The Insider

As if the incoming Obama administration doesn't already have enough on its plate -- with forecasts of a protracted and deep recession, a half-million workers knocked off the payrolls last month, and the Big Three automakers on the brink of insolvency -- a new Army War College monograph warns that the new leadership team should brace in its early days for a challenge akin to the Sept. 11, 2001, terrorist attacks.

That's the the advice of Nathan Freier, visiting professor of strategy, policy, and risk assessment at the U.S. Army’s Peacekeeping and Stability Operations Institute and a senior fellow in the International Security Program at the Center for Strategic and International Studies (CSIS).

Just as President George W. Bush faced a strategic shock in his first eight months, President-elect Barack Obama “would be well-advised to expect the same,” writes Freier, a retired Army lieutenant colonel who worked in the Office of the Secretary of Defense preparing the 2005 National Defense Strategy.

Defense-relevant strategic shocks jolt convention to such an extent that they force sudden, unanticipated change in the Department of Defense’s perceptions about threat, vulnerability, and strategic response. Their unanticipated onset forces the entire defense enterprise to reorient and restructure institutions, employ capabilities in unexpected ways, and confront challenges that are fundamentally different than those routinely considered in defense calculations...

They will rise from an analytical no man’s land separating well-considered, stock and trade defense contingencies and pure defense speculation. Their origin is most likely to be in irregular, catastrophic, and hybrid threats of “purpose” (emerging from hostile design) or threats of 'context' (emerging in the absence of hostile purpose or design). Of the two, the latter is both the least understood and the most dangerous.

The 2008 National Defense Strategy, singed by Defense Secretary Robert Gates in June, warns that strategic shocks “could potentially change the rules of the game and require a fundamental re-appraisal of the strategy.”

For more than two years, the Pentagon’s policy shop has spearheaded a project examining “trends and shocks” looking across a range of non-military disciplines for hints of where the next set of challenges that might require a military response could come from.

In September 2007, we explored that construct, which is poised to play a pivotal role in the 2010 Quadrennial Defense Review, now that Defense Secretary Robert Gates will continue to head the Pentagon during the Obama administration:

The project, led by Thomas Mahnken, deputy assistant secretary of defense for policy planning in the Pentagon’s policy shop, has been endorsed by Deputy Defense Secretary Gordon England. The goal is to assess the potential defense implications of consequential events -- “shocks” -- that could include major changes in global climate, a nuclear attack against a major western city, a new technology revolution or a financial market collapse that triggers a global depression.

“It really is an effort to get the department to think about long-term trends, particularly those the department hasn’t thought about systematically in the past, and explore their implications for the department,” said a senior Pentagon official in a July (2007) interview with InsideDefense.com.

The Federation of American Scientists reports today that surface-to-air missiles, including man-portable air-defense systems (MANPADS), are still being found in weapons caches in Iraq. These shoulder-launched missiles can be used to shoot down low-flying aircraft like helicopters.

After analyzing U.S. military press releases and media reports, FAS determined that at least 121 surface-to-air missiles and four additional launchers have been recovered by U.S. and Iraqi forces. Of these, at least 91, or 73 percent, are identified as Soviet-designed, Warsaw Pact missiles.

The prevalence of these missiles is no surprise because it is well known that Saddam Hussein stockpiled thousands of these types of weapons and that after his regime collapsed, they were looted from government depots, states the report.

Missiles produced by other countries have also been found in Iraq, according to FAS, but in much smaller numbers. There have been two public reports of Iranian MANPADS, the Misagh-1 missile, being discovered.

The good news: No reports of western missiles turning up in Iraq, suggesting that current U.S. and European export controls on MANPADS are "fairly effective," writes FAS.

"Western governments are also, generally speaking, more discriminating regarding whom they sell MANPADS to and what they demand of importers," states the report. "The, U.S. for example, conducts 100 percent on-site physical inventories by serial number of nearly all exported Stinger missiles."

However, the report notes that despite these controls western missiles still find their way to the black market, citing how the CIA lost control of hundreds of missiles it had given to the Mujahideen in Afghanistan in the 1980s.

Despite this analysis, it is still unclear how many illicit missiles are still in circulation in Iraq, writes FAS. The number of missiles seized in raids has held steady over the past two years, but the report suggests that this may have more to do with stepped-up neighborhood patrols than the total number of missiles.

What is definitely down is the number of aircraft crashes resulting from missile attacks and ground fire, according to the report.

