The Insider

Huntington Ingalls Industries has been awarded a $2.4 billion contract modification "for detail design and construction of the Navy's next large-deck amphibious assault ship LHA-7, including crew familiarization, technical manuals, and engineering and post-delivery industrial services," according to a Pentagon statement issued late this afternoon.

In a separate press release issued by HII, the company states:

"Large-deck amphibious ship construction is an important component of our business plan, and we are pleased to have reached agreement with the Navy on this contract," said Ingalls Shipbuilding President Irwin F. Edenzon. "We are also pleased to continue providing such an important asset to the sailors and Marines who are being called on to perform an ever-increasing list of tough missions. Ingalls shipbuilders understand the importance of building these ships safely and efficiently while all the while focusing on delivering a quality product. LHA-7 will be a great ship built by great shipbuilders."

LHA-7 and LHA-6 are the first two ships in the new America class of amphibious assault ships. Tripoli will be 844 feet long and 106 feet wide and will displace 44,971 long tons. The fuel-efficient gas turbine propulsion system will drive the ships in excess of 20 knots. She will accommodate 1,059 crew (65 officers) and 1,687 troops. She will be capable of carrying a Marine Expeditionary Unit, including Marine helicopters, MV-22 Osprey tiltrotor aircraft and F-35B Joint Strike Fighter (JSF) aircraft. Carrying a complement of F-35s allows her to serve the role of a small aircraft carrier, as demonstrated by LHD-class ship operations in Operation Iraqi Freedom.

"We have an excellent build plan in place for LHA-7, and we will continue to develop fresh ideas through the knowledge and experience our shipbuilders have in large-deck construction," said Brian Cuccias, Ingalls' vice president, large deck amphibious ships. "The multi-mission capability of these ships has been proven in the fleet, and LHA-7 will further the technological advancements set forth by previous ships."

Work will be performed mainly in Pascagoula, MS, with additional work being done in  Charlottesville, VA; Beloit, WI; Ocean Springs, MS; Santa Fe Springs, CA; and Brunswick, GA, and is expected to be completed by June 2018, according to the DOD statement.

The Government Accountability Office has criticized the America-class program for having high levels of rework in its construction despite being only half done, with the potential for even more rework pending tests on how the amphib's flight deck will hold up to the excessive heat produced by the Joint Strike Fighter, Inside the Navy reported in March. Further:

Released last week, the report, "Defense Acquisitions: Assessments of Selected Weapon Programs," said LHA-6 began construction in December 2008 "with only 65 percent of its design complete, and subsequent design quality issues have caused a greater number of design changes than anticipated and high levels of rework during construction." The rework rate is twice that of the Makin Island (LHD-8), the last big-deck amphib to be constructed, at the same stage in construction.

As a result, the expected delivery date has been pushed back six months to October 2013.

The report says the rework issue was caused by insufficient quality checks of drawings before construction started, as well as a variety of physical interference issues. According to GAO, the Navy reviewed the report and commented that the higher rate of rework compared to Makin Island could also be attributed to the contractor doing more pre-outfitting and more work earlier in the construction process. Rework is less expensive to perform early in construction, the response notes.

The Pentagon is asking for ideas on potential satellite payloads for an upcoming launch of the new "Super Strypi" system run by the Operationally Responsive Space (ORS) Office, Kirtland Air Force Base, NM.

The ORS office hopes to reach government or government-sponsored organizations “that would be interested in flying on this mission,” according to a May 24 Federal Business Opportunities notice. “If you have a payload/space vehicle that meets the requirements . . . and the orbit is acceptable, have your government sponsor contact the ORS Office.”

The planned August 2013 launch will be held at the Pacific Missile Range Facility in Hawaii.

The National Governors Association is applauding a Senate Armed Services Committee decision to include language in its fiscal year 2013 defense authorization bill that would protect the National Guard from what the association sees as “disproportionate and damaging reductions.”

