVN-79 will cost $11.5 billion, or $160 million more than the estimate in the president’s 2014 budget, and called it an “aggressive but achievable target.” But CBO calculated that the cost of the ship will be $12.6 billion, or about 8 percent more than the Navy’s estimate.

GAO also raised doubts that the CVN-79 cost cap of $11.5 billion can be met. The savings that the Navy anticipates are “largely based on ambitious efficiency gains and reducing a significant amount of construction, installation, and testing, work traditionally completed prior to ship delivery," said GAO in a November report. “The Navy continues to revise its acquisition strategy for CVN 79 in an effort to ensure that costs do not exceed the cost cap.”

Also clouding the financial picture for the carrier program are larger pressures in the Navy's shipbuilding budget, which CBO has described as chronically underfunded. Rising price tags for new surface combatants and submarines could squeeze future construction of new carriers, analysts have predicted.

Under the Navy's plan to expand its combat fleet to 306 ships, it would need to buy 264 vessels between 2015 and 2044, at an average annual cost estimated by CBO of $20.7 billion. That would be 32 percent more than the average annual funding the Navy has received in the past three decades.

Photo Credit: Huntington Ingalls Industry

Analysis: Firearms Maker Colt a Cautionary Tale for Defense Contractors
By Andrew Schoulder and Robert Crowley

In the wake of steep cuts to U.S. military budgets, many companies are finding themselves in financial distress. As they face declining sales and difficulties attracting investors, even firms with deep historical ties to the Defense Department are on the brink of collapse.

A compelling case of a military contractor in distress is firearms producer Colt Defense. It dodged a bullet last month after narrowly avoiding defaults on its term loan credit facility and senior unsecured bonds.

On Nov. 17, Colt disclosed that it would likely default on its term loan facility and its November interest obligation to bondholders. In the days before and after that announcement, the market was flooded with news that Colt had lined up financial restructuring advisors while hedge funds lined up their own hired guns. At the last minute, Colt ultimately secured a $70 million refinancing of its existing term loan — a temporary band-aid.

Distressed investors have loaded up on Colt’s bonds and are now waiting for another misfire. Consequently, time is not on the side of the beleaguered Colt, even with the temporary relief provided by a last minute refinancing.

According to Colt’s most recent public financials, the company experienced a 67 percent decrease in adjusted earnings before interest depreciation and amortization (EBITDA) on a year-over-year basis through Sept. 28. Colt attempted to project rosy 2015 earnings targets, but that effort was overshadowed by Colt’s disclosure that it may not have sufficient liquidity to make its interest payment to bondholders in May 2015.

Colt’s prospects now hinge on management’s ability to execute key initiatives in the U.S. and international firearms markets. In the United States, the Pentagon recently announced that, beginning in January 2015, it will solicit bids for a new contract to replace the Beretta M9 as the primary sidearm for the U.S. military. Before being replaced by Beretta in 1985, Colt held this lucrative contract with its Colt M1911 for close to 90 years. According to the draft solicitation published in September, the U.S. government can be expected to purchase up to 550,000 new sidearms over 10 years. Two interesting proxies for the potential value of this new contract are the U.S. Army’s awards to Beretta in 2009 and 2012. In 2009, Beretta was contracted to provide up to 450,000 pistols for a total contract value of $220 million if all pistols and spare parts were ordered and, in 2012, up to 100,000 pistols for up to $64 million.

Winning an Army contract could provide troubled Colt with a lifeline, but it faces stiff competition. Beretta already has set its sights on the new contract. Another contender is the jointly developed polymer M&P of Smith & Wesson and General Dynamics as a leading favorite. Another player is Glock’s G21 (or similar model), which is carried by police departments throughout the United States, the FBI, the Drug Enforcement Administration, and certain U.S. military special operation units. Even with Colt’s household reputation for sidearms, it will need to get creative in the face of competition from other potential contenders such as the FNH FNX-45 and SIG Sauer’s P220 or P229.

