The Insider

Making Waves
By Lee Hudson
July 31, 2014 at 5:32 PM

Rear Adm. Jon Hill has assumed command of program executive office integrated warfare systems at Naval Sea Systems command, according to a July 31 NAVSEA statement.

Hill's previous position was cruiser and destroy combat systems director in PEO IWS. He has also served as major program manager for Aegis Combat Systems and Aegis Ballistic Missile Defense technical director in the Missile Defense Agency.

Hill relieved Rear Adm. Joseph Horn as PEO IWS during a change of command ceremony on July 18. Horn retired after 34 years of Navy service.

S&T Priorities
By John Liang
July 30, 2014 at 3:41 PM

The Office of Management and Budget recently issued a memo outlining "the administration's multi-agency science and technology priorities for formulating [fiscal year] 2016 Budget submissions."

Among those priorities are:

Advanced manufacturing and industries of the future. The Administration is committed to revitalizing America's manufacturing sector, which will require innovation in the products that are manufactured and the manufacturing systems themselves. Agencies should give priority to those programs that advance the state of the art in manufacturing, with particular emphasis on government-industry-university partnerships and enabling technologies for industries of the future (such as nanotechnology, robotics, materials development, and cyber-physical systems) that benefit multiple sectors, as described in the National Strategic Plan for Advanced Manufacturing. . . .

National and homeland security. National and Homeland Security and Intelligence mission agencies should invest in science and technology to meet the threats of the future and develop innovative new security capabilities. In order to provide cutting-edge capabilities to meet current and future mission requirements, national security agencies need to support a balanced portfolio of basic and applied research and advanced technology development. In particular, priority should be given to investments to develop capabilities in hypersonics, countering weapons of mass destruction, accelerated training techniques, and handling large data sets for national-security mission requirements.

OMB also encourages federal agencies "to identify and pursue clearly defined 'Grand Challenges' -- ambitious goals that require advances in science, technology and innovation to achieve -- and to support high-risk, high-return research."

In the past year, the Defense Advanced Research Projects Agency launched a "Cyber Grand Challenge" program to explore how to significantly improve defenses in cyberspace through automation, InsideDefense.com reported in January. Additionally:

Through one agency program, DARPA officials are examining ways to prevent people from being the weak link in the security chain. Eliminating the need to remember complex passwords, for example, might preclude users from scribbling them on notes vulnerable to prying eyes. The goal is to improve user authentication without further burdening users, and one solution could involve systems that can recognize typing patterns and use them to conduct continuous authentication once a person has accessed a system.

Special Ops Doctrine
By John Liang
July 29, 2014 at 3:14 PM

The Defense Department recently issued an updated joint doctrine document on special operations.

Among the changes, the new doctrine document:

* Expands the discussion of special operations joint task force, to include the addition of a vignette and a definition.

* Clarifies and defines preparation of the environment, operational preparation of the environment, and advance force operations.

* Revises special operations activities.

* Defines and discusses counter threat finance.

* Modifies doctrine in regard to command and control of special operations forces.

* Expands discussion of intelligence support to special operations.

* Adds sections on civil affairs operations, countering weapons of mass destruction, military working dogs, and engineer support.

Inside the Pentagon reported last week about Senate appropriators' concern that U.S. Special Operations Command does not fully understand its intelligence, surveillance and reconnaissance needs. The lawmakers are calling for a review of manned ISR aircraft requirements to support special operations forces:

In a report accompanying their fiscal year 2015 defense spending bill, Senate Appropriations Committee members said they agreed with their authorization colleagues that a review for platform requirements for manned ISR is needed. Senate appropriators also called for a $5.4 million reduction to the Pentagon's $40.5 million request to modify MC-12 aircraft that are being transferred from the Air Force to SOCOM.

"The committee is concerned with SOCOM's continuing changes to its requirements for manned ISR aircraft," according to the report approved by the panel last week. "The incremental changes to the manned ISR fleet, including the proposed divestiture of recently upgraded aircraft, seems to indicate that SOCOM does not understand its long-term ISR requirements."

Launched
By Courtney Albon
July 29, 2014 at 2:30 PM

After being postponed three times due to ground system errors and bad weather, Air Force Space Command-4 launched on July 28 from Cape Canaveral Air Force Station, FL.

