The Insider

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December 3, 2008 at 5:00 AM

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."

-- John Liang
 

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December 2, 2008 at 5:00 AM

Louis Caldera, secretary of the Army from 1998 to 2001, will head President Obama's White House Military Office, the president-elect's office announced today.

The position -- a post often held by a general or flag officer -- involves advising the White House on matters involving military support to the commander in chief, which could give Caldera an influential vote in figuring out how to proceed with the VH-71, the presidential helicopter modernization program that is suffering staggering cost growth.

A West Point grad and former California state assemblyman, Caldera moved to academia after vacating his E-ring office serving as vice chancellor for the California State University system and president of the University of New Mexico.

“Louis has served his country with distinction in uniform and in government, and his pedigree is second-to-none. I know he’ll bring to the White House the same dedication and integrity that have earned him the highest praise in every post, from Secretary of the Army to university president,” said President-elect Obama in a statement.

-- Jason Sherman

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December 2, 2008 at 5:00 AM

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."

-- Sebastian Sprenger

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December 2, 2008 at 5:00 AM

House Armed Services Committee Chairman Ike Skelton (D-MO) is lauding the conclusions of the Commission on the Prevention of Weapons of Mass Destruction, Proliferation and Terrorism's report that was released today.

"We have long understood that weapons of mass destruction (WMD) pose serious national security risks, but I am deeply concerned by the increasing risk of WMD proliferation and terrorism identified by the Commission's report," Skelton said in a statement, adding:

The commission makes clear that the world has witnessed a new era of WMD proliferation in recent years and that Congress, the Executive Branch, and the world community must act decisively and with great urgency to prevent a terrorist attack using WMD. I look forward to closely examining the commission's findings and recommendations as the House Armed Services Committee continues to address WMD risks through oversight and legislative action. I also strongly encourage the Obama administration to closely review the commission's work.

-- John Liang
 

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December 2, 2008 at 5:00 AM

Deputy Defense Secretary Gordon England announced today that he would not be Defense Secretary Robert Gates' No. 2 man in the Obama administration.

"I congratulate President-elect Obama for retaining Bob Gates as secretary, and I salute Bob Gates for his continued commitment," England said in a statement. "However, it's time for me to leave. When I came into government in early 2001, I anticipated serving for two to four years. After almost eight years, it's now time for me to turn over the reins to a successor. Also, it's most appropriate for the new administration to name its own deputy."

Saying it has been "an astonishing time to serve the nation," England also said he was willing, if asked, to stay past Inauguration Day to assure a smooth transition.

-- John Liang
 

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December 1, 2008 at 5:00 AM

Will future Pentagon budgets under the Obama administration tilt toward the Army and Marine Corps?

In announcing this morning that Robert Gates will stay on as defense secretary, President-elect Barack Obama said that he plans to direct the Pentagon to focus on near-term challenges -- an objective that Gates has repeatedly advocated. Could this be a harbinger of renewed support for Army and Marine Corp priorities at the cost of capital-intensive needs of the Air Force and Navy?

As I said throughout the campaign, I will be giving Secretary Gates and our military a new mission as soon as I take office: responsibly ending the war in Iraq through a successful transition to Iraqi control. We will also ensure that we have the strategy -- and resources -- to succeed against al Qaeda and the Taliban. As Bob said not too long ago, Afghanistan is where the war on terror began, and it is where it must end. And going forward, we will continue to make the investments necessary to strengthen our military and increase our ground forces to defeat the threats of the 21st century.

In a brief statement, Gates said:

I am deeply honored that the president-elect has asked me to continue as secretary of defense. Mindful that we are engaged in two wars and face other serious challenges at home and around the world, and with a profound sense of personal responsibility to and for our men and women in uniform and their families, I must do my duty, as they do theirs. How could I do otherwise? Serving in this position for nearly two years -- and especially the opportunity to lead our brave and dedicated soldiers, sailors, airmen, Marines and defense civilians -- has been the most gratifying experience of my life. I am honored to continue to serve them and our country, and I will be honored to serve President-elect Obama.

-- Jason Sherman
 

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December 1, 2008 at 5:00 AM

Mindful of the current budgetary environment, the industry team developing the Airborne Laser has begun to do some in-house studies to see how system could be re-jiggered to be able to shoot down not just ballistic missiles in their boost phase but also cruise missiles and other enemy flying objects.

"The contractors have begun to do some work in simulation to show that there are capabilities for the weapon system in the future and there are some changes that would need to be made because we're optimized for ballistic missiles, but we believe that there are some capabilities for counter-aircraft and counter-((surface-to-air missiles)), for example, and potentially cruise missiles," Boeing ABL Program Director Mike Rinn told reporters during a conference call earlier today. "So it kind of opens up a whole other area -- that is not our primary mission, I want to state that emphatically, the Missile Defense Agency has designed the system for all classes of ballistic missile in boost phase -- but we believe there's other potential in the multimission arena."

