The Insider

Quick Hits
By Dan Dupont
October 14, 2008 at 5:00 AM

Whether the economic downturn will hit defense spending remains a theme out there, with a couple of new stories of note to tell you about.

The first is from The Washington Post, which sent someone to the Association of the U.S. Army's convention last week to ask around:

"There's a lot of uncertainty out there," said Kevin G. Kroger, president of Pura Dyn, a small Boynton Beach, Fla., company, who came to the trade show to pitch the Army on buying more of its oil filters for armored trucks. "We're not sure where the budgets are going and what's going to get funded. It leaves us nervous."

Indeed, in his report on the show, Ron Epstein, an analyst at Merrill Lynch, said vendors acknowledged their worries about the rescue plan. "We expect the bailout plan will put downward pressure on defense spending," Epstein had written a week earlier in a research note to clients.

Although no one is expecting a dramatic drop in next year's Pentagon budget, there is a widespread expectation that spending will begin to level off. Many contractors have begun to prepare.

With nearly 60 percent of its $42 billion in annual sales coming from the Defense Department, Lockheed Martin is pursuing other areas of business to compensate for any slowdown in defense spending. For the past eight years, the Bethesda company has tried to expand its information technology services business. Already, it expects double-digit sales growth in that unit this year compared with last year.

And then we have a look from late last week penned by Cox News Service, which uses the financial meltdown as a springboard to examine the specifics on the Obama and McCain plans for defense:

"It's likely to have some negative impact on defense spending, but it's hard to say how much," said Steven Kosiak, vice president for budget studies with the Center for Strategic and Budgetary Assessments, a non-partisan Washington think tank.

Neither Sen. John McCain, the Republican presidential candidate, nor his Democratic rival, Sen. Barack Obama, has provided a basic defense spending blueprint, never mind a list of options for adjusting to the government's deteriorating fiscal outlook.

"There's not a lot of detail in terms of what they're thinking about overall defense spending levels," said Kosiak. Beyond that, "things can change pretty quickly if the international environment changes."

Finally, The Los Angeles Times recently ran a piece titled "Pentagon divided over John McCain" that's worth a read, though it's not likely to surprise any of our readers.

More on the Street
By Dan Dupont
October 10, 2008 at 5:00 AM

What's the word on Wall Street today?

In the early stages of the meltdown -- just a few days ago -- the thinking seemed to be that defense companies were going to be OK.

But worry has set in, according to today's Wall Street Journal:

As recently as a few weeks ago, the executives were relatively bullish about the long-term prospects for defense spending, regardless of which party wins the White House in November. But as the financial turmoil on Wall Street has spiraled into an international crisis, that optimism is fading.

In a note last week to employees, Boeing Co. Chief Executive Jim McNerney wrote that the world's biggest aerospace company by sales is "well positioned" to weather the financial turbulence because it has a solid credit rating and a big backlog of commercial airplane orders. But addressing how the government's financial-industry bailout might affect Boeing's more than $30-billion-a-year defense business, Mr. McNerney said: "No one really yet knows when or to what extent defense spending could be affected, but it's unrealistic to think there won't be some measure of impact."

Howard Lance, chief executive of Harris Corp., which specializes in defense communications and is expanding into the intelligence market, said in an interview this week that there is a sense in the industry that "everything is going to be subject to reconsideration," particularly big-ticket programs such as fighter jets, tanks and ships.

The story goes on to note that Rep. John Murtha (D-PA), the chairman of the House Appropriations defense subcommittee, "warned that the bailout will only increase the pressure on Pentagon officials to find ways to balance their needs for new programs with paying for ongoing military operations in Iraq and Afghanistan."

"No matter who wins the White House, the next president is going to be forced to decrease defense spending in order to respond to neglected domestic priorities," Mr. Murtha said. "Because of this, the Defense Department is going to have to make tough budget decisions involving trade-offs between personnel, procurement and future weapons spending."

Murtha told us the same thing two weeks ago.