"The threat persists, however, as evidenced by reports of missile launches at a C-130 cargo plane carrying a Congressional delegation in August 2007 and at an Apache helicopter flying over Sadr City in May 2008," it states.

UPDATE: The Missile Defense Agency announced today that its Ground-based Midcourse Defense system conducted a successful intercept of a ballistic missile target over the Pacific Ocean. According to the agency's statement:

For this test, a threat-representative target missile was launched from Kodiak, Alaska at 3:04pm (EST).This long-range ballistic target was tracked by several land- and sea-based radars, which sent targeting information to the interceptor missile. At 3:23pm (EST)the Ground-Based Interceptor was launched from the Ronald W. Reagan Missile Defense Site, located at Vandenberg Air Force Base, Calif. The interceptor's exoatmospheric kill vehicle was carried into the target's predicted trajectory in space, maneuvered to the target, performed discrimination, and intercepted the threat warhead.

This was the first time an operational crew located at the alternate fire control center at Ft. Greely, Alaska remotely launched the interceptor from Vandenberg AFB. In previous interceptor launches from Vandenberg, military crews at the fire control center at Schriever AFB, Colo. remotely launched the interceptor.

The target was successfully tracked by a transportable AN/TPY-2 radar located in Juneau, Alaska, a U.S. Navy Aegis BMD ship with SPY-1 radar, the Upgraded Early Warning Radar at Beale Air Force Base, Calif., and the Sea-Based X-band radar.  Each sensor sent information to the fire control system, which integrated the data together to provide the most accurate target trajectory for the interceptor.

As Inside Missile Defense reported in May, MDA retooled the program’s flight-test lineup following the last delay in the intercept test schedule:

FTG-4, the intercept test originally scheduled for the fourth quarter of fiscal year 2007 -- which had been pushed back to the second quarter of FY-08, and then pushed back again from this summer to early autumn -- has been renamed FTG-5, according to MDA spokesman Rick Lehner.

A telemetry unit aboard the exoatmospheric kill vehicle failed a recent electrical test, necessitating its replacement and causing the intercept-test delay, Lehner told IMD May 14.

The unit is called the Pulse Code Modulation Encoder, according to Lehner. It transmits real-time EKV performance data via telemetry.

Built by L-3 Communications West, the unit is only used during test flights and “has no role in an operational EKV,” he wrote.

Outgoing MDA Director Lt. Gen. Trey Obering “decided to move the test to the fall rather than risk losing performance data, as obtaining the data is one of the primary objectives of the test,” Lehner added.

Accordingly, FTG-4 was supplanted by a test that did not involve an interceptor:

“FTG-4 will be replaced by FTX-3, a target-only test, planned for July using all available range sensors -- transportable AN/TPY-2 at Juneau, AK, an Aegis ship and ((Sea-Based X-band Radar)), as well as Beale ((Air Force Base)) upgraded early warning radar,” Lehner told IMD May 15.

The target test flight “will provide ((an)) excellent risk-reduction flight for the FTG-5 intercept test, now scheduled for late this fall,” he wrote in an e-mail.

MDA’s FY-09 budget justification book states that FTG-4’s test objectives were to have included “demonstrat((ing)) the functionality of the GBI engage on ((upgraded early warning radar)) or AN/TPY-2 ((engagement sequence group)) for a GBI launched from Vandenberg AFB performing all functions through acquisition, discrimination, transition to terminal, and intercepting the lethal object from a live target complex launched from Kodiak using a more complex target scene than previous tests.”

Objectives for FTG-5, according to MDA’s latest budget book, include: “Demonstrate ((Ballistic Missile Defense System)) multisensor integration and functionality of the GBI engage on UEWR, AN/SPY-1, AN/TPY-2 or ((Sea-Based X-band radar)) for GBI launched from Vandenberg AFB to perform all functions through acquisition, discrimination, transition to terminal, and intercepting a medium/high closing velocity lethal object.”

One missile defense critic didn't wait for the test to take place. Phil Coyle, a senior adviser at the Center for Defense Information, sent out an e-mail to reporters last night stating:

If there were a credible threat, U.S. missile defenses can't deal with it anyway. If Iran or North Korea believed that U.S. missile defenses were effective, they would simply build more missiles or use decoys and countermeasures. That's what's behind the test scheduled for tomorrow, but if successful it won't prove what the MDA will say it proves.