Ever since the Air Force rolled out an FY-13 budget request calling for the retirement of hundreds of aircraft, most of them flown by the Air National Guard, the Council of Governors (COG), the National Governors Association (NGA) and various adjutant generals have protested against the strategy. Congress has pushed back against the Air Force plan, with the Senate Armed Services Committee flexing its muscles this week by recommending the creation of a “National Commission on the Structure of the Air Force.”

In a May 25 statement, NGA praised committee Chairman Sen. Carl Levin (D-MI) for the move. Levin, during a May 24 press conference on the mark-up, told reporters that the Air Force's drawdown plan for its Guard component was “way out of proportion.”

“The nation's governors are encouraged by the Senate Armed Services Committee's work to protect the Air National Guard from disproportionate and damaging reductions," NGA's statement reads. "Governors are particularly appreciative of the work of Committee Chairman Michigan Sen. Carl Levin and Ranking Member Arizona Sen. John McCain, as well as South Carolina Sen. Lindsey Graham and West Virginia Sen. Joe Manchin for their efforts to preserve Air National Guard and Air Force Reserve aircraft and personnel at fiscal year 2012 levels for fiscal year 2013."

In April, NGA sent a strongly worded letter to Levin and McCain, as well as House Armed Services Committee chairman Rep. Buck McKeon (R-CA) and Ranking Member Adam Smith (D-WA), essentially asking them to sustain FY-12 funding levels for the Air National Guard.

As for the House, authorizers included language in their defense authorization bill that would protect the Guard from the service's force structure strategy. That language would forbid the Air Force from using FY-13 funds to retire, divest, realign or transfer its aircraft.

NGA noted in its statement that both bills, though varying in language, would provide adequate protection against the proposed force structure cuts. “The Senate Committee action follows adoption of similar protections for the Air National Guard that were included in the bill passed by the House last week,” NGA said. “Both bills provide a path to meet fiscal responsibilities while protecting the aircraft and personnel necessary to fulfill the Guard's critical mission at home and abroad.”

The language in the bills “gives governors and the Department of Defense the opportunity to put a process in place for 2014 that recognizes the cost-effectiveness and value of the Guard,” NGA added.

During a May 23 hearing, Senate Appropriations Committee Chairman Daniel Inouye (D-HI) questioned the force structure strategy, asking Air National Guard Director Lt. Gen. Harry Wyatt if he was consulted before the Air Force made its final decision on the strategy.

“We were encouraged to make our inputs, and we did so,” Wyatt said. “In fact, we exercised that encouragement rather vociferously inside the Air Force corporate process. We did present the alternatives to the Air Force, alternatives to the [FY-13 president's budget] as it officially came out.”

Wyatt said the Air National Guard's leadership offered several alternatives for meeting the budget and operational demands of the Air Force. Some of those alternatives were accepted, he said, adding that most of them were not.

“I think [Air Force Chief of Staff Gen. Norton] Schwartz has accurately described the process when he said that there were very difficult decisions for the Air Force to make,” Wyatt said. “He encouraged open debate. I engaged openly in that debate and made my inputs. But in the end, the final decision is left to he chief and the secretary and many of the recommendations and alternatives that we proposed were not adopted, but we respect the difficult decisions that the chief and the secretary had to make.”

Pentagon Press Secretary George Little today downplayed the need to plan for the imposition of sequestration under the Budget Control Act. "There's not a whole lot of planning, quite frankly, that we'd do because it's an across-the-board cut,” Little said. “I've heard it described as a haircut by senior department officials. You know, there's not a whole of planning you have to do."

When pressed on the notion that sequestration could be implemented without a plan, he added, “We would have to obviously take steps to deal with the consequences of sequestration and for prospective reductions in resources and personnel. . . . We haven't started it yet.” Asked whether that might change before the end of the year, Little said, “I'm not aware of any changes to this point. We're going to have to see where the process takes us. The focus is on trying to avoid sequestration. We do expect at some point to have to deal with if it's starting to look us straight in the face.”

