The Insider

By Tony Bertuca
October 21, 2015 at 2:30 PM

Former Defense Secretary Bob Gates took Congress to task today for its continued legislative paralysis over the future of the federal budget.

"As the saying used to go, 'It's a hell of a way to run a railroad,'" he told the Senate Armed Services Committee.

At present, Congress is operating under a continuing resolution set to expire Dec. 11, at which point the absence of a deal that would lift the 2011 Budget Control Act caps for defense and other areas of government could result in a government shutdown, or an extended CR that locks the Defense Department into BCA-level spending.

"Given the harm of all this politically driven madness inflicts on the U.S. military, the rhetoric coming from members of Congress about looking out for our men and women in uniform rings very hollow to me," Gates said. "All the smart defense reforms you can come up with will be of little use if the military is unable to plan, set priorities and manage its resources in sensible and strategic way."

Gates noted that he submitted five separate budgets to Congress in his time as defense secretary and that not one of them resulted in an appropriation for the beginning of the fiscal year.

"Hardly anybody in this city ever gets fired because they didn't do their job well enough," he said, noting that scandals and gaffes had resulted in far more Washington resignations than had poor performance.

Gates' criticism comes as Republicans and Democrats remain deadlocked over a fiscal year 2016 appropriations plan. The GOP has proposed spending bills that circumvent the BCA caps for defense, but honor them for all other areas of government. Democrats have vowed to block a bill that does not equally lift the caps, but anti-spending advocates in the House GOP's Freedom Caucus have pledged to oppose any bill that would do so.

Gates said the current state of congressional gridlock was embarrassing the United States in the eyes of the world.

"Our system of government -- as designed by the founders who wrote and negotiated the provisions of the Constitution -- is dependent on compromise to function," Gates said. "To do so is not selling out -- it's called 'governing.'"

By Marjorie Censer
October 21, 2015 at 1:09 PM

Boeing reported today that sales in its defense unit in its most recent quarter grew.

The defense business announced quarterly revenue of $8.4 billion, up 6 percent from the same period the prior year. Operating earnings surged 19 percent to reach just over $1 billion.

Boeing's military aircraft unit saw the largest sales improvement, which Boeing attributed to F-15 contract negotiations. The network and space systems also saw bolstered revenue because of increased Commercial Crew program sales.

Dennis Muilenburg, Boeing's chief executive, told analysts in a call today that the company has a "healthy defense business."

"Now, it's a tough marketplace, and we've acknowledged that," he said. "But our defesne business overall is a healthy portfolio. We like the program structures we have, we're growing internationally and we're investing for the long run."

Boeing said the backlog in its defense business hit $59 billion, about 40 percent of which are orders from international customers.

By Courtney Albon
October 21, 2015 at 12:21 PM

Lockheed Martin confirmed Oct. 21 that it has reached a verbal agreement with the Air Force on a multiyear contract to purchase 83 C-130Js.

"We have reached a verbal agreement on the C-130J multiyear II contract," company spokesman Stephanie Stinn told Inside Defense in an Oct. 21 statement. "Our goal from now until the end of this year is to compete the remaining contract actions and certifications, including the congressional notification process, prior to award."

The contract was expected this summer, but negotiations have continued past that target. Service officials, including acquisition executive William LaPlante, remain concerned that because the contract calls for a quantity increase, a yearlong continuing resolution could disrupt the production plan.

"The C-130J multiyear plans to procure 13 more aircraft in FY-16 than in FY-15," spokesman Maj. Robert Leese told Inside Defense in an Oct. 20 email. "That increase would be prohibited under a yearlong CR without an exemption from Congress permitting an increase in production quantities."

Leese said the service does not need an exemption from the current short-term CR in order to award and begin executing the contract, but if the CR continues into next year, it would begin to disrupt the plan to increase production over FY-15 levels. In that case, the service may be forced to "break" the contract, as LaPlante alluded to in a presentation earlier this month, and renegotiate it. Leese said such a scenario "could lead to a loss of savings from the multiyear contract."

Lockheed officials have said there is a precedent for an exemption for multiyear production increases, particularly in cases where the service has already made significant investments in advanced procurement, which is true in the case of the C-130J.

By John Liang
October 21, 2015 at 11:39 AM

Today's recap includes news on Lockheed's quarterly earnings and more.

Earnings.

With earnings season upon us, our first look is at how Lockheed fared during the past quarter:

Lockheed expects to complete Sikorsky buy, services review by end of year

Lockheed Martin executives said Tuesday the defense contractor is on pace to complete two major reshaping initiatives by the end of the year.