U.S. missile defenses have no demonstrated effectiveness to defend Europe or the U.S. under realistic operational conditions. U.S. missile defenses lack the ability to deal with decoys and countermeasures, lack demonstrated effectiveness under realistic operational conditions, and lack the ability to handle attacks involving multiple missiles.

Proposed U.S. missile defenses in Europe are threatening to Russia, and are causing the Cold War with Russia to be reignited. Proposed space-based missile defenses are also threatening to Russia, as well as China.

Can America depend on missile defenses for its security? Unfortunately the answer is no. The United States has been trying unsuccessfully to develop effective missile defenses for over 60 years, and we still don't know how to deal with a realistic threat. Fortunately we don't have a real threat unless you want to worry about Russia or China someday, and with their missiles Russia and China already can overwhelm the most futuristic missile defenses the Pentagon can imagine.

The Pentagon has shipped to the Office of Management and Budget a roughly $80 billion war cost spending request that would fund operations in Iraq and Afghanistan from spring through September, according to a defense official.

Still, it may be a few more days at the soonest before the package is forwarded to Congress.

Defense Secretary Robert Gates earlier this week said this package -- which, when combined with the $66 billion bridge fund appropriated in October, would bring total FY-09 war costs to roughly $145 billion -- should be sent to lawmakers within the next two weeks.

The reason for the hold-up: Gates, according to the defense official, wants to hear one more time from Gen. David Petraeus, commander of U.S. Central Command, on how much will be required this fiscal year to execute a new strategy in Afghanistan, and ensure the amount is included in the request.

Just as big defense contractors like Lockheed Martin and Boeing release an annual financial report to their shareholders, summarizing their income and outflows as well as projections for the following year, the Defense Department this week did the same thing.

The "FY 2008 DOD Agency Financial Report (AFR)," has a cover letter dated Nov. 17 and written by Deputy Defense Secretary Gordon England. In it, England writes:

At the end of each fiscal year, the Department of Defense (DOD) provides an accounting to the American people for the funds appropriated by act of Congress and signed into law by the president during the previous budget cycle.

The Agency Financial Report (AFR) is a concise and easy-to-understand summary of DOD's use of those tax dollars to maintain and modernize America's defenses -- including expenditures to pay, train, equip, and supply the men and women who wear the nation's uniform, and to cover the costs of the Global War on Terror and other military operations.

Some notable passages from the report include:

The Department’s total resources primarily consist of carried forward budget authority of $112.0 billion for unfilled commitments from FY 2007 and received additional appropriations of $736.4 billion in FY 2008 to support the Global War on Terror (GWOT), train and equip our warfighters, and ensure broad national security priorities are met.

Of the $736.4 billion, the report sports a pie chart that breaks down that figure, with 25 percent of that amount ($186.8 billion) going toward the GWOT, 24 percent ($175.5 billion going toward "strategic modernization," 19 percent ($143.4 billion) going toward "operations, readiness & support," 18 percent ($129.2 billion) going for "military pay and benefits," 10 percent ($73.1 billion) for "military retirement benefits," 3 percent ($20.2 billion) for "family housing & facilities," and 1 percent ($8.1 billion) for "civil works and cemeterial." Additionally:

Most ($1.0 trillion or 91%) of the total budgetary resources for FY 2008 were spent or reserved for specific purposes. The remaining resources relate to receipt of multi-year appropriations and supplemental funding that were received late in the fiscal year with insufficient time to fully obligate and outlay. The Department’s total FY 2008 obligations incurred are in support of present and future initiatives such as establishing the Africa Command (AFRICOM), building partnership capacity with foreign partners, realigning the ballistic missile defense sites in Europe, and strengthening cyberspace security. Obligations incurred presented in Figure 1-6 are shown separate between mandatory and discretionary funding.

Additionally, the report states that DOD owned assets worth $1.7 trillion during fiscal year 2008, having increased by 13 percent from the previous year. "This increase is largely attributable to increases in Fund Balance with Treasury (FBWT), Investments, and Military Equipment," the report states.

As for liabilities (emphasis added):

In contrast, the Department has significant unfunded liabilities consisting primarily of actuarial liabilities related to military retirement pension and health care benefits. While the liability presents the Department with a negative financial position, the majority of the unfunded portion will come from annual appropriations outside the Department’s budget. The FY 2008 actuarial liability estimate totaled $2.0 trillion of which $1.3 trillion will come from the U.S. Treasury to cover liabilities existing at inception of the programs. Approximately $378.9 billion is currently covered with invested U.S. Treasury securities. Due to the significant growth in liability in recent years, the Board of Actuaries accelerated the liquidation of the initial unfunded liabilities by reducing the amortization period thus increasing the annual contribution amounts from the U.S. Treasury.