Earlier today, MDA and its industry partners announced that the ABL program has successfully test-fired the megawatt-class laser through the Boeing 747 aircraft's turret mount in a ground test last week.

During the conference call with reporters, Boeing's Rinn said the program was still on track for a late summer, early fall 2009 attempt to intercept a live target ballistic missile.

The ABL program has encountered increasing congressional scrutiny. House Armed Services strategic forces subcommittee Chairwoman Ellen Tauscher earlier this month promised hearings on programs like ABL when Congress comes back in session next year. Not only that, InsideDefense.com reported earlier this month that the incoming Obama administration was mulling cuts to a small handful of named high-profile weapon systems, among them national missile defense and ABL.

Even if next summer's intercept attempt is successful, such a demonstration will not by itself be enough to prove the weapon meets requirements, the program office's commander said this past summer. Follow-on tests of the platform must occur before the laser is ready to go into production, he added. As Inside Missile Defense reported:

Unless the program office discovers something considered anywhere between "concerning" and "hideous" between now and August 2009, ABL’s in-flight shoot-down demonstration will take place as scheduled, Col. Robert McMurry, commander of the Airborne Laser program office at Kirtland Air Force Base, NM, said during a June 27 National Press Club briefing on the directed-energy weapon's progress.

Still, though the test will be at a range that is "significant" -- the exact range is classified, but retired Lt. Gen. Michael Dunn, CEO of the Air Force Association, at the same briefing put it at hundreds of kilometers -- the program follows a "crawl-walk-run" process, and an "envelope expansion" of the laser's capabilities will be needed to prove its concept of operations, McMurry said.

“I don’t think you’re going to satisfy all of the government’s requirements that you need to say, ‘That thing’s ready to procure’ by . . . a single shoot-down; it’s just not going to happen,” McMurry said. “So what we need to do is show the operational utility. Part of that plan is things like taking the system now and shoot((ing)) something down, but, instead of shooting it down here, fly it to Hawaii and shoot it there and prove you can move it and then use it. There are a number of those variations on the theme that kind of start to pin down the modeling that you’ve done to support the concept of operations and do it beyond just computer modeling that really anchor that in real-life, purposeful execution of the . . . top-end requirements.”

In the conference report accompanying the Fiscal Year 2009 Defense Authorization Act, House and Senate lawmakers called for a Defense Department-sponsored independent study of boost-phase missile defenses, including ABL, the Kinetic Energy Interceptor and other potential systems.

“The study would assess a variety of relevant factors and compare the results to non-boost-phase missile defense systems,” the report states.

The conferees also prohibit spending money to buy a second ABL aircraft until the defense secretary certifies that the system “has demonstrated, through successful testing and operational and cost analysis, a high probability of being operationally effective, suitable, survivable and affordable.”

Money also cannot be allocated to a second aircraft until 60 days after the boost-phase missile defense study is submitted, according to the bill text.

-- John Liang
 

By
December 1, 2008 at 5:00 AM

Unless you've been hiding under a rock, you're probably aware President-elect Barack Obama and Vice President-elect Joe Biden are scheduled to officially announce the incoming administration's national security team today in Chicago at 10:45 a.m.

The line up includes Sen. Hillary Clinton to serve as secretary of state; Defense Secretary Robert Gates to continue to serving in his current job; retired Marine Gen. James Jones to serve as White House National Security Adviser; Eric Holder to serve as attorney general; Arizona Gov. Janet Napolitano to lead the Department of Homeland Security; and Susan Rice to serve as U.S. ambassador to the United Nations.

The Wall Street Journal reports today that retired Navy Adm. Dennis Blair is the frontrunner for the job of director of national intelligence, but that the decision is still being mulled and might not be announced today. The New York Times reports no top intelligence appointments will be announced today but that Blair is expected to be named soon.

-- Chris Castelli

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November 26, 2008 at 5:00 AM

The Missile Defense Agency is calling on the Von Braun Conference Center in Huntsville, AL, to host an industry day next month for its MDA Engineering and Support Services (MiDAESS) program, according to a Federal Business Opportunities notice posted yesterday.

MiDAESS is MDA's effort to restructure and consolidate the way it procures contractor support services.

The event, scheduled for Dec. 17-19, would require a venue with a capacity of 1,000 people, the notice states:

The intended source for the requirement is the Von Braun Center located in Huntsville, Alabama, as they are the only responsible source who can satisfy the agency's need for this requirement. However, all responsible sources may submit a capability statement, proposal, or quotation, which shall be considered by the agency.

MDA spends approximately $900 million annually on contractor support services for functional areas like quality, safety and mission assurance; business and financial management; administrative and professional support; engineering; acquisition management; and warfighter support, among others, Inside Missile Defense reported in February when the MiDAESS draft request for proposals was first released.