Little declined to comment on the prospect of defense cuts totaling $1.2 trillion to $1.5 trillion, a scenario described in a new Center for Strategic and International Studies assessment due out today. He defended the Pentagon's fiscal year 2013 budget request and the accompanying strategy that was rolled out in January. "No one to my knowledge has really picked apart that strategy, including on Capitol Hill,” Little said. “People seem to recognize that it's a sound approach to dealing with what we need to do to address the national security challenges of the future. Now, when it comes to the budget side and how that strategy is implemented, I understand that people have disagreements. We recognize that.”

Inside the Pentagon reported on the CSIS findings today:

CSIS: DOD Likely Faces Cuts In $1.2 Trillion To $1.5 Trillion Range

The drawdown facing the Defense Department in the next decade will likely total $1.2 trillion to $1.5 trillion, exceeding the Budget Control Act's sequestration scenario, according to a new report that criticizes the Pentagon's failure to plan for the cuts as a high-stakes gamble.

The department will likely face not only budget cuts but also a "weakening defense dollar in terms of purchasing power as measured by military capability," states the Center for Strategic and International Studies' report on planning for a deep defense drawdown, due to be released today.

Perpetually rising costs within DOD are "eroding the purchasing power of the defense dollar," Clark Murdock, the report's author, told Inside the Pentagon. Murdock said his initial estimate is these internal costs are inflating at a rate of roughly 7 percent annually.

Today's interim report, informed by a working group of 30 leading defense and budget analysts, lays out a seven-step approach for determining which military capabilities must be retained and developed in the face of deep defense budget cuts. This includes an analytic way to categorize capabilities as must-have, nice-to-have, and unnecessary. In November, CSIS plans to issue a final report that recommends four to five distinct force mixes, each reflecting different potential long-term investment strategies.

Overseas contingency operations funding may shrink faster than some folks think, according to a new research note from Credit Suisse analysts issued today. Here's the summary:

NATO Leadership Affirms Withdrawal of Almost All Allied Troops by End of 2014; Result Is Likely End to Most OCO Funding with War's Conclusion in Late-CY14: Yesterday, NATO Leadership issued a joint declaration confirming ISAF/NATO transition to Afghan forces of all combat missions by mid-2013 and withdrawal of NATO troops by end of 2014. The declaration in essence supports President Obama's plan of completing the drawdown by the end of CY14. While Obama's commitment to ending the war has been largely anticipated at this stage by investors, these actions suggest a strong possibility that OCO funding will aggressively contract from the $89B FY13 request to well below the OMB/DOD plan for sustained $44.2B in OCO per year between FY14 and FY22. The comments imply no OCO funding beyond Q1 of FY’15.

More of a Surprise for Contractors than Investors: While this may be obvious to most investors, it appears many contractors have been relying on continued OCO as per the existing budget materials. We have been expecting a sharp decline in OCO funding, but believe most contractors have been relying on the $44.2b annual wedge being used by both OMB and the DoD Comptroller. The $89B in the FY13 OCO request pays for 70k U.S. troops at a cost of $1.3M each. The FY14 placeholder of $44.2B projects a 50.3% drawdown in FY14. This would fund 34k troops at $1.3M each. We assume a more realistic FY14 OCO is $39B-$46B for 30-35k troops. Also, we assume FY15 OCO of $10-11B for the final period of Oct to Dec 2014, plus ~$2.7B for U.S funding of the Afghan National Security Forces (Army Police), translating to a total FY15 OCO of $11-15B. Army & Marines will also likely request temporary RESET funding, with Army focus on 2015-2016 and USMC on 2014-2015. Recent congressional hearings suggest Army is identifying worst-case ceiling of ~$20-23B in RESET total costs, while USMC is projecting ~$3.2B in RESET costs after combat ends.