The Delta IV carrying AFSPC-4's three space situational awareness satellites lifted off at 7:28 p.m., and was the United Launch Alliance's eighth launch in 2014. The mission included two Geosynchronous Space Situational Awareness Program satellites, which will be used by U.S. Strategic Command to monitor geosynchronous orbit for potentially nefarious space capabilities.

The third satellite is part of the Air Force Research Laboratory's Automated Navigation and Guidance Experiment for Local Space. ANGELS will conduct space situational awareness maneuvers and its mission is largely classified.

The Air Force and ULA are now preparing for their next launch -- a Global Positioning System satellite, GPS IIF-7, which is set to lift off Friday evening.

Third AFSPC-4 Delay
By Courtney Albon
July 28, 2014 at 4:44 PM

An Air Force mission to launch three Space Situational Awareness satellites was scrubbed for the third time on Friday due to adverse weather conditions. The additional schedule change will impact the launch of a Global Positioning System satellite that was to launch on Tuesday.

The Air Force Space Command 4 (AFSPC-4) launch was rescheduled for 6:43 p.m. today from Cape Canaveral Air Force Station, FL. The GPS IIF satellite slated to launch July 31 will now fly on Friday, Aug. 1.

AFSPC-4 will launch three satellites -- two Geosynchronous Space Situational Awareness Program (GSSAP) satellites as well as an experimental SSA satellite that is part of the Air Force Research Laboratory's Automated Navigation and Guidance Experiment for Local Space (ANGELS).

The Unmanned
By John Liang
July 25, 2014 at 8:45 PM

Inside the Air Force's top story today is on the service's losing 96 MQ-1 Predators and MQ-9 Reapers in domestic and overseas operations since 2001. An additional 28 MQ-1s and MQ-9s were destroyed in training or non-combat related exercises in the same time period, according to spokeswoman Jennifer Cassidy. Further:

Addressing the seemingly high rate of MQ-1 and MQ-9 losses, Cassidy said the lifetime mishap rate for remotely piloted aircraft is generally higher than for most manned aircraft, although those rates "compare favorably to the rates seen in those manned aircraft at similar stages in their development and operational use."

In terms of safety, Cassidy said the vast majority of mishaps occur in cleared takeoff or landing zones near airfields or in unpopulated ranges reserved for military training.

Investigations by Air Combat Command have found a number of recent crashes were the result of lost communication signals. In response to that observation, Cassidy pointed to the fact that a so-called "lost link" does not necessarily mean a loss of control.

"RPAs are pre-programmed with mission-specific flight paths in the event that continuous signal is absent," Cassidy said. "Pilots are trained in checklist procedures to re-establish lost links. RPAs also have various fail-safe mechanisms that allow them to loiter or retrace their flight path until links can be re-established.

"This is not a guarantee that lost links will not result in aircraft mishaps, although the presence of pilots in a cockpit does not serve as a guarantee against the risks posed by a potential loss of connectivity with terrestrial and space-based navigation and air traffic control systems, either," she continued. "But pilot procedures and aircraft fail-safes, based upon safety review boards and hundreds of thousands of flying hour data, make the risks associated with lost links manageable for RPAs."

ITAF reported earlier this month that more than one Air National Guard unit has been having difficulty securing enough MQ-9 training spaces for its future pilots and sensor operators, and even when they are trained, those personnel will need to work from existing remotely piloted aircraft control locations to stay current on the weapon system -- at least until the wing's RPA group declares initial operational capability in the third quarter of fiscal year 2016. Further:

The same challenges are faced by the 132nd Fighter Wing of the Iowa Air National Guard, which gave up its squadron of F-16 fighter jets for the MQ-9 mission in accordance with the Air Force's 2013 Total Force Plan, which is separate from the force structure changes the Air Force is proposing to make in fiscal year 2015.

For many existing Guard operators of the legacy MQ-1 Predator, such as the 119th Wing of the North Dakota Air National Guard in Fargo, ND, the planned conversion to the MQ-9 platform is on hold until the new units get established and the backlog for training and equipping clears.

Behind the congested transition is the Air Force's desire to retire the Predator platform and transition to an all-Reaper fleet capable of supporting up to 55 combat air patrols (CAPS), or orbits. At the same time it plans to grow the reserve component's share of the RPA enterprise from 17 to 24 percent, according to Air Force leadership.