Wall Street analysts Cai von Rumohr and Gautam Khanna are upgrading their Lockheed Martin rating to "outperform," confident that company growth is "still likely under ((the)) new administration" even with possible defense budget cuts, according to an SG Cowen research note issued this morning.

"Higher F-22 cancellation risk an overblown concern," Von Rumohr and Kanna write. Although President-elect Obama's decision to have Defense Secretary Robert Gates to continue in the latter's job "boosts odds that F-22 output (~ 60 of LMT's PS) will end, since he's criticized the fighter for 'next waritis' . . . the current multiyear contract extends thru 2011 (for targeted 183 units). Early termination would be uneconomic; and there's $8 billion in potential updates to bring early F-22 models up to current capability."

The Air Force is in the midst of preparing an official F-22A requirement number and a major Air Combat Command study that could fuel future decisions will be completed next fall, Inside the Air Force reported last week. The Office of the Secretary of Defense directed the service to include $554 million to cover F-22A production shut-down costs in its internal six-year spending plan, according to a summary of Pentagon budget decisions reviewed by ITAF.

Not only that, ITAF learned that OSD's recent decision to fund long-lead item purchases for only four F-22A fifth-generation fighters could result in the cost-per-jet increasing by as much as $35 million:

A 20-plane Raptor buy could end up costing $700 million more than what the Air Force is currently paying for the advanced fighter jets should the incoming Obama administration decide it wants to purchase F-22As in fiscal year 2010, according to information provided by an official close to the program. The best-case scenario shows the Air Force paying $20 million more per plane.

Even if the F-22 line were to shut down, other aeronautical gains are likely through 2011, according to the SG Cowen note. "F-16/C-130 sales are apt to ramp in 2009-10 and hold in 2011 even if the Obama administration has tighter foreign arms sales controls," the analysts write. "Pluses are (1) firm backlogs into 2011, (2) broad order potential (esp. mideast), & (3) further slip of competing ((Airbus)) A400M. F-35 sales are slated to ramp thru 2015."

While the Air Force's "proposed F-35 ((Joint Strike Fighter)) acceleration seems unlikely, DOD is unlikely to both end F-22 in 2011 and slow F-35, especially given its large export potential," von Rumohr and Khanna continue.

The analysts forecast returns on the company's pension fund will improve in 2010, and predict that company earnings per share will grow by 6 percent in 2009 and 2010 "even with slips." With the exception of the F-22 and F-35 product lines, Lockheed "has a broad mix with (1) no Iraq drawdown risk, (2) foreign upside (F-16, C-130J, UAE Patriot/THAAD), (3) #1 services play (22 percent of ((earnings before interest and taxes))) & (4) US. new biz. (LCS, JLTV, CSAR-X, TSAT). Cash redeployment & GOES-R win offer upside."

There's a lot of national security-related introspection going on in the government these days, which some would say is fitting during a presidential transition. For one, Pentagon officials are wrapping up a congressionally mandated review of the Defense Department's roles and missions. At the same time, they are doing prep work for the next administration's 2010 Quadrennial Defense Review, set to begin in earnest by springtime.

Then, the Department of Homeland Security is doing the Quadrennial Homeland Security Review, and the nation's spies are conducting the Quadrennial Intelligence Community Review. The DHS drill, we're told, is the first of its kind, while the intelligence review is done for the second time.

As for the roles-and-missions study, some at DOD believe the timing is a bit inopportune.

"If you asked when would be not a good time to start looking at roles and missions, I would say in the fourth year of an administration," a senior Pentagon official, who spoke on condition of not being named, told us last week.

Yet, the forthcoming report is the result of a "good, honest effort . . . in a very challenging period," the official said.

As of yesterday, lawmakers had not yet received a copy of the document, according to House Armed Services Committee spokeswoman Lara Battles, who added committee staff were last briefed about the review over the summer. She noted the final report is due with the submission of the defense budget in early February.

In a May 8 press briefing, a senior DOD official talked about plans to have the report be wrapped up internally by late November, which would give senior leaders a chance to use the month of December for figuring out "how they want to work with transition teams and exactly how the document and when the document might go forth."