In 2004, MDA began a re-engineering effort "to better align the agency to achieve an overall goal of developing a single integrated ((ballistic missile defense)) system," according to the RFP's executive summary. "A foundational premise of the re-engineering was to centralize control in the agency headquarters and de-centralize execution in the field."

"We are constantly looking for ways that we can be more efficient and more effective," then-MDA Director Lt. Gen. Trey Obering told reporters at a Feb. 12 conference sponsored by Aviation Week, "and this ((draft RFP)) is part of that."

One of the major changes brought about by the re-engineering was a transition from a "project" organization to a "matrix" organization, the draft RFP states. That resulted in government personnel working in a "functional alignment," with each person in a program office being responsible to a functional manager for their particular skill "and responsible to the program leadership for day-to-day direction," the draft RFP reads.

In related news, MDA this week also released a MiDAESS "organizational conflict of interest policy" via FedBizOpps to encourage the contractor community "to resolve al OCI issues prior to submitting proposals or teaming in connection with the MiDAESS effort." Stay tuned to next week's issue of IMD for more info on this.

-- John Liang
 

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November 26, 2008 at 5:00 AM

The folks over at sister publication Defense Environment Alert are reporting this week that the Army and Navy are pushing to define the guidelines of their future energy policies, focusing on energy savings and increased self-reliance for the military services, before the Bush administration leaves office:

The Army's effort will attempt to establish a prescriptive, apolitical energy policy that officials say should nonetheless be in line with the incoming Obama administration, and, due to its necessity, be long-lasting. The Navy also expects to lay out plans for a new energy policy by time Obama takes office.

The Army’s drive to cut energy use and make itself more energy independent within 15 years will take on concrete form before Bush leaves the White House Jan. 20, Keith Eastin, assistant service secretary for installations and environment, told delegates to an Army-sponsored energy conference Nov. 17.

"This energy initiative . . . has been a long time coming, and will live long beyond this administration and hopefully the next," Eastin said.

The Army unveiled the energy initiative last month. Under the effort, Army bases will attempt to become net exporters of energy using a variety of methods, including renewable, alternative and conventional energy sources, while energy savings in transportation at forward operating bases are also envisioned:

The changes are driven by unstable energy prices and concerns over energy security, rather than politics, Eastin said. The changes will boost Army energy policy beyond its traditional focus on easily attainable energy savings measures at installations.

Addressing why the Army has left this policy shift until so late in the current administration, Eastin said: "We want to leave a little legacy for everybody else to work with." Earlier this year, Eastin recruited former Air Force energy expert Paul Bollinger to be his junior in the newly renamed post of deputy assistant Army secretary for energy and partnerships.

A draft strategic implementation plan for the energy initiative will be drawn up by Dec. 8, based on the results of consultations with industry at the Nov. 17 event, according to Bollinger. Multiple Army commands will then scrutinize the draft plan and the modified product will be presented to the Army’s new senior energy council Jan. 7. Army Secretary Pete Geren will then sign off on the plan.

The Navy, meanwhile, is the last of the three services to get into the energy act, with a new high-level initiative under preparation that will set up an "executive committee" to establish a strategy to be presented to the next Navy secretary, DEA reported.

Pat Tamburrino, assistant deputy chief of naval operations for fleet readiness and logistics, told the conference that the Navy’s strategy is still "embryonic," but will be "three-pronged." The three elements are doctrine, investment in new equipment, and security of supply, he said.

As for the Air Force, Mike Aimone, the service's deputy chief of staff for logistics, installations and mission support, said the Air Force will press ahead with its goal to supply half of its domestic fuel requirements from domestic, synthetic fuel sources, using primarily coal-to-liquids (CTL) fuels. Since the price of oil has now dropped sharply from its peak over the summer, the driving force for this program is now energy security, rather than cost, Aimone said.

For more of InsideDefense.com's coverage of the military's efforts to reduce fuel consumption and explore alternative energy sources, click here.

-- John Liang

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November 26, 2008 at 5:00 AM

Defense Secretary Robert Gates, who has reportedly agreed to continue to lead the Pentagon when President-elect Barack Obama comes to power next year, will be taking to the skies Monday and might just make a stop in Obama's hometown of Chicago, IL.

John Podesta, who co-chairs Obama's transition team, has said the Illinois Democrat generally plans to personally announce his senior cabinet-level appointments in Chicago.

For now, the Defense Department is not officially commenting on Gates' future or whether he will visit Chicago next week to appear with Obama. But a senior defense official coyly said today that Gates will likely have an opportunity to talk to reporters next week.

