28 janvier 2021 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

Opinion: Are Flat Pentagon Budgets The New Up Or The New Down?

Byron Callan January 26, 2021

The Biden administration probably will not unveil an outyear spending plan for the Defense Department until the late spring of 2021 at the earliest, and more likely it will come out with the fiscal 2023 budget submission in February 2022. The administration should, however, be commenting on some of the bigger changes as different reviews and assessments are completed before that budget plan is released.

Consensus now is that Pentagon spending will be flat at least in the first term of the Biden administration, though analysts are not clear on what this means. Will the Pentagon's budget be unchanged from the level that was appropriated for fiscal 2021? Will it be flat in inflation-adjusted terms, which means it would rise at 2% annually in current dollars? Or will the budget be flat in current dollars, which would entail a roughly 2% annual decline in Pentagon purchasing power, assuming inflation is 2%? Each would have different outcomes for the spending that would flow to contractors.

Defense optimists could argue that flat budgets historically have not lasted too long. There were periods in which budgets were flat over 2-4 years annually in the late 1950s, early 1960s and mid-1990s. Flat periods, however, were succeeded by growth—usually because of a crisis or a new military contingency.

No one has a working crystal ball that will show what is ahead for the 2020s. There are reasons to believe, however, that the 2020s are different. Although interest rates are at historic lows, the ratio of U.S. debt to GDP is at levels seen during World War II. There is pent-up demand for non-defense discretionary spending—notably for infrastructure, and an aging U.S. population will likely demand more health care and other “social” spending. “Endless wars” in the Middle East may temper Americans' willingness to engage in new overseas missions, unless a major provocation occurs that is akin to the 9/11 attacks. The flat budget period could last longer than the post-World War II era suggests.

Is “flat” good for contractors? That depends. Markets started to digest that U.S. defense spending was flattening in 2020. The largest U.S. defense contractors underperformed the S&P 500 in 2020 and are doing so again in the first days of 2021. The initial market verdict is that flat is not good.

The assessment might be true, but it is going to depend on two factors: how the Pentagon reallocates resources in a flat budget environment and how contractors change their strategies and portfolios.

A flat top-line defense budget could be positive if the Pentagon can successfully cut military personnel and operations and maintenance (O&M) spending. Both are tall tasks. Winding down operations in Afghanistan and the Middle East is not going to free up significant troop numbers, and in any event, both are apt to exert gravitational pulls from which the U.S. cannot easily break free. Global security risks are not going to allow the sort of force structure cuts that occurred at the end of the Cold War and the Korean and Vietnam wars. Readiness and training also will remain a priority in this environment.

Spending on military personnel and O&M that keeps pace with inflation may place even more pressure on investment. If those accounts grow at 1-2% annually, in a flat top-line period, that will put even more pressure on investment. Still, while there has been no indication so far, it is conceivable that the Biden administration will propose reductions in force structure and will attack O&M costs with more vigor. It will take 1-2 years at least to realize those savings, but they could be applied to modernize a smaller military.

For a number of years, the Pentagon attempted to retire older “legacy” weapon systems in order to fund new investment, but Congress has stymied efforts to muster out older Navy cruisers, aircraft carrier refueling systems and aircraft such as the A-10. The Defense Department could renew this line of attack, but it may be reminded of the old adage that repeating the same thing over and over and expecting a different outcome is the definition of insanity. The Pentagon will have to change its approach here by offering more incentives to states and districts that could be affected by the elimination of squadrons or units, and it has to be more forceful in confronting contractors whose net interests are harmed by such moves.