Hill Watch
By Dan Dupont
October 10, 2008 at 5:00 AM

Inside the Air Force today runs a story that should be of interest to all, taking a look at the likely impacts of the congressional races on national security.

The Air Force’s legislative chief is expecting a shake up of Republican leadership on key congressional defense committees propelled by retirements, legal difficulties and major Democratic gains in both the House and Senate in next month’s general election.

In all, 35 Senate seats -- 23 currently held by Republicans -- are up for grabs, while the entire House is up for reelection in 2008. The latest estimates show the Democrats increasing their majority in both chambers, according to Maj. Gen. Herbert Carlisle -- director of the Air Force’s Legislative Liaison division. Carlisle spoke at a weapons conference in Ft. Walton Beach, FL, this week. The two-star said his predictions are based on “conventional wisdom and polls inside the Beltway.”

“Worst case for the GOP on the Senate side is nine seats would change,” he said on Oct. 8. “That would give the Democrats a 61 ((seat advantage)). Best case, best guess is five to seven seats will go democratic and Democrats will maintain control of the Senate.”

On the house side, Republicans will likely lose 12-15 seats, although that number could go as high as 20, Carlisle said.

“Best guess for everybody is that the Democrats maintain control of both the House and Senate,” he said. “They’ll increase their majority by a slight number.”

Much more detail in the full story.

Going Green
By Dan Dupont
October 10, 2008 at 5:00 AM

Monday's Inside the Army -- already posted -- carries a good piece on the service's transition efforts.

A taste:

To prepare for a new presidential administration, the Army is prioritizing the issues a transition team would study while its acquisition staff is working to understand each candidate’s procurement approach, according to top service officials.

In an exclusive interview with Inside the Army last week, Lt. Gen. Ross Thompson, military deputy to the Army acquisition executive, and Dean Popps, the service’s acquisition chief, said work is already under way for the change of control.

The Army as a whole is selecting the top 10 to 15 issues “that are really important to the Army, that we would want to explain to the transition team and a new administration,” said Thompson.

During the Oct. 8 interview, he said those issues will likely be “big picture” plans.

“It’s growing the size of the Army, it’s things that the chief and the secretary talk about, trying to get the Army back in balance from the standpoint of time at home, time deployed, what it takes to do that, changing the Army to a rotational deployment model with this Army Force Generation model, explaining the logic behind all those,” he added.

See here and here for more of our stellar coverage of DOD's efforts to get ready for the next administration.

Looking Ahead
By Dan Dupont
October 9, 2008 at 5:00 AM

A bit of a grab bag this morning.

First up, Inside the Pentagon today has a good piece on a draft defense energy strategy:

The document, which has not been publicly released, is an eleventh-hour attempt by outgoing defense leaders to address the sorts of energy concerns identified by Defense Science Board studies, the most recent of which was published in February.

The ultimate fate of the plan -- which proffers four strategic goals, each with implementation steps -- will rest with whoever leads the Defense Department for the next president. If outgoing Pentagon leaders finalize the plan before the transition, it will still fall to the next administration to either embrace or change the goals and to supervise the implementation of energy security priorities. In a nod to the plan’s transitory nature, one paragraph notes “both presidential candidates” advocate enacting legislation to restrict greenhouse gas emissions.

More here.

As for that new administration team, the Huffington Post takes a look at the two transition teams and notes that one seems far more prepared than the other.

A taste:

"Government is becoming more complex and the time it is taking to put a leadership team in key departments is taking longer," said P.J. Crowley, who heads the Homeland Security Presidential Transition Initiative at the Center for American Progress. "I think that if a campaign is waiting until November 5 to start the transition process, they are going to be behind. It is not being presumptuous -- it is being prudent to be prepared before the election so that you can at least make the transition process effective as possible and be ready to govern on January 20."

A good taste of our own transition coverage is here.

Next up is a McClatchy Newspapers story on the financial crisis and its impacts on defense:

Congress' decision earlier this month to approve a $700 billion bailout for the financial industry adds to the strain on the federal budget, and the stock market decline and the credit crunch could slow economic activity and eliminate jobs, which in turn could reduce tax revenues.