The U.S. military should not be Colt’s only option to reposition itself. In recent years, U.S. defense contractors across various sectors have been aggressively seeking to offset declining U.S. military contracts with revenues from foreign defense sales. However, Colt’s foreign net sales suggest that it either reacted slower than its competitors or just could not compete effectively for foreign business.

Colt’s efforts to penetrate the Middle Eastern and African markets have backfired. Its net sales to those regions were a miniscule 2 percent in 2013 and 1 percent in 2012. Saudi Arabia, alone, has the fourth largest defense budget in the world, trailing the United States, China and Russia. According to IHS Inc., Saudi Arabia touted fiscal year 2013 total defense imports of $3.7 billion, and was trailed by the United Arab Emirates with $3 billion, Algeria with $1.9 billion, Qatar with $650 million, and Oman with $505 million. Yet, Colt failed to realize these opportunities.

Colt may have a new international window of opportunity if it can capitalize on the misfortunes that have befallen Heckler & Koch (H&K) as a result of Germany’s efforts to tighten arms exports. Germany’s goal of shedding its title as the world’s third-largest arms exporter is apparently succeeding. As reported by Bloomberg, sales of German arms fell by $900 million in the first six months of 2014, which included a 90 percent drop in small arms sales. As a result, companies such as H&K, which have historically had strong foreign sales, are facing increasingly tighter restrictions in fulfilling orders to non-NATO and non-European Union countries, including those in the Middle East.

In October, Moody’s reported that the German government approved a number of long awaited arms export licenses to Middle Eastern and other non-NATO countries. Among the licenses granted were approvals for H&K to release a portion of €50 million of export requests, as of June. Although these licenses will increase H&K’s 2014 earnings, there is still great uncertainty with respect to the company’s ability to support the growing demand for defense imports within the Middle East, Latin America, the Pacific, Asia and Africa.

While export delays associated with the International Traffic in Arms Regulations are a hindrance, the playing field has been significantly leveled for Colt.

Notwithstanding these opportunities, Colt’s track record does not inspire an optimistic outlook. Financial distress has stalked Colt for the past 20 years. The U.S. military’s involvement in the first Gulf War, Afghanistan and Iraq provided temporary reprieves. Yet, Colt floundered in the hands of Zilkha & Co., which acquired the company in 1994. The subsequent transfer of Colt’s control to Sciens Capital Management did not change much. Colt was saddled with leveraged recapitalizations that left the company with $300 million of debt, at least $131 million of which was used to make distributions back to Sciens in 2007.

To successfully transform itself, Colt will need significant investments of both time and capital. But the traditional private-equity investment realities could impair Colt’s ability to adapt to the current market dynamics.

If the current sponsor is not the answer, are there other viable options on the horizon? Maybe. During its earnings call for the third quarter of 2014, Colt confirmed that it had retained investment banking firm Perella Weinberg to assist with ongoing liquidity issues.

Although it was not expressly disclosed, conventional wisdom might indicate that the retention of an investment banker makes a sale of Colt’s business a possibility.

One option is the distressed-focused hedge funds that are waiting for Colt to default on its loans. These players would certainly have the investment capital to prop up the company. However, Colt will require extensive time to expand its global footprint. A long-term recovery horizon could conflict with the shorter-term investment window common to the private investment industry.

Reminiscent of the fallout from the defense downturn in the 1990s, consolidation with another firearms manufacturer is another option for maintaining Colt’s storied place in the industry. Given the growing need to increase market share, one interesting subset of potential suitors could include companies that cater to U.S. and foreign militaries and police, but do not have a strong position in manufacturing assault rifles and machine guns. Within that subset, companies such as Glock, Beretta and SIG Sauer are possibilities. Each of these companies has strong domestic and international distribution channels for handguns that could benefit from the integration of Colt’s line of assault rifles and machine guns, as well as Colt’s own handguns.

After 178 years of manufacturing firearms, Samuel Colt’s legacy may be decided in just a few months. Whether Colt will continue on its downward trajectory or fly straight will largely hinge on the caliber of its management, not its firearms.
Andrew J. Schoulder is a partner in Bracewell & Giuliani LLP’s New York office. He advises defense companies, private investment firms, and financial institutions. Robert M. Crowley is a litigation associate in Bracewell’s Seattle office and a former major in the U.S. Army Special Forces.