Primary Impact to O&M; Secondary to Procurement: O&M and procurement account for 72% & 11% of OCO funding respectively. The biggest impact would be to Army, which consumes $50B (56% of FY13 OCO request), with Navy & Air Force likely to suffer less impact because each consumes ~16%. A faster ramp-down in OCO clearly impacts infrastructure, logistics and operations suppliers including KBR, Fluor, Bechtel and DynCorp, which have been feeding from the LogCap contract (Army logistics), but which have also already seen significant downward revenue and EBIT assumptions. It will also impact gov’t services providers such as MANT & CACI as brigades return from Afghanistan and the deployment cycle ends. Contracts such as Army S3 will slow materially.

RESET Directed to Rotary Likely to Be More Robust: This will be predominately directed at rotary wing aviation (Boeing/Sikorsky/Textron) and most radios. This RESET funding will likely be of short duration (2-3 years).

The Congressional Research Service recently issued a report  (originally obtained by Secrecy News) on the proliferation of precision strike capabilities around the world. According to the report's executive summary:

The United States took the early lead in the development of precision strike and has enjoyed a monopoly on these systems for over 20 years. However, many experts agree that the U.S. advantage is eroding as these systems spread. A demonstration of this proliferation occurred in 2006, when Hezbollah successfully used a Chinese-designed C-802 Anti-Ship Cruise Missile (ASCM) against an Israeli corvette off the coast of Lebanon. This event demonstrated a non-state terrorist organization’s successful use of precision strike technology. In addition, access to the global commons is fundamental to global commerce and security -- the proliferation of technology could threaten U.S. unfettered access.

Effective use of precision strike weapons goes beyond that of the weapon itself. The weapon is one part of a much greater, elaborate system of capabilities the actor must either possess or to which it must have access. Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR), in particular, plays a critical role in precision strike.

Many experts believe the proliferation of precision strike has already begun and will continue to accelerate as more and more countries continue to develop and purchase precision strike weaponry. Three such countries include China, Iran, and Russia. China’s recent military buildup and its strategy with an apparent focus on anti-access/area denial capabilities entails a number of precision strike weapon systems to include the DF-21D anti-ship ballistic missile, which some defense analysts have labeled a "game changer." Iran, although at a much smaller and less elaborate scale, has also entered the precision-guided munitions regime with an outward belligerence toward closing the economically vital Strait of Hormuz, where 40% of the world's oil passes daily. Russia continues to supply arms to the international community and is focusing on developing its own fifth generation fighter comparable to the U.S. F-22 Raptor. Finally, a Russian defense company is currently marketing a new cruise missile system that can be hidden inside a standard shipping container. The housing of the system blends in with the hundreds of thousands of shipping containers used every day in carrying the world's commerce. Some defense experts have expressed fear that a weapon with such camouflage capability could give any merchant vessel the capability to wipe out an aircraft carrier.

The proliferation of precision strike creates potential issues for Congress. These issues include whether the Department of Defense (DOD) is properly taking adversary precision strike weapons into account in its own plans and programs, and whether Congress should approve, reject, or modify proposed DOD programs for responding to those weapons.

Check out our most recent precision strike coverage:

Key Changes Urged In Amphibious Ops To Counter Precision Weapons (Inside the Pentagon, May 10)

SOCOM Seeks Industry Input On Medium-Range Precision Strike System (Inside the Army, March 5)

DOCUMENT: SOCOM Request For Information On MRPSS

Navy Under Secretary Robert Work said at a Cato Institute event this afternoon that eight Littoral Combat Ships would be sent to Bahrain as mine countermeasures ships and patrol coastal ships are retired from the fleet.

While taking questions from reporters after the event, Work first asked that the exact number not be reported just yet, but since the event and his initial comments had been streamed live online and broadcast on C-SPAN, he confirmed the number.

"LCSs will be based in Bahrain," he said. "Ultimately, we hope to replace the PCs and the mine warfare vessels that are out there with eight LCSs. So just as they wash out of the fleet, eight LCSs will go out there. So instead of 10 PCs and four to eight mine warfare vessels, we have multirole vessels, you need fewer."

These eight ships would be in addition to four planned to be based in Singapore. Work said "we're certain to have LCSs in other places" but the Navy hasn't made formal plans for other foreign ports.