"How the U.S. government funds its military answers the question of: How committed it is to fighting these kinds of war?" said James Quinlivan , a senior military analyst and mathematician at the RAND Corporation.

The pressure is likely to be felt most acutely by the Army , the military's largest and most expensive branch, which is already strained by the war in Iraq and planning for another decade of sustained conflict. . . .

The Army plans to add about 30,000 soldiers by 2010, and expanding the force to 547,000 would cost at least $5 billion , according to Army estimates.

But as we've reported this week, the Army is actually mulling whether it needs even more troops:

"A lot of people ask me that question, and they say, 'OK, how big an Army do you need?'" ((Army Chif of Staff Gen.)) Casey told reporters. "My first question is, 'What do you want it to do?'; my second question is, 'How much are you prepared to spend on that Army?'"

Casey said the service is "actively working" the question as part of the development of its six-year spending plan covering fiscal years 2010 to 2015. . . .

"So the short answer is: I don't have the answer to the question yet, but I know I'm going to get asked it after the 20th of January” -- Inauguration Day -- “and we're working hard to figure out what the right answer for the country is."

So Ordered
By Dan Dupont
October 9, 2008 at 5:00 AM

More on the transition -- AP reports the president has signed an executive order designed "to help coordinate efforts already under way to ensure a seamless transition."

Bush's order established a presidential transitional coordinating council whose members include top officials from the intelligence and national security community, as well as the White House budget office, the Justice Department, Homeland Security and other agencies. Even before the election, they will work with the Obama and McCain campaigns "on an equal basis and without regard for party affiliation," the order directs.

"The council shall assist the major party candidates and the president-elect by making every reasonable effort to facilitate the transition between administrations," Bush's order said.

The order itself is here.

When Petraeus Speaks . . .
By Kate Brannen
October 9, 2008 at 5:00 AM

Amid the extensive discussions of Iraq and the "surge" on the presidential campaign trail, Gen. David Petraeus this week took to the stage at the Association of the U.S. Army’s annual convention and discussed potential "storm clouds" he says have the potential to reverse the progress made recently in Iraq.

He pointed to the challenge of integrating the Sons of Iraq, militia groups recruited by the United States, into the Iraqi Security Forces. He said 50,000 had been integrated so far, while there are close to 100,000 total. (Transcript here.)

Other concerns involve whether al Qaeda will reignite sectarian violence or if efforts by "al Qaeda and Sunni extremists to return to areas that they once controlled" will succeed.

Petraeus said there could be violence during provincial elections, which are scheduled for the end of January, and disagreement over provincial power and region formation. The return of displaced families could fuel various ethnic disputes, especially in Kirkuk, he said.

"So, many challenges. And the reasons that Gen. Odierno and I, and Amb. Crocker and others have cautioned, we think, responsibly, about the possibility of fragility and reversal of some of this progress," said Petraeus. (Video here.)

Petraeus also offered up an interesting take on a key battle in Iraq last year. He laid out how several different systems were used together to give the Army an absolute asymmetric advantage, listing the assets that Col. John Hort, commander of the 3rd Brigade Combat Team of the 4th Infantry Division, had at his disposal 24 hours a day:

Two predator unmanned aerial vehicles, three Shadow, three other lower-level systems -- unmanned aerial vehicles, three teams of two Apaches each. He had counter-fire radars ringing the city that would tell us where they shot at us from. We had guided-missile launch rocket systems primed and ready to launch if we did detect the enemy earlier to put a strike right into the center of Sadr City and kill the group of individuals who were hiding right across in a hospital without breaking a window in that hospital. He had other assets supporting him -- intelligence, surveillance and reconnaissance assets, other governmental agencies, human intelligence operatives . . . and all these other systems -- Global Hawk, ((Joint Surveillance and Target Attack Radar System)), moving target indicators, EP-3s. He had blimps with optics. He had towers with optics. All of this focus, in and support of elements that included tanks, Bradleys, Strykers, snipers and all of that pulled together under one brigade commander over the course of several weeks.