Document: Defense Contractors' Third-Quarter 2015 Earnings Statements

Stay tuned for more earnings coverage from Inside Defense Defense Business Editor Marjorie Censer.

Defense Reform.

The chairmen of the House and Senate Armed Services committees spoke this week on the FY-16 defense authorization bill:

McCain, Thornberry preview FY-17 defense reform agenda

After authoring a defense authorization bill with the most comprehensive acquisition reforms in decades, the chairmen of the House and Senate armed services committees said Tuesday that fiscal year 2017 would be another banner year for defense reform.

Osprey.

Some V-22 Osprey news from this week's Inside the Navy:

Navy pushing 'envelope' of V-22 takeoffs, landings on aircraft carrier

The Navy is in the midst of flying the V-22 Osprey from the aircraft carrier Eisenhower (CVN-69) to "expand the envelope" of how the tiltrotor aircraft can take off and land on a carrier.

Marines cannot award V-22 Osprey contract under three-month CR

Under the existing congressional three-month continuing resolution the Marine Corps will not make its December deadline to award a V-22 Osprey tiltrotor contract -- the second time this deal has been in jeopardy -- to Bell-Boeing as part of the second multiyear contract.

Grab Bag.

A couple recent documents of note, in case you missed them:

Army's Combat Vehicle Modernization Strategy

The October 2015 document "establishes the ends for combat vehicle modernization, aligns the ways and prioritizes means. It guides Army programming and budgeting activities and provides the vision for future combat vehicle development."

CRS Report On The JLTV Program

The Oct. 14, 2015, Congressional Research Service report -- originally obtained by Secrecy News -- discusses the Joint Light Tactical Vehicle program.

By Justin Doubleday
October 21, 2015 at 10:56 AM

A U.S. destroyer successfully intercepted a ballistic missile target using a Standard Missile-3 interceptor during a multinational exercise off the coast of Scotland Oct. 20, marking the first intercept of a ballistic missile threat in Europe, according to the Navy.

The intercept occurred as part of the Maritime Theater Missile Defense (MTMD) Forum's At Sea Demonstration (ASD), a month-long exercise involving 10 nations.

As part of the intercept test, the destroyer Ross (DDG-71) fired the SM-3 Block IA at the ballistic missile target after receiving cues from Spanish and Dutch ships, according to an Oct. 20 Navy press release, signifying the first time international ships have transmitted BMD cues to a U.S. destroyer. While the Ross was engaging the ballistic missile, the destroyer The Sullivans (DDG-68) used an SM-2 to destroy an anti-ship cruise missile target.

The Navy stated that the demonstration is also the first time "multinational, beyond-line-of-sight link architecture" has been used for integrated air and missile defense purposes in Europe.

"The execution of the live-fire exercise is a clear demonstration of the forum's ability to safely conduct effective coalition sea-based defense against simultaneous anti-ship and ballistic missile threats within an operational scenario," Adm. Mark Ferguson, commander of naval forces Europe and Africa, said in an Oct. 20 statement on the successful intercept.

Inside the Navy has previously reported on ASD-15, which is ongoing this month. It involves 10 nations: Australia, Canada, France, Germany, Italy, The Netherlands, Norway, Spain, the United Kingdom, and the United States.

By Marjorie Censer
October 21, 2015 at 9:00 AM

A new study by consulting firm Avascent, which interviewed over 200 aerospace and defense executives, found that industry leaders don't feel ready to take advantage of commercial technologies.

The Pentagon has pushed for more innovation, traveling to Silicon Valley in recent months to seek more commercial participation. Jon Barney, the study's author, told Inside Defense "companies across the sector have been trying to figure out what that means for them."

"What's pretty striking is companies, in general, feel the need is high," he said of contractors' desire to access commercial research and development.

However, many feel burdened by lack of awareness, concerns about profit margins and restrictions on intellectual property, he said.

"The biggest obstacle is actually burdensome contracting requirements," Barney added. The administrative piece is "what's really seen as the barrier."

Full report: http://www.avascent.com/wp-content/uploads/2015/10/Out_of_Reach_White_Paper_10132015.pdf

By Tony Bertuca
October 20, 2015 at 5:26 PM

The Pentagon announced a host of senior executive service assignments and reassignments today, including that of Zachary Mears, who has been assigned as the deputy chief of staff for the Office of the Secretary of Defense.