Launch Scrubbed Again
By Courtney Albon
July 25, 2014 at 3:27 PM

The Air Force has once again delayed the launch of three space situational awareness satellites slated for July 24 until 6:55 p.m. tonight due to multiple weather concerns.

This is the second time the Air Force Space Command-4 launch, originally slated for July 23, has been delayed. The three satellites will fly on a United Launch Alliance Delta IV from Cape Canaveral Air Force Station, FL. A ULA statement issued July 24 says there is a 40 percent chance of favorable weather conditions for tonight's launch.

AFSPC-4 is made up of two Geosynchronous Space Situational Awareness Program (GSSAP) satellites as well as an experimental SSA satellite that is part of the Air Force Research Laboratory's Automated Navigation and Guidance Experiment for Local Space (ANGELS).

As Inside the Air Force reports today:

Gen. William Shelton, head of Air Force Space Command, unveiled the GSSAP mission last winter but has remained relatively tight-lipped about the program's details. He told reporters at the Pentagon this week that part of the motivation for revealing the mission is that the satellites can't serve as a deterrent if no one knows what they are doing.

"It's like posting that sign in your front yard that says, 'I'm part of the neighborhood watch program,'" Shelton said during a July 22 briefing. "You hope that's a deterrent to potential thieves. Same thing in geosynchronous orbit. We hope that people are realizing that this is an electro-optical platform that will take very precise images, that has maneuvering capability to do rendezvous and proximity operations. We hope that people see that as a deterrent to putting things in space that might be nefarious."

Shelton noted, too, that GSSAP is not weaponized in any way. Its mission is focused on satellite imagery. Today, the Air Force tracks objects in GEO by detecting points of light. "We take a picture of the sky and dwell on that part of the sky; things that are moving are satellites, things that are stationary are stars," Shelton said.

-- Courtney Albon

Lawmakers Seek Innovation
By Scott Maucione
July 24, 2014 at 9:02 PM

Two top House authorizers this week called for increased innovation in defense and a move away from the use of legacy systems.

Speaking at the Brookings Institute in Washington, Rep. Jim Langevin (D-RI) and Rep. Randy Forbes (R-VA) said for the United States to continue its global military dominance it must move away from legacy systems.

"The apparatus of the Pentagon is geared to . . . protect our legacy systems -- we are geared to protect the things we've all been trained on for years, we are geared to say 'let's have zero risk and just salute and continue to do things the way they are,'" Forbes said.

Both lawmakers agreed that research and development was one of the most important ways for the United States to stay ahead of its adversaries. "Research and development is something that is always easy to grab and cut because it's normally not just in somebody's backyard. It's kind of floating out there," Forbes said. "I think we have to create a culture at the Pentagon that says we are not going to cut research and development short."

Forbes said Congress must push the Pentagon to conduct more modeling and simulation efforts as well. "I think [modeling and simulation] is a opportunity for us . . . to be able to get a greater utilization in our planning and our capabilities," Forbes said, contending the Pentagon has recently been doing less, not more, in this area.

Forbes also called for a future-looking methodology for testing and evaluation and an emphasis on the Navy's Unmanned Carrier-Launched Airborne Surveillance and Strike platform, an autonomous aircraft capable of precision strike. He said UCLASS will decide the relevance of aircraft carriers 20 years out.

While Forbes and Langevin want the military to rely less on legacy systems, the fiscal year 2015 defense bills passed to date include significant additional funding many of the most prominent. The Senate Appropriations Committee passed a spending bill that increased funding for the Abrams tank by $120 million even though the Army opposed it. Congress has also pushed back against the Air Force's plans to retire the aging A-10 Warthog.

With sequestration looking likely to return in FY-16, the administration faces tough decisions on which programs to cut to stay under the budget cap mandated by the Budget Control Act of 2011.

As for new technologies that have already been developed, Langevin said he wants to make sure DOD uses them. "The capability [of new weapons] may be there, but I sense a real reluctance on the part of the Pentagon to incorporate it because there hasn't been a policy decision on how to use it," Langevin said, pointing to microwave technology as an example.

