Air Force Weapon Developers See Fiscal Calamity on the Horizon

10/4/2011
By Sandra I. Erwin

FORT WALTON BEACH, Fla. — While Congress continues to wrangle over proposed cuts to the defense budget, U.S. Air Force officials and contractors here are bracing for economic doom.
“You have seen the papers … We’ve got a big target painted on us right now,” Air Force Maj. Gen. Kenneth D. Merchant told a huge audience of military officers, government employees and contractors attending the 37th Air Armaments Conference Oct. 4 at the Emerald Coast Convention Center.
Merchant, commander of the Air Armaments Center and program executive officer for weapons, oversees the development, procurement and testing of all Air Force air-delivered weapons.
Although the projected cuts to the Defense Department’s budget for fiscal year 2012 are relatively small -- about 1 percent lower than fiscal year 2011 -- weapons programs can expect to take a disproportionate share of the reductions compared to personnel and operations accounts. Cutbacks to AAC programs would be felt throughout this region. Eglin Air Force Base, along with Hurlburt Field, which is home to the U.S. Air Force Special Operations Command, contribute about $5 billion a year to the local economy in Northwest Florida. Hurlburt and Eglin employ more than 23,000 military and civilian workers.
“You know what is about to happen to us,” Merchant said. The days of growing budgets and “OCO dollars” rolling in to help support programs are “probably a thing of the past,” he said, referring to the Overseas Contingency Operations funds that Congress has appropriated every year for the past decade to pay for the wars in Iraq and Afghanistan.
“It’s not looking good, I’ve got to tell you,” Merchant said somberly. “The next few years are going to be very lean.” Bomb and missile production, for instance, might have to slow down, Merchant said. “We’ll be buying minimum quantities to sustain the [manufacturing] lines.”
If and when budgets do get cut, the plan is to protect healthy programs and kill under-performing ones that have been kept on life support for a while, Merchant said. “Our choice is to continue to carry a lot of damaged programs around, or we can choose the fittest and most successful programs” and save those from the budget axe, he said. “ I think we’re going to choose the second option.”
Merchant asked the arms manufacturers in the audience to “help us bring down the cost of our weapon systems.” When possible, contractors should consider laying off employees to help lower program costs, he said. “ If there is an opportunity for you to shed some work force, let’s approach that. If we need to make a contract adjustment, we can make an adjustment.”
Leaner suppliers should help curb overhead expenses and “make us all more effective in the long run,” said Merchant. As part of a new round of Pentagon procurement reforms known as “better buying power,” military acquisition program managers must be more aggressive in negotiating prices with suppliers, and if necessary, in trimming contractors’ profits. “They are looking for us to get more engaged in the process” of negotiating with industry on what is a reasonable cost for a weapon system, he said. “If your proposal came in at $100 million and we wanted it to be $80 million, and we settled at $90 million, was that the right price?” Under the better-buying-power guidelines, splitting the difference may not be enough, Merchant suggested.
Emphasis on cost cutting, however, does not mean that the government wants to put companies out of business, he said. To the contrary, the goal is to keep programs alive, so industry can thrive and continue to invest in new technology, said Merchant. “I’m not naive enough to believe that you’re not in the business to make money. You have to have profits,” he said. “I want us both to be successful.” If profits are squeezed, industry will cease to invest in research and development, said Merchant. “We need that IRAD [independent research and development] to keep bringing us new ideas,” he said. “We need you to make money.”
Besides contractor costs, another burden on weapons programs has been an onslaught of new regulations that, in some cases, have added cost and created unnecessary delays in projects, Merchant said. He estimated that, since 2008, procurement programs have been saddled with at least 525 new policies -- some from the Pentagon, others from Air Force headquarters, and others from Air Force Materiel Command. Some are helpful, Merchant said. Others, not so much. If the Air Force is going to save money, he said, “We have to learn to tell headquarters when they are driving inefficiencies into our programs.”

Topics: Aviation, Defense Department, DOD Budget

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