Colt M1911 pistol training, 1945 Credit: Army

Military Study Criticizes Direction of U.S. National Security Policy
By Sandra I. Erwin 

The United States does not have a credible strategy to combat enemies like Islamic extremist groups and needs to rethink its entire national security decision-making process, a new military-funded study suggests.

"I don't think we understand completely the fight we are in," said Lt. Gen. Charles Cleveland, commanding general of U.S. Army Special Operations Command.

Despite 13 years of grueling wars, he noted, the national security apparatus has not adapted to changing threats and has not learned to cope with complex challenges.

"We are in a competition where it looks like football to us, but it's really a game of soccer with elements of rugby and lacrosse," he said Dec. 12 during a gathering of think tank experts and military officials hosted by RAND Corp. senior analyst Linda Robinson. She is one of the authors of a new study sponsored by Army Special Operations Command, titled, "Improving Strategic Competence: Lessons from 13 Years of War."

RAND analysts wade into the debate about the lessons from the Iraq and Afghanistan wars, and whether the United States is applying those lessons to address future conflicts.

Cleveland said the study exposes uncomfortable truths that not everyone in official Washington will want to hear, but need to be recognized. One of those realities is that the military continues to fight the last war even though enemies such as the Islamic State present entirely new challenges. "We have to be honest about how much legacy we are bringing into a fight that is not suited for the legacy we bring forward," he said. "This is unlike anything we've confronted, I think, in our past."

The counterterrorism machine the United States stood up after the 9/11 attacks has become a bureaucratic juggernaut that struggles to adapt, Cleveland said. "We built a great apparatus for terrorism. It has huge advocacy. If someone questions it, you run the risk of taking on an entrenched infrastructure."

The United States needs fresh ideas on how to make the nation safe, he said, and they can't just involve military actions. "We keep adapting the existing tools the best we can but at some point we have to develop new tools, new ways to look at this problem."

In the case of the Islamic State, the Obama administration was caught unprepared to deal with a terrorist group that turned into a "no-kidding insurgency" that conducts maneuver warfare, information campaigns and is taking on the characteristics of a nation state. It is still not clear how to respond, Cleveland added. He also has doubts about the U.S. strategy, or lack thereof, to counter Russia's invasion of Ukraine. A resurgent Russia might be "manageable" if only the United States knew how far Vladimir Putin plans to take his aggressive posture, said Cleveland. Ukraine might just be the "first rattling" of a long-term effort by Russia to expand into Eastern Europe.

The current and future presidents need to be able to get sound advice from military leaders on how to cope with these new threats, said Cleveland. "Where do we, the military, send our young officers to learn how to put together those campaigns? And should we?" he asked.

Today's leaders might be ill equipped to give the best advice because their perspective is usually too narrow, he said. Given the environment today, the military has to take a broader view of national security, he said. Officers have to understand political warfare and how to integrate civilian elements of power into the fight. "We the senior military have to look at how to develop leaders that can provide the best military advice," said Cleveland. "We have to be more friendly in planning with our civilian partners."

Army Special Operations Command has started a series of informal "civil-military" meetings at Fort Bragg, N.C. "I'm not sure we have an adequate place that actually studies the problem," said Cleveland. "We need a focal point for the study of political warfare and resistance. ... Resistance is now the most common form of warfare. But we don't study political warfare even as traditional warfare is becoming less viable as a tool."

Another problem with current policy is that there are not enough honest brokers to challenge those in power. "We need a nongovernmental organization that is smart enough to be able to critique government policy," said Cleveland. "There needs to be an intellectual watchdog."

Former U.S. ambassador Lincoln Bloomfield, chairman of the Stimson Center, said Washington arrogance has gotten in the way of sound policy making. "Bureaucracies have become much thicker at the headquarters level, both civilian and military," he said. "I call it 'a thousand bowls of rice' that fight over turf and resources."