MEADS Demo
By John Liang
July 24, 2014 at 8:48 PM

The Medium Extended Air Defense System recently completed a system demonstration at an Italian air base near Rome, contractor Lockheed Martin announced today.

"The two-week test demonstration included significant first-time events that were observed by several national delegations," the statement reads, adding:

The tests, including operational demonstrations run by German and Italian military personnel, were designed to seamlessly add and subtract system elements under representative combat conditions, and to blend MEADS with other systems in a larger system architecture:

* Using plug-and-fight (the military equivalent of plug-and-play that enables automatic integration of disparate system elements into a single super-system), MEADS demonstrated its ability to rapidly attach and control an external Italian deployable air defense radar. As a fully integrated asset in the MEADS network, the radar tracked air objects and supplied a common integrated air picture of the area around Pratica di Mare. MEADS operators were able to rapidly recognize, incorporate, control, remove, reallocate and reposition launchers and sensors during engagement operations.

* Using an external sensor and track data provided via the Link 16 data-exchange network, MEADS engaged a simulated cruise missile and other threats simultaneously. This demonstrated MEADS' engage-on-remote flexibility, which allows operators to target threats at greater distances despite being masked by terrain.

* Using the MEADS netted and distributed network architecture, the system automatically selected the best launcher for target engagement and demonstrated control of engagement operations from each battle manager. This proved that by reassigning workload, MEADS can maintain defense capabilities if any system element is lost or fails.

* Interoperability with German and Italian air defense assets was demonstrated through exchange of standardized NATO messages. Key Italian air-defense assets were integrated into a test bed at an Italian national facility, while the Surface to Air Missile Operations Centre and Patriot assets were integrated into a test bed at the German Air Force Air Defense Center in Fort Bliss, Texas. MEADS further demonstrated capability to perform engagement coordination with other systems, which no fielded system is able to do.

While Italy and Germany are keen on MEADS, Poland is less so.

Poland earlier this month selected offerings from Raytheon and the Eurosam consortium of Thales and MBDA to remain in its competition for a new air and missile defense system, ousting MEADS as well as Israel's David's Sling from further consideration. As InsideDefense.com reported:

"We are disappointed, but we remain committed to not only our team, MEADS International . . . but we remain committed to our offer," Marty Coyne, Lockheed air and missile defense business development director, told Inside the Pentagon on July 9. "So should the criteria change again and allow us to compete, we really look forward to that opportunity."

Lockheed spearheads a tri-national effort between the United States, Germany and Italy to develop MEADS -- a new air and missile defense asset. The U.S. decided not procure the system but agreed to finish a two-year proof-of-concept phase with the other countries that culminated in a successful test against simultaneous threats in November.

Because of rising tensions between neighboring Ukraine and Russia, Poland decided to accelerate its competition to acquire a new air and missile defense system earlier this year. Additionally, according to an industry official who requested anonymity due to the sensitivity of the international competition, the country surprised the offerors earlier this month when it changed the criteria guiding its selection process.

While Poland had defined its priorities for a new system as something modern, highly-mobile and would include opportunities for Polish industry partnership in development, the country changed the criteria asking for a system that is currently operational and already fielded in the inventory of a NATO country. By virtue of the newly defined criteria, the official said, MEADS could no longer participate in the competition since it is not yet fielded by a NATO country.

NIST vs NSA
By John Liang
July 24, 2014 at 3:39 PM

The House has approved legislation to reauthorize the functions of the National Institute of Standards and Technology that strips the National Security Agency from the list of agencies consulted in developing information system standards, Inside Cybersecurity reports today:

The move is another example of the fallout from the Snowden leaks and revelations about NSA cyber spying. The proposal, if approved by the Senate, would have implications for future NIST processes in developing data-security standards.

The House on Tuesday approved by voice vote H.R. 5035 to grant a one-year reauthorization for NIST funding and activities. Section 12 of the bill would modify existing law by eliminating NSA from the consultation process that NIST must follow in developing information system standards. The bill would preserve the requirement that NIST consult with the White House Office of Management and Budget and the Energy and Defense departments.

NIST has been a key player in the Obama administration's efforts on cybersecurity, having managed the drafting of a framework of voluntary standards for industry released in February. Those standards are slated for updates which would have to follow the revised consultation process if approved by the full Congress.