"Mears will also continue to perform the duties of his previous position as special assistant to the deputy secretary of defense (chief of staff), Office of the Deputy Secretary of Defense," according to a Defense Department notice.

Meanwhile, Karen Hughto has been appointed to the SES and assigned as deputy general counsel for the Washington Headquarters Services and Pentagon Force Protection Agency. She previously served as senior-level attorney adviser.

The full announcement concerning other assignments can be accessed here.

By Courtney McBride
October 20, 2015 at 2:54 PM

The United States and Russia have signed a memorandum of understanding governing manned and unmanned aircraft over Syria, Pentagon Press Secretary Peter Cook told reporters today.

A "line of communications" has been established on the ground "as a backup," allowing for "real-time communications if necessary," Cook said. Additionally, steps have been taken to ease communications between flight crews if needed, but the protocols established in the MOU are designed to obviate such contact.

Citing a request from the Russians, Cook declined to disclose the specific terms of the agreement, but said it "calls for aircraft to maintain a safe distance." Pressed to define safe distance, he said "anything that could be deemed as threatening or hostile could represent a violation of this agreement."

He continued, "it should be abundantly clear to the pilots that are flying over Syria what is appropriate and what is not, what is threatening and what is not."

Cook emphasized the professionalism of American air crews, and said the agreement obligates their Russian counterparts to maintain similar standards, and said "if there's an instance in which there is unprofessional conduct . . . obviously we will raise those concerns with the Russians."

In response to a question regarding recent close calls between Russian and coalition aircraft, Cook said "our hope is that these protocols prevent that from happening again."

The agreement does not address Russian incursions into Turkish airspace, but "specifically refers to aircraft and flights over Syria," Cook said.

While he acknowledged a reporter's contention that the terms were largely agreed upon by Oct. 16, Cook said "signatures were put in place today, and we'll go from there."

Gen. Lloyd Austin, head of U.S. Central Command, signed the MOU on behalf of the United States, according to Cook.

By Justin Doubleday
October 20, 2015 at 2:06 PM

The State Department has approved an $11.25 billion sale of four Multi-Mission Surface Combatant Ships to Saudi Arabia, the Defense Security Cooperation Agency announced today.

The combatants are "derivatives" of the U.S. Navy's Freedom-variant Littoral Combat Ship, according to the Oct. 20 DSCA statement. The Freedom version of the LCS is built by Lockheed Martin. The DSCA notified Congress of the potential sale on Oct. 19.

The Saudi government requested a full-up modernization program for the MMSC, the statement says. The sale includes program office support, as well as the study, design and construction of operations, according to the announcement.

The ships will use Lockheed's COMBATSS-21 Combat Management System, which the U.S. Navy is also planning to use on its future frigates.

In addition to the ships and the combat systems, the sale includes 523 tactical RIM-162 Evolved Sea Sparrow Missiles; five Harpoon ship command launch control systems; eight Harpoon shipboard launchers; 48 Harpoon Block II missiles; five MK-15 Mod-31 SeaRAM close-in weapon systems;  (188) RIM 116C Block II Rolling Airframe Missiles; five MK-75 76mm OTO Melara Gun Systems; 48 50-caliber machine guns; and Selective Availability Anti-Spoofing Module (SAASM) Global Positioning System/Precise Positioning Service (GPS/PPS) navigation equipment.

By John Liang
October 20, 2015 at 1:00 PM

Today's recap includes news on the Joint High Speed Vessel, the effects of a yearlong continuing resolution and more.

JHSV Interoperability.

DOD's chief weapons tester has found problems with the Navy's Joint High Speed Vessel:

DOT&E: Joint High Speed Vessel cannot interoperate with MLP in open ocean

The Pentagon's top weapons tester has discovered the Navy's Joint High Speed Vessel cannot effectively interoperate with the Mobile Landing Platform in the open ocean, according to a memo obtained by Inside Defense.

Document: DOT&E Memo On The JHSV Program

Yearlong CR Blues.

News on the effects of a yearlong continuing resolution:

House GOP lawmakers come out swinging against yearlong CR

More than 100 House Republican lawmakers have signed a letter opposing a yearlong continuing resolution, which they say would have "devastating consequences" for national security.

Document: House GOP Lawmakers' Letter On Yearlong CR


Under yearlong CR, Marines can purchase only seven out of 109 JLTVs

The Marine Corps recently confirmed it would only be able to purchase seven out of the planned 109 Joint Light Tactical Vehicles under a yearlong continuing resolution, a shortfall Inside Defense first covered in a special report. 172500

Document: CRS Report On The JLTV Program

Grab Bag.