Government agencies excel at managing details, but "few people in Washington own the big picture," Bloomfield said. In the absence of a strategy, government throws money at problems, he added. Today's civilian leaders call for "strategic patience" in the fight against ISIS, an acronym for the Islamic State. Lack of patience is not the issue, he said. "The problem is that our reputation is declining. We're losing our way on the strategic focus at the national level. ... We're misreading the environment, and the influencers."

As much as White House officials talk about "whole of government" approaches to security problems, there is no such thing, Bloomfield said. When Syria's regime last summer attacked its citizens with chemical weapons, the White House called the Pentagon and asked for options. "They got military options. That is not whole of government," said Bloomfield. "We use military power because we don't seem to have any other resource, not because it's the optimal tool."

The RAND report said one of the hallmarks of the wars of the past 13 years has been a consistent lack of strategy. "The decision to go to war in Iraq, the decisions to send a surge of troops to Iraq and then Afghanistan to bolster faltering war efforts, and the approach taken toward countering terrorism in the past two administrations all illustrate strategy deficits," the study said. "During the past 13 years, the strategies typically failed to envision a war-ending approach and did not achieve declared objectives in a definitive or lasting manner. The ends, ways, and means did not align, whether because the policy objectives were too ambitious, the ways of achieving them ineffective, or the means applied inadequate."

RAND analysts propose the creation of an "integrated civilian-military process that would rigorously identify assumptions, risks, possible outcomes, and second-order effects through soliciting diverse inputs, red-teaming, and table-top exercises.”

The report also suggests military leaders have to be smarter about the political aspects of war. They choose to focus on tactical issues, troop levels, timelines, rather than the strategic factors that will determine a successful outcome. "The U.S. military has also been reluctant to grapple with the political aspect of war, in the belief that it is either not part of war or entirely up to the civilians to address," RAND said. "Yet an intervention is unlikely to produce lasting results without a strategy that addresses the political factors driving the conflict and provides for enduring postwar stability."

RAND's assessment bears the imprint of the former chief of U.S. Special Operations Command Adm. William McRaven, who retired last year. Robinson, one of the authors of the study, has written white papers and testified on Capitol Hill in support of McRaven's "soft power" approach to fighting terrorism and a greater involvement of civilian players.

Washington Post war reporter Rajiv Chandrasekaran,  who was a panelist at the RAND conference, endorsed the report. "The special operations community should be commended for moving in the development of preemptive activities and whole-of-government partners," he said. But that only happens episodically, he noted. Further, SOCOM's efforts often are misread as a power grab, Chandrasekaran said. "SOF needs to combat the perception in some quarters that you're just itching for new theaters of conflict, and prepping new battlefields," he told officials at the RAND forum.

Military brass have to accept that their judgment is going to be increasingly challenged, he said. "It's unrealistic that we are going to return to the 'leave it up to the generals' attitude from the White House." This is not simply the result of the centralization of national security decision making under the National Security Council, Chandrasekaran said. It is also a consequence of growing numbers of isolationist policy makers in both parties. The military should be expected to provide a broad range of policy options, not just its preferred flavor, he told the officers. "You need to gird yourself for greater levels of friction in policy making. It's going to be a feature in the strategic landscape."

Vikram Singh, vice president for national security at the left-leaning Center for American Progress, poured cold water on the idea that the idea that civilian agencies will gain a prominent seat at the war-planning table. The Pentagon might be successful at fighting back budget cuts, said Singh, but the chances that the State Department and USAID are going to get anything but downward pressure on their budgets seems a political given, he said. "That's only going to increase that differential," he added. "Good will and intent are all nice but the resource disparity really does matter."

Photo Credit: White House

Italy, Turkey Big Winners of Future F-35 Logistics Work
By Sandra I. Erwin

The Pentagon has begun to assign potentially lucrative logistics support work to foreign buyers of the F-35 joint strike fighter. As part of a "global sustainment" effort, it selected Italy and Turkey as main providers of airframe and engine maintenance for the F-35 fleet based in Europe.