Launch Scrubbed
By Courtney Albon
July 23, 2014 at 9:41 PM

The Air Force Space Command-4 launch slated for 7:03 p.m. today has been scrubbed due to problems with the ground support equipment environmental control system that supports the launch vehicle.

The launch has been rescheduled for 6:59 p.m. July 24, according to a statement from the United Launch Alliance.

AFSPC-4 will fly on a Delta IV launch vehicle, built by ULA, and will carry three payloads. Two of those payloads are previously classified Geosynchronous Space Situational Awareness Program satellites tasked with providing images of other space vehicles residing in GEO. The third satellite, also highly classified, is part of the Automated Navigation and Guidance Experiment for Local Space, and is designed to provide data on space maneuvering.

Army Chief In Aspen
By John Liang
July 23, 2014 at 4:21 PM

Army Chief of Staff Gen. Ray Odierno will speak tonight at the Aspen Security Forum in Colorado. According to an Aspen Institute announcement:

The Chief of Staff surveys the foreboding global scene and explains how the Army can rise to meet the threats facing us, despite fewer troops and less money.

To view the general's speech live on YouTube tonight, click here.

Odierno recently had a hand in establishing a new "Force 2025 and Beyond" directorate within the Army's Training and Doctrine Command, with the aim of guiding soldiers and industry through the service's future modernization strategy and mitigating risk as its forces draw down.

Maj. Gen William Hix, deputy director of the Army Capabilities Integration Center, told Inside the Army earlier this month that the ARCIC officially established the directorate June 30 at Ft. Eustis, VA, after receiving guidance from Odierno and Army Secretary John McHugh. As ITA reported last week:

"Effecting change in the Army over a 20 plus year time horizon -- we're not going to get a single point of guidance," Hix said in a July 8 interview. "That guidance I'm sure will evolve because our understanding of the future will continue to evolve. We're in the anticipation business, not the prediction business, so things are going to continue to change."

The directorate, which will be led by Col. Gary Brito, intends to address near-term challenges from now until 2020 as the force draws down; challenges in the decade of 2020 to 2030; and any issues that may arise after 2030, Hix said.

"The fact that we're going to work against three time horizons -- the near, mid and far term. . . the change that we need to make in each of those time frames is still something that's being addressed as we speak," he explained. "Final codification in terms of written directives is something that's still being worked as the chief and secretary refine their thinking on it."

Last month, ARCIC director Lt. Gen. Keith Walker told ITA that he and other Army leaders "generally talk to the chief of staff about once a month on the development of force 2025 and beyond," and are also working to finish the Army's new operating concept, which will focus on how the service will operate from 2020 to 2040. The concept is expected to be published in the next few weeks.

Iron Dome Money (Updated)
By John Liang
July 23, 2014 at 12:00 PM

Senate Appropriations Committee Chairwoman Barbara Mikulski (D-MD) plans to introduce a "Senate Emergency Supplemental Funding bill" today that will include money to accelerate the U.S.-Israeli Iron Dome program.

According to a statement issued by her office late yesterday:

This bill also provides $225 million to accelerate production for Israel's Iron Dome anti-missile defense system. Hamas has launched more than 2,000 missiles at Israel from Gaza in the current conflict. The Iron Dome has saved lives by intercepting 90 percent of these rockets. Israel is an essential American ally and needs these assets to defend itself.

Senate appropriators last week recommended $621.6 million for Israeli missile defense programs in their fiscal year 2015 defense spending bill, which includes $351 million for Iron Dome.

A committee spokesman did not answer by press time whether the funding in today's bill is above and beyond the $351 million or whether the $225 million would be taken out of the appropriations bill when it is debated by the full Senate.

(UPDATE 11:41 a.m.: In a letter sent yesterday to the congressional leadership, Defense Secretary Chuck Hagel asked lawmakers for an additional $225 million in U.S. funding for the Iron Dome program "to accelerate production of Iron Dome components in Israel in order to maintain adequate stockpiles.")