The front page from this week's Inside the Navy:

Navy plans RFP release for frigate shipbuilding contract in late 2017

The Navy expects to release the request for proposals for building the first of its new frigates in late calendar year 2017, according to the program manager.

Marines submit G/ATOR test and evaluation master plan to Stackley

The Marine Corps recently submitted its test and evaluation master plan for the multibillion-dollar Ground/Air Task-Oriented Radar after a watchdog organization said the program was at risk of not having a proper plan before it enters the developmental phase of testing.

Navy establishes UCLASS fleet introduction team before RFP release

The Navy recently established a fleet introduction team for the Unmanned Carrier-Launched Airborne Surveillance and Strike program although a request for proposals has not been released, according to a service official.

Next Generation Jammer program working to reduce weight, power risks

The official leading the effort to develop the first version of the Next Generation Jammer says the program has made progress in developing a powerful enough system that still falls within restrictive weight requirements.

By Marjorie Censer
October 20, 2015 at 12:02 PM

In her first public comments since Pentagon acquisition executive Frank Kendall criticized industry consolidation, Marillyn Hewson said today she "wholeheartedly" disagrees with his assessment.

During a call with reporters last month, Kendall said the Pentagon is increasingly worried about industry consolidation, arguing it could result in higher prices and reduced innovation.

The Lockheed chief executive said during today's call with analysts that she has had "a lot of discussions with Frank Kendall and others about this policy statement that he put out and respectfully have told him that we disagree with that."

She said there's simply no evidence to support his claim that consolidation is bad for the industry.

"I wholeheartedly disagree that through consolidation . . . that that's going to impede our innovation," Hewson said Tuesday. "Really, we believe that you have to continue to look at how you can be most effective. It's not about the size of the company, it's about performance."

Hewson noted the "passion" in her voice as she spoke about the topic.

"We do not believe that consolidation will inhibit innovation in the industry," she concluded.

For more coverage of Lockheed's earnings call, click here.

By Tony Bertuca
October 20, 2015 at 11:59 AM

Sen. John McCain (R-AZ) and Rep. Mac Thornberry (R-TX) have joined forces to make their final appeal for passage of the fiscal year 2016 defense authorization bill the White House has said President Obama will veto.

McCain and Thornberry, who chair the armed services committees in their respective chambers, said Tuesday at the Brookings Institution that Obama is using the potential veto of their defense policy bill as leverage in a larger, high-level budget fight with the GOP.

"What bothers us is it's clear the president is holding this legislation -- regarding defense of the country and the men and women who serve it -- hostage to a process of budgetary procedure which the defense bill has nothing to do with," McCain said.

"Exactly," Thornberry added.

Both lawmakers argued that Obama should instead focus his efforts on the defense appropriations bill, which would actually allocate funding.

"If he has have a problem with the level of appropriations, then it seems to me that fight should be with the appropriators," McCain said. "We authorize. This is a big bill. Of all the reforms, all the benefits and pay -- it seems to me he's picked the wrong target."

The proposed bill would authorize $499 billion in Defense Department base spending in line with the mandatory 2011 Budget Control Act spending caps. However, the bill would add $38 billion to the president's $51 billion request for the Pentagon's overseas contingency operations (OCO) account because it is exempt from the BCA caps. Democrats have refused to pass any bill that does not also circumvent the BCA caps for other areas of government. The defense authorization bill, however, does contain language that allows OCO funding to be transferred to the base account in the event of a bipartisan budget deal.

McCain said he and Thornberry were actually opposed to the GOP's proposed OCO maneuver and would prefer to see a deal that lifts the BCA caps, but were hamstrung by the law currently in place.

"Mac and I really dislike it because we'd like to see a multiyear level of authorization that we can plan on rather than lurching from one year to the next," he said.

Thornberry noted that a defense authorization bill has been passed for 53 consecutive years.

"In some ways, I think this is kind of an inside Washington political game that loses sight of what we are asking men and women to for us," he said. "In that way, I think it is tragic."

McCain and Thornberry declined to elaborate on any possible "plan B" should Obama veto the bill, but several staffers have said the committees have no current plan in place if the president were to do so.

Mackenzie Eaglen, a defense budget analyst at the American Enterprise Institute, told Inside Defense it was unrealistic to think the bill could be "disaggregated" to a point where the budgetary authorizations were stripped away, leaving nothing but policy provisions.