DOD also acknowledged that Gates is scheduled to speak in the early afternoon on Monday (Dec. 1) at the Air Force Base in Minot, ND. It is a sure bet nuclear weapons will come up in his speech there. In August 2007, the Air Force accidentally flew six live nuclear cruise missiles on a B-52 bomber from Minot AFB, ND, to Barksdale AFB, LA, touching off investigations that ultimately led Gates to sack the service's leadership.

Visiting Minot will put Gates a mere 900 miles or so from Obama's hometown at a time when the president-elect is reportedly poised to unveil a national security team that also includes Sen. Hillary Clinton as secretary of state and retired Marine Gen. James Jones as White House national security adviser.

-- Chris Castelli

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November 25, 2008 at 5:00 AM

The Associated Press and others are reporting today that Defense Secretary Robert Gates -- in a widely distributed 41-page memo issued in response to the most recent Commission on the National Guard and Reserves report -- is calling for a broad review of the reserve component's ability to handle domestic disasters. 

As Inside the Army reported upon its release in early 2008, the commission's report called for the Pentagon to better integrate the active and reserve components of the military and to “improve its capabilities and readiness to play a primary role in the response to major catastrophes that incapacitate civilian government over a wide geographic area.”

The report contended that the National Guard and Reserves “should play the lead role” in supporting the Department of Homeland Security and other federal agencies.

In the new memo, Gates also calls for a review to consider how best to ensure visibility of National Guard and Reserve equipment and funding.

The document, sent to a large group of Pentagon and service leaders, asks them to “complete the work done by the Commission and ensure that the Commission's efforts result in lasting improvements to our national security.”

Last month, Gates signed a new DOD directive -- first reported right here -- that changed official Pentagon policy to say the reserve components “provide operational capabilities and strategic depth to meet U.S. defense requirements across the full spectrum of conflict,” and that active and reserve components “are integrated as a total force based on the attributes of the particular component and individual competencies.”

Arnold Punaro, chair of the Commission on the National Guard and Reserves, told ITA earlier this month that the document was “one of the most significant documents in the Pentagon in a long, long time.”

We'll have more on the Gates memo shortly.

-- Marjorie Censer

By
November 25, 2008 at 5:00 AM

Politico reports Defense Secretary Robert Gates has agreed to stick at the Pentagon, where he will be part of an Obama national security team that includes Sen. Hillary Clinton at State and retired Gen. James Jones as national security adviser.

More:

Democrats familiar with the national-security event early next week said they also expect James B. Steinberg, who was deputy national security adviser in the Clinton administration, to be named deputy secretary of State; Susan Rice, Obama’s senior foreign policy adviser on the campaign, to be named U.S. ambassador to the United Nations; and retired Navy Admiral Dennis C. Blair, the former commander-in-chief of the U.S. Pacific Command and a veteran of the NSC, Central Intelligence Agency and Joint Chiefs of Staff, to be named the director of national intelligence.

Tom Donilon, an assistant secretary of state for public affairs and chief of staff at the U.S. Department of State during the Clinton administration, is a leading candidate to be Jones’ deputy at the NSC, officials said.

-- Dan Dupont

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November 24, 2008 at 5:00 AM

Air Force Secretary Michael Donley and Chief of Staff Gen. Norton Schwartz are scheduled to meet with a senior member of President-elect Barack Obama's transition team today.

The meeting between the Air Force's top two officials and Michèle Flournoy will serve as an introduction and an opportunity for the service to initially present some of its big issues, according to an Air Force official. Those issues will be discussed in further detail when service officials hold formal briefings with the transition team in the coming weeks.

Transition team officials met with several senior Pentagon officials from other services last week; however, Donley and Schwartz were not in Washington.

The incoming administration will face some major Air Force-related decisions immediately upon taking office in January. At the top of that list is deciding whether to continue Lockheed Martin F-22A Raptor and Boeing C-17 Globemaster III production.

-- Marcus Weisgerber

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November 21, 2008 at 5:00 AM

Norway yesterday announced the Joint Strike Fighter will replace its F-16s, passing over the Saab Gripen fighter, a procurement that could net JSF prime contractor Lockheed Martin orders for up to 48 aircraft, which Myles Walton, an investment research analyst with Oppenheimer & Co., estimates could be worth $8.5 billion.

In a statement, the Norwegian Ministry of Defence said:

The JSF is the only candidate which fulfills all the operational requirements specified by the Norwegian Government and is furthermore offered at a lower price than the Gripen NG. The selection of the Joint Strike Fighter rests upon a clear recommendation from Project Future Combat Aircraft Capability. External auditors have concluded that the evaluation has been carried out in a professional and ethically sound manor. 

Anne-Grete Strøm-Erichsen, the defence minister, said in the statement that she expects Norwegian industry to play a key part in JSF production.

An investment of this magnitude offers substantial opportunities for Norwegian industry. Throughout the process, the Government has communicated clearly to the candidates the significance of securing industrial opportunities, and the results of that focus is clearly evident today.

-- Jason Sherman