This marks the first step of a projected years-long process of allocating billions of dollars worth of future maintenance work, said F-35 Program Executive Officer Air Force Lt. Gen. Christopher Bogdan.

Under the global sustainment plan, the F-35 office divided aircraft buyers into three regions — North America, Europe and the Pacific.

F-35 aircraft manufacturer Lockheed Martin Corp. and engine maker Pratt & Whitney are the primary contractors that will support and maintain U.S. aircraft.

The Defense Department decided that foreign buyers should be financially rewarded for their investment in the program by securing logistics support work. The F-35 program office estimated that European and Asia-Pacific based buyers will need to have a maintenance infrastructure up and running by 2018 in order to be ready to support their future fleets.

Although non-U.S. buyers make up a small piece of the entire F-35 program — 723 aircraft compared to 2,443 projected to be bought by the United States — they carry disproportionate political weight. The Pentagon and Lockheed Martin are seeking to increase international sales to reduce the aircraft’s price tag, and want to show that the program is worth investing in.

While international customers will buy far fewer aircraft than the United States, they make up about half of the planned orders of low-rate production aircraft over the next few years. As Bogdan looks to bring the per-aircraft price from nearly $100 million to about $85 million, these early foreign buys are seen as crucial to keep costs down.

Current buyers — although not all fully committed — include Australia, Canada, Denmark, Israel, Italy, Japan, the Netherlands, Norway, South Korea, Turkey and the United Kingdom.

During a news conference Dec. 11, Bogdan announced that Italy had been selected to provide "regional maintenance, repair, overhaul and upgrade" work for all F-35 airframes based in Europe. The United Kingdom would be a back-up supplier if additional capacity were needed. Turkey was picked to perform heavy engine maintenance, with Norway and the Netherlands in line to take up some of the work two to three years later. "We'll need more than one nation doing engine work," Bogdan said. The winners of the Pacific region maintenance workload will be announced next week, he added.

The workload assignments will be reviewed and updated in about five years, and there will be opportunities for other countries to grab their share, said Bogdan. "As international F-35 deliveries increase and global operations expand, support provided by our international F-35 users becomes increasingly more important.”

The Defense Department surveyed all F-35 partner nations for interest in doing the work. Several candidates were evaluated and U.S. teams were sent to each country to inspect facilities. F-35 program officials weighed in on the decision on technical merit, and the Pentagon also factored in issues like geography and the projected location of aircraft.

Italy, which is expected to buy 90 aircraft, has poured nearly a billion dollars into a "final assembly and checkout facility" for the F-35. That gave the country the inside track for maintenance work, said Bogdan. "It is hard for anyone else to match that. That's a cost the rest of the enterprise does not have to bear."

But Bogdan cautioned that the work is not guaranteed indefinitely, and other countries will be encouraged to compete in the future. Italy is only being promised a workload equivalent to the number of aircraft it will buy. Beyond that, the program office might seek a new round of competitive bids.

"In 2015 we'll continue this process," Bogdan said. "There is much work still to be had" including components, system repair, warehousing and maintenance equipment support.

Once a country is assigned regional maintenance responsibility, it is up to that nation's government and suppliers to fund the needed infrastructure. The investment would be recouped over time as maintenance work ramps up once F-35 fleets begin operations. "Each nation that sets up regional capability will be guaranteed a minimum amount of work equivalent to how many airplanes will buy," said Bogdan.

The cost of maintenance and logistics support for the entire F-35 fleet is estimated to approach $1 trillion over the projected 50-year life of the program. The joint program office so far has mostly focused on the development, testing and production of the aircraft. Up until four years ago, the program was on the brink of being terminated and was once characterized by Pentagon procurement chief Frank Kendall as the product of “acquisition malpractice.”

Since taking over the program, Bogdan cracked down on excess cost and pressured Lockheed and Pratt to invest more of their own money in the program.