"No other military in the world could devote that level of assets to one theater, let alone one brigade," he added.

'Heightened Threat'
By Sebastian Sprenger
October 9, 2008 at 5:00 AM

As the Department of Homeland Security gears up for its first-ever transition of administrations, a report by a group of DHS advisers from early this year is worth revisiting.

Members of the Homeland Security Advisory Council, in January, noted that terrorist attacks or natural disasters on U.S. soil during the transition period could catch leaders at the behemoth agency at a particularly bad time.

Specifically, the panelists are worried about what they call a “vulnerable period” -- the time frame beginning 30 days before the change in administration until six months afterwards.

“The ((panel)) believes that the incoming and outgoing administrations must work closely together during the administration transition. It is extremely clear that successful transitions require a shared commitment to ensuring a smooth transition of power. This is facilitated by a positive attitude and open mind in both incoming and outgoing administrations, combined with the willingness to respect and listen to each other’s concerns and priorities.”

For one, outgoing DHS leaders should offer “operational briefings” to the presidential nominees aimed at keeping them abreast of homeland security threats, the group recommended.

In addition, Congress and the new administration should closely cooperate to get key DHS staff confirmed and ready to go as soon as possible. Outgoing leadership also should ensure all political appointees have senior-level career personnel in place for backup, the group recommended.

In that context of talk about urgency, “vulnerable period” and “heightened threat,” this report we told you about earlier today is a good read.

The Homeland Security Advisory Panel last month produced another interesting document, titled “Top Ten Challenges Facing the Next Secretary of Homeland Security.”

Not surprisingly, the thorny issue of improving intelligence and information sharing is on that list, at No. 3.

Another tough one, at No. 8: “Find the right balance between secure borders and open doors to travelers, students and commerce.”

Can't We All Just Get Along?
By Rebekah Gordon
October 8, 2008 at 5:00 AM

A long-running fight between the Navy and environmentalists over the use of mid-frequency sonar in a training range off the coast of Southern California, and the potential harm it could inflict on whales, found itself before the nine justices of the Supreme Court today.

According to news reports, the justices seemed split during oral arguments. But Justice Stephen Breyer seemed downright frustrated by the dispute.

“This is -- I want to give you a chance to say what's so terrible about what they're doing,” Breyer told Richard Kendall, the lawyer for the Natural Resources Defense Council, which has sued the Navy. “I will express a little frustration. Not your fault. But why couldn't you work this thing out? I mean, ((the Navy is)) willing to give you quite a lot of conditions, and you say, well, we have got to have more conditions. And you are asking us, who know nothing about whales and less about the military, to start reading all these documents to try to figure out who's right in the case where the other side says the other side is totally unreasonable.”

“The Navy is focused on having it its way or no way,” Kendall responded. (Full transcript here -- in .pdf.)

Environmentalists argue that sonar use is harmful to whales, disrupting their feeding and migration and in some cases causing injury or even death by beaching. Meanwhile, the Navy argues that sonar training is critical to the hunt for stealthy diesel-electric submarines. At the heart of the question is whether the courts can force the Navy to adhere to environmental laws when the President has deemed the training a “national security emergency.”

A judgment in the NRDC's favor could have far-reaching implications for the Navy, forcing it to alter the way it conducts training and fleet readiness in the future. For now, in its exercises off the Southern California coast, the Navy must adhere to the U.S. district court's requirement to power down its mid-frequency sonar when a whale is spotted 2,200 yards away.

“Legal experts said the case raises broad questions about the military's obligation to obey environmental laws,” The Washington Post reports.

More to come from Inside the Navy and Defense Environment Alert.

Money Matters
By John Liang
October 8, 2008 at 5:00 AM

The Congressional Budget Office yesterday said the federal budget deficit had ballooned to about $438 billion in fiscal year 2008, compared to $162 billion the year before. That number is "about $31 billion higher than the $407 billion deficit CBO projected this summer, primarily due to lower-than-projected revenues and higher-than-expected spending for defense and deposit insurance," CBO said.