"Taking the money out is not an option," she said. "It negates the GOP-passed -- and therefore binding -- budget resolution. If it were that easy, the GOP would've caved long ago."

Taking such a step would also have a negative impact on defense modernization, she explained.

"Stripping OCO disproportionately hits modernization accounts," she said. "There may not be agreement on how to fund the government this year, but there is near-universal agreement that this is a long-neglected DOD priority and the slide must be stopped and eventually reversed."

To further complicate matters, she said, the impending retirement of House Speaker John Boehner (R-OH) and the intense GOP turmoil over finding his successor have left the White House with few options in terms of finding a Republican leader to help negotiate a budget deal before the ongoing continuing resolution expires on Dec. 11.

"The most likely scenario is that the two [armed services committee] chairmen begin actively lobbying leaders and the White House for a budget deal before Boehner leaves Washington so that the [authorization] bill can be the very next bill that moves behind it," Eaglen said.

If a budget deal cannot be reached by Dec. 11, Congress can avert a government shutdown by extending the CR, though Pentagon officials have warned that a yearlong CR would have devastating impacts on defense because the department would be prohibited from funding new-start programs or planned production increases in weapon systems.

By Marjorie Censer
October 20, 2015 at 9:51 AM

Following the divestiture of Sikorsky, United Technologies' defense exposure will be 13 percent, down from 19 percent before the sale, the company's chief executive said today.

During a call with analysts, Greg Hayes said the sale of Sikorsky to Lockheed "remains on track."

Noting that the deal has already gotten key approvals, including from the United States, Hayes said there remain "a couple more to go," but he expects those to arrive in the coming weeks.

UTC reported today that sales and profit in its Pratt & Whitney business and its aerospace systems unit in the most recent quarter fell. Pratt & Whitney saw steeper declines, with quarterly profit hitting $419 million, down from $633 million in the same three-month period the prior year.

UTC said sales were hurt by "a delay in engine deliveries as a result of the transition to a new logistics center at Pratt & Whitney. These deliveries should largely be recovered in the fourth quarter."

By Justin Doubleday
October 19, 2015 at 5:12 PM

The Navy is extending the deadline for companies to respond to a request for information on its multibillion-dollar Next Generation Enterprise Network re-compete until Oct. 23, the service announced Oct. 19.

The original deadline was Oct. 19. The Navy is extending the deadline by four days "to give more time for the small business community to respond," according to the announcement.

"We are committed to providing optimized enterprise services to our Sailors and Marines and we are committed to working with the small business community to do so," Program Manager Capt. Michael Abreu stated in the release.

The NGEN contract supports the Navy/Marine Corps Intranet, the largest internal computer network in the world. The current contract was awarded to Hewlett Packard Enterprise Services in 2013, with a total cumulative value of $3.45 billion. It expires on June 27, 2018.

The Navy is using the RFI to start measuring the Information Technology services market ahead of the re-compete, Inside the Navy reported in September. For the follow-on effort, "the key tenets of any potential future contracts include: global reach; speed to delivery; cloud-based services; innovation; mobility; data analytics; and cybersecurity," the Sept. 17 notice states. The service plans to release a second RFI by the end of calendar year 2015.

By
October 19, 2015 at 4:46 PM

A recently unclassified Defense Science Board report which served as the impetus for the creation of the Electronic Warfare Executive Committee -- a high-level Pentagon panel that is now prioritizing new EW investments for fiscal year 2017 -- states that DOD must increase its annual spending on EW capabilities by $2.3 billion for the next five years, Inside Defense reported recently:

The DSB study identified three overarching needs, the first of which is to dynamically manage the electromagnetic spectrum. 

"The U.S. lacks not only current situational awareness of the crowded spectrum, but also lacks the ability to dynamically make efficient use of the spectrum and to deny it to adversaries," the report states. "This is a substantial technical challenge."

Secondly, the DSB recommends achieving near-real-time system adaptation.

"The speed at which modern digital electronics can shift operating modes and techniques has increased dramatically," the report states. "The U.S. needs to adapt its use of EW hardware and software faster to keep up with the speed inherent in today's electronics."

Lastly, the board contends that DOD must greatly shift its EW posture to offense.

"The study determined that the U.S. cannot afford to patch every EW deficiency in all of its military warfare systems," the report states. "To keep U.S. forces competitive, the U.S. needs to shift more to EW offense. This approach increases the burden on the adversary, imposes cost, and creates chaos in the adversary's environment. The U.S. can trade on that chaos for advantage in the fight."