A final thought is how contractors' strategies might change. In 2020 and so far in 2021, outperformance was evidenced by small-to-midsize contractors that appeared better aligned with Pentagon investment priorities in artificial intelligence, autonomy, supply chain resilience and low-cost weapons. The largest contractors may be able to unlock value in a flat top-line environment if they can spin off segments that are stagnant or declining. Sprawling program portfolios are apt to perform more in line with market growth rates, and that is not a recipe for superior performance.

https://aviationweek.com/defense-space/budget-policy-operations/opinion-are-flat-pentagon-budgets-new-or-new-down

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  • US Navy embraces robot ships, but some unresolved issues are holding them back

    2 juin 2020 | International, Naval

    US Navy embraces robot ships, but some unresolved issues are holding them back

    By: David B. Larter WASHINGTON — The U.S. military is banking on unmanned surface and subsurface vessels to boost its capacity in the face of a tsunami of Chinese naval spending. But before it can field the systems, it must answer some basic questions. How will these systems deploy? How will they be supported overseas? Who will support them? Can the systems be made sufficiently reliable to operate alone and unafraid on the open ocean for weeks at a time? Will the systems be able to communicate in denied environments? As the Navy goes all-in on its unmanned future, with billions of dollars of investments planed, how the service answers those questions will be crucial to the success or failure of its unmanned pivot. Many of those issues fall to the Navy's program manager for unmanned maritime systems, Capt. Pete Small. As the Navy puzzles out some very basic questions, it must also ponder some big organizational changes to maximize the potential of the platforms once they arrive. “Our infrastructure now is highly optimized around large, very capable, highly manned warships,” Small said at the C4ISRNET Conference in May. “We spend a lot of time and effort preparing them for deployment, and we deploy them overseas for months at a time. They are almost perfectly reliable: We generally send them on a mission, they do it and come back almost without fail. “For these distributed and smaller platforms, we're going to have to shift that infrastructure — how we prepare, deploy, transit over and sustain these smaller platforms in theater.” That question is critical because it will affect the requirements for how the systems are designed at the outset. In the case of the medium and large unmanned surface vessels under development, just how big and how rugged they need to be would depend on how the Navy plans to use them. “All the scenarios we're discussing are far forward,” Small said. “Far from the shores of the continental United States. So there is absolutely a transit somewhere — a long transit — to get these platforms where they need to be. We've got to come through that in a range of ways. “For the medium and large [unmanned surface vessel] USV, in setting up the specifications and establishing what the requirements should be for unmanned surface vessels, crossing an ocean is a critical part of those missions.” Making these platforms cost-effective is almost the entire point of their development, but questions such as “Should we design the vessel to be able to make an Atlantic or Pacific crossing?” can mean a big price difference. “With a medium USV, we're kind of on the edge of whether it's big enough to cross the ocean by itself, and we're learning, you know, how big does it need [to be],” Small said. “You may be able to make it smaller and cheaper to get it to do the job you want it to do ultimately, but if it has to cross the ocean to get there, that might be the overall driving requirement, not the end mission requirement. If you are going to heavy-lift them and bring them over in bulk, well that's a new concept and we have to figure out how we're going to do that," he added. “What ships are we going to use to do that? Where do we operate from overseas? There's a range of options in each case, but in general we're going to have to transition from a system more optimized around our manned fleet infrastructure to a more distributed mix of large, highly manned platforms to smaller unmanned platforms.” Relocatable support The introduction of entirely new platforms that operate without humans onboard mean that the Navy must think about how to support them downrange, Small said. “We're going to need to talk about things like tenders, heavy lift ships and forward-operating bases, things like that,” he said. The idea of an unmanned vessel tender for the medium USV, which the Navy intends to use as a far-forward distributed sensor, is likely the best solution, said Bryan Clark, a senior fellow at the Hudson Institute and a retired submarine officer. “I think it's likely that they'll be heavy-lifted into the theater, not because they can't make it themselves but because in general it would be less wear and tear on the vessels,” he said. “You want that support to be relocatable as opposed to a group of guys working out of a building ashore. The whole purpose of them is to be flexible; and because they're small, that would, in theory, give you lots of options as to remote locations you could operate from.” The tender could be adapted from an existing platform in the sealift fleet for now, and ultimately procured as new later, Clark said, adding that the ship would need cranes and a platform near the waterline to support the medium USV and perhaps the planned extra-large unmanned undersea vehicle as well. Additionally, the vessels should be stationed where the Navy has long-standing relationships, like Singapore, Souda Bay, Greece, Britain and the like, as well as where they are likely to operate. The Marine Corps' transition from a heavy force concentrated on large amphibious ships to a lighter force distributed around smaller ships and lighter amphibs may free up some platforms for porting unmanned vessels around the globe. “As we change the deployment schemes for amphibious ships, that may afford the opportunity to have amphibs with well decks that are not full of Marines' equipment but with unmanned vessels,” he said. Reliability For Small, the questions that are most immediate are how to make the systems dependable. “We plan to send these systems out to sailors who are at the forefront of the fight, and we need these systems to work every time and be reliable,” he said. “So, reliability is a fundamental issue associated with autonomous vehicles.” Questions have been raised about things as basic as whether the Navy can get a marine diesel engine to run for days and potentially weeks without being touched by humans. But Small said that's not what he spends a lot of time worrying about. “For me, I think there is plenty of technology there and it will get better. I'm less concerned with, ‘Will the engine run long enough?' and more concerned with the reliability of the system as a whole,” he said. “The autonomy running that vessel is a key aspect of the overall reliability of the system. So there's a code and software aspect to this, but there is also the interface between that code and the hull, mechanical and electrical systems that we have on ships.” Perhaps unsurprisingly, it is the human ability to detect subtle changes in the equipment they operate that is the toughest to replicate, Small said. “It's about self-awareness and the ability to self-diagnose problems and changing conditions associated with that equipment and react to those changing conditions,” he explained. “That's either by alerting an operator or having an autonomous response that allows the mission to continue. “A sailor would sense a vibration; a sailor would hear abnormal noise; a sailor would see something getting warmer, do the diagnostics and take actions. ... There's as strong a relationship between that and the overall reliability of those physical systems themselves.” https://www.defensenews.com/naval/2020/06/01/us-navy-embraces-robot-ships-but-some-unresolved-issues-are-holding-them-back/

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  • US Navy asks Congress to shift millions of dollars to fix high-tech supercarrier

    19 juillet 2018 | International, Naval

    US Navy asks Congress to shift millions of dollars to fix high-tech supercarrier

    By: David B. Larter WASHINGTON — The U.S. Navy needs to get the permission of lawmakers to move $62.7 million to fix a number of hiccups in its high-tech new carrier, the Gerald R. Ford, during its post-shakedown availability that kicked off July 15. The money, part of a larger DoD reprogramming request from June, will go toward fixing a number of issues that arose during its recently concluded post-delivery trials, according to a copy of the request obtained by Defense News. According to the document, the Navy needs to move: $12.7 million to fix “continuing technical deficiencies” with the Advanced Weapon Elevators. $30 million for “tooling and repair” of the main thrust bearings, issues that the Navy has blamed on the manufacturer. $20 million for additional repairs, a prolonged post-shakedown availabilty, and parts and labor. By: David Larter The Navy told Congress in May that it was going to exceed the Ford's $12.9 billion cost cap because of needed repairs and alterations. The $62.7 million was part of that total repair bill. The repairs and technology setbacks extended the Ford's PSA at Huntington Ingalls' Newport News Shipbuilding from eight months to 12 months, according to a statement from Naval Sea Systems Command, and significantly added to the cost. The ship will then proceed to full-ship shock trials ahead of its first deployment, a priority pushed by Senate Armed Services Committee Chairman Sen. John McCain, R-Ariz., according to the document. Since its delivery, the Ford has spent 81 days at sea during the eight times it was underway, a July 15 NAVSEA release said. “The ship has completed 747 shipboard aircraft launches and recoveries against a plan of approximately 400,” the release said. “CVN 78 successfully completed fixed-wing aircraft/helicopter integration and compatibility testing, air traffic control center certification, JP-5 fuel system certification, daytime underway replenishment capability demonstration, ship's defensive system demonstration, Dual Band Radar testing, and propulsion plant operations.” https://www.defensenews.com/naval/2018/07/18/us-navy-asks-congress-to-shift-millions-to-fix-its-new-high-tech-supercarrier/

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