Wondering how this might affect defense spending in the near future? While Joseph Campbell of Barclays Capital did an informal survey of defense contractors recently who told him they felt that the recent financial turmoil wouldn't impact their credit ratings, Wall Street folks will get a chance to ask senior U.S. defense contractor officials directly during the upcoming quarterly earnings conference calls.

Here are links to the big ones (all times Eastern):

Lockheed Martin -- Oct. 21, 11am

Boeing -- Oct. 22, 10:30am

General Dynamics: Oct. 22, 11:30am

Raytheon -- Oct. 23, 9am

United Technologies -- Oct. 16, 10am

Northrop Grumman -- Date/time not finalized yet

We'll keep you posted on any major developments.

The Fog of Cyber-War
By Sebastian Sprenger
October 7, 2008 at 5:00 AM

Military leaders are still trying to get their hands around what it means to fight in cyberspace. From the outside, it’s hard to tell exactly how far the Pentagon has come in moving the idea of cyber warfare from a subject of study to a subject of doctrine writing and practice.

According to Air Force Brig. Gen. Michael Basla, the deputy in the Joint Staff’s J-6 directorate, the development of the intellectual underpinning of cyber warfare is not yet completed.

Fundamental questions remain to be answered, he told us at AUSA  yesterday, including “What constitutes a cyber attack?” and “How do we integrated cyber in the other warfighting domains?”

Or, put differently, at what point does a cyber conflict turn into a shooting war?

“We don’t have a strong answer to that,” Basla said.

According to the general, officials also are wondering how deterrence, a concept that brings back memories of Cold War nuclear arms racing, could be applied in cyberspace.

“There are huge efforts going on in studying all those different pieces,” Basla added.

At U.S. Strategic Command, where officials know a thing or two about deterrence, that very subject was up for discussion at a January 2008 workshop.

The two-day event produced a collection of papers by attendees, including a piece by defense strategist Tom Barnett, which we’ve posted here.

The military produced two key documents in recent years, both classified, guiding goings-on in the cyberspace arena: The 2006 National Military Strategy for Cyberspace Operations and the companion implementation plan. Former Defense Secretary Donald Rumsfeld signed the strategy on Dec. 11, 2006, in one of his last moves as Pentagon chief. His successors signed the implementation plan on Oct. 1, 2007.

The implementation plan contains 42 different “activities” that are being executed by “a number of different organizations,” according to Basla.

Strong on the Street?
By Jason Sherman
October 7, 2008 at 5:00 AM

Despite another punishing day on Wall Street -- where stock prices plummeted more than 500 points, dragging the Dow Jones Industrial Average down to 9,447 -- the Pentagon’s main weapon systems builders report they are well-positioned to weather the credit crisis that is rocking global markets, Joseph Campbell of Barclays Capital told investors today.

Campbell, who analyzes aerospace and defense firms, conducted an informal survey asking firms that he follows to sketch out potential impacts of the credit crisis.

“Nearly all of the companies in our universe responded that they did not expect the credit crisis to have any impact on their financial liquidity or their ability to access credit markets,” he writes in a research note. “Most said they had no plans or expectations of needs to access credit markets and that their current cash on hand, expected cash flows, and credit facilities already in place would likely be adequate for all of their expected needs.”

He concludes:

Nearly all aerospace-defense companies in our universe have very good credit ratings, strong cash flows, and generally large amounts of cash on hand. As a result, we do not expect the credit crisis to have large impacts on the industry’s access to cash. The main impact we believe will be to weaken the global economy and to make credit for aircraft financing harder to find and more expensive to obtain.