Space Sales
By John Liang
July 22, 2014 at 9:42 PM

Lockheed Martin's Space Systems business unit reported this week that net sales for the second quarter of 2014 had decreased by $239 million, or 11 percent, compared to the same quarter last year. "The decrease was primarily attributable to lower net sales of about $205 million for government satellite programs due to lower volume (primarily Advanced Extremely High Frequency and Mobile User Objective System (MUOS))," the company's July 22 earnings statement reads, adding:

Space Systems' operating profit for the second quarter of 2014 decreased $28 million, or 10 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $30 million for government satellite programs due to lower risk retirements and volume (primarily Space Based Infrared System and MUOS). The decrease was partially offset by higher operating profit of about $10 million due to higher equity earnings and other program activities. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $25 million lower for the second quarter of 2014 compared to the same period in 2013.

Overall, Lockheed Martin reported second-quarter net sales of $11.3 billion, compared to $11.4 billion the same period the year before, according to the statement. The company's net earnings for the quarter increased 3 percent to $889 million, compared to the previous year. Cash from operations in the second quarter increased by $354 million compared to the same quarter last year.

As for the company's other business units:

Aeronautics

Aeronautics' net sales for the second quarter of 2014 increased $448 million, or 13 percent, compared to the same period in 2013. The increase was primarily attributable to higher net sales of about $210 million for F-35 production contracts due to increased volume; approximately $85 million for the F-35 development contract due to an adjustment recorded during the second quarter of 2013 to reflect the inception-to-date impact of the downward revision to the profit booking rate that was not repeated in 2014; about $75 million for the C-130 program due to increased aircraft deliveries (six aircraft delivered in the second quarter of 2014 compared to five delivered during the same period in 2013) and aircraft contract mix, partially offset by decreased sustainment activities; approximately $45 million for the C-5 program due to increased aircraft deliveries (two aircraft delivered in the second quarter of 2014 compared to one delivered during the same period in 2013), partially offset by decreased support and spares activities; and approximately $40 million for the F-22 program due to increased risk retirements and volume. Net sales for the F-16 program were comparable as aircraft contract mix was offset by increased sustainment activities.

Aeronautics' operating profit for the second quarter of 2014 increased $46 million, or 11 percent, compared to the same period in 2013. The increase was primarily attributable to higher operating profit of about $35 million for the F-22 program due to increased risk retirements; approximately $25 million for the C-130 program due primarily to aircraft contract mix; and about $85 million for the F-35 development contract due to the adjustment mentioned above recorded during the second quarter of 2013. The increases were partially offset by lower operating profit of approximately $80 million for the F-16 program due to decreased risk retirements and aircraft contract mix; and about $15 million for various other programs due to lower risk retirements. Operating profit was comparable for F-35 production contracts, as increased volume was offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, for the second quarter of 2014 were comparable to the same period in 2013. . . .

Information Systems and Global Solutions

IS&GS' net sales for the second quarter of 2014 decreased $160 million, or 8 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $175 million due to the wind-down or completion of certain programs (primarily command and control programs); and about $150 million due to a decline in volume for various programs, which reflects lower funding levels and programs impacted by in-theater force reductions (such as Persistent Threat Detection System). The decreases were partially offset by higher net sales of about $165 million due to the start-up of new programs, growth in recently awarded programs and integration of recently acquired companies.

IS&GS' operating profit for the second quarter of 2014 decreased $19 million, or 10 percent, compared to the same period in 2013. The decrease was primarily attributable to the activities mentioned above for sales. Adjustments not related to volume, including net profit booking rate adjustments, for the second quarter of 2014 were comparable to the same period in 2013. . . .

Missiles and Fire Control

MFC's net sales for the second quarter of 2014 decreased $152 million, or 7 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $125 million for various technical services programs due to lower volume; and approximately $125 million for tactical missiles programs due to fewer deliveries (including High Mobility Artillery Rocket System). These decreases were partially offset by higher net sales of about $55 million for fire control programs (primarily Apache due to increased deliveries and Special Operations Forces Contractor Logistical Support Services due to higher volume); and approximately $25 million for air and missile defense programs (primarily Terminal High-Altitude Area Defense due to higher volume, partially offset by Patriot Advanced Capability-3 due to fewer deliveries).

MFC's operating profit for the second quarter of 2014 decreased $36 million, or 9 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $35 million for tactical missile programs due to fewer deliveries and net warranty reserve adjustments for various programs (including Joint Air-to-Surface Standoff Missile and Guided Multiple Launch Rocket System). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $35 million lower for the second quarter of 2014 compared to the same period in 2013. . . .

Mission