The logistics piece was not an immediate priority but it has commanded more attention recently, particularly as international buyers voiced concern about their ability to keep the sophisticated aircraft ready to fly once they enter service. An industry source who spoke to National Defense on condition of anonymity said some foreign buyers — particularly Australia and the United Kingdom — became alarmed as they began to look at what it would take to keep these new airplanes flying. Most are buying small numbers of airplanes, “so their expectations for operational availability are higher than ours,” the source said. The United States will have a huge fleet, so even if only half the aircraft are operationally available, that is still a large number. For countries that are buying fewer than 100 airplanes, even a 75 percent availability rate would be a problem. “The small fleet size operators want to maximize the number of airplanes that are ready at any given point,” the source said. “Maximizing readiness in a mature fleet is a challenge. In a brand-new airplane, it's almost insurmountable.”

Photo Credit: Lockheed Martin

Navy's Drone-Zapping Laser Declared a Success
By Valerie Insinna

Over the first few months of its deployment in the Persian Gulf, the Navy’s new laser gun has proven it’s capable of taking down small unmanned aircraft and blasting through the engines of small watercraft, the chief of naval research told reporters Dec. 10.

The laser weapons system, or LaWS, hasn’t engaged an actual enemy threat yet, but it has been cleared for operational use and could be employed to defend the transport ship USS Ponce, where the laser was installed and tested, said Rear Adm. Matthew Klunder.

“If we had to defend that ship today, we will destroy a threat" with the laser weapons system "and we have the [rules of engagement] to support that," he said.

LaWS was installed on the Ponce this summer and has been operational since September, said Rear Adm. Bryant Fuller, deputy commander of ship design, integration and naval engineering at Naval Sea Systems Command. The system includes six welding lasers that converge on a single target.

Although the system cost $40 million to develop, it can fire a shot for 59 cents, Klunder said. Compared to missiles that can cost hundreds of thousands or even millions of dollars, that’s a good return on investment, he argued.

Videos presented to the media showed the laser destroying the motor of a small attack boat, as well as dazzling and blowing up an unmanned aerial vehicle.

"The amazing thing here, literally, is that we knocked the UAV out of the sky in less than two seconds, before it could even catch on fire,” Klunder said. "We've been able to really get it where we need it to be in terms of refining the target points on those vehicles so they can be destroyed or disabled quickly."

The power of the laser can be scaled up or down, he said. It can be used as a “dazzler” to warn a potential adversary, to disable ships or sensors and to destroy small threats.

The laser also could disable larger craft or helicopters, Klunder said. “I’m not going to tell you that this was designed to take out frigate-sized ships,” he added. “Not today.” Future lasers, however, will be able to take on larger aircraft and ships.

LaWS’s optical system is so sophisticated that sailors have also employed it as a targeting and surveillance asset, he said.

Klunder declined to comment on the range of the optical system, but “We're picking up what may be potentially a bad person on a ship drinking a soda. We can get it down to that of resolution,” he said. "It's almost like a Hubble telescope at sea. Literally, we're able to get that kind of power and magnification with it."

Despite the achievements on the Ponce, Klunder said the Navy has no intention of buying more 30-kilowatt lasers. Instead, it is developing a more powerful 150-kilowatt weapon — which will be delivered as early as 2016 — and may pursue a larger-scale deployment of that system.        

“That’s the one we’re really targeting for potentially more extensive use,” he said. ONR and Naval Sea Systems Command have been working to identify which ships in the fleet would be best suited to accommodate future laser weapons.

In the meantime, LaWS is expected to continue its one-year deployment on the Ponce, although that could be extended, Klunder said.

The Navy deployed LaWS to the Persian Gulf to test the system’s ability to endure extreme environmental conditions, Klunder said. In the past months, it has encountered high temperatures, levels of humidity and sea states and has withstood a 30-knot dust storm without coming out of alignment.

A small group of sailors on the Ponce is responsible for the operation and basic maintenance of the system, Fuller said.

“The fact that we're able to integrate as part of a 43-year old ship tells you that it’s easy to integrate,” he said. The system has its own cooling system and diesel power generator, and is networked with the Ponce’s navigation radar and close-in weapons system.

Klunder said sailors on the ship use LaWS daily for training, gathering intelligence and to test its destructive power.

Photo Credit: Navy

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