Stability Ops
By Jason Sherman
October 6, 2008 at 5:00 AM

The Army has unveiled an important new addition to its doctrinal canon: Field Manual 3-07: Stability Operations. Yesterday’s Washington Post summed it up nicely:

The Army on Monday will unveil an unprecedented doctrine that declares nation-building missions will probably become more important than conventional warfare and defines "fragile states" that breed crime, terrorism and religious and ethnic strife as the greatest threat to U.S. national security.The doctrine, which has generated intense debate in the U.S. military establishment and government, holds that in coming years, American troops are not likely to engage in major ground combat against hostile states as they did in Iraq and Afghanistan, but instead will frequently be called upon to operate in lawless areas to safeguard populations and rebuild countries. (full article)

This new manual is being released today as the annual AUSA convention begins in Washington. It is the latest installment in a wider effort to bring the Army’s doctrine in line with strategic guidance from the Office of the Secretary of Defense to prepare for an array of threats much wider than traditional state-on-state conflicts.

Earlier this year the Army updated its keystone doctrine, Field Manual 3-0: Operations, shifting emphasis from conventional to a “full spectrum” operations, a change that places post-conflict stability operations on par with offensive and defensive engagement. That change was made in accordance with Defense Department directive, 3000.05, issued in November 2005 that defined stability operations as “a core U.S. military mission” to be given “priority comparable to combat operations.”

China Watching
By John Liang
October 6, 2008 at 5:00 AM

Looks like China didn't take long to respond to the Defense Department's announcement on Friday of a multibillion-dollar arms sale to Taiwan:

Beijing has notified the U.S. that it will not go forward with some senior level visits and some other cooperative military-to-military plans, Marine Maj. Stewart Upton, a Defense Department spokesman, told The Associated Press.

"In response to Friday's announcement of Taiwan arms sales, the People's Republic of China canceled or postponed several upcoming military-to-military exchanges," he said.

Sister publication Inside U.S.-China Trade reported last month that the sales had stalled since 2001 because of internal disagreement between political parties in Taiwan over whether the sales were necessary given the fact that they would likely anger China.

Taiwan approved the weapons purchases last December following a compromise in its legislature that limited some of the sales.

In a statement released over the weekend, a Chinese government spokesman called the potential sale "a serious violation of the principles set in the three Sino-U.S. Joint Communiqués, August 17 Communiqué in particular, and gross interference in China's internal affairs, which will undermine China's national security, and create disturbance and obstacles to the peaceful development of the cross-Strait relations. The Chinese government and people will definitely respond with strong indignation."

Information Flow
By Sebastian Sprenger
October 5, 2008 at 5:00 AM

The Washington Post last week ran a good piece on the Pentagon’s use of information operations in Iraq. The story is based on a contract awarded last month to four public relations firms. Under the contract, the Post reports, the companies are charged with producing “media campaigns” that cast U.S. objectives in Iraq in a positive light and convince residents of the barbarism of the insurgency.

The application of information operations during future wars likely will be near the top of the agenda for the new defense leadership. The field is considered key to irregular warfare, which many defense officials believe to be the predominant type of conflict facing America in the foreseeable future.

An August draft version of a yet-unreleased policy directive governing IW says information ops are crucial for neutralizing “adversary propaganda” during Iraq-style counterinsurgency campaigns, as we reported in September.

Exactly how this should be done isn’t all that clear yet, according to experts and officials, who say some thorny issues remain to be resolved.

For example, one question is who should be in charge of conducting information operations. “IO authorities have been a subject of much contention from the outset over a decade ago,” one expert writes.

While the authority to employ IO initially rested solely with the “national command authority,” which consists of the president and the defense secretary, the combatant commanders were given more power over IO some years ago, this expert said. “Now ((it is)) a bit of pulling and hauling, with many hoping a balanced result will ensue.”

There also were instances of friction among the COCOMs themselves, we’re told. One official described a “food fight” breaking out at one point over operational control of IO forces and equipment between U.S. Strategic Command and U.S. Central Command as part of the military’s “Countering Adversary Use of the Internet” program.

That program targets the online propaganda efforts of violent Islamic extremists, we reported last month.

In that context, the now-declassified Rumsfeld-era information operations roadmap, from 2003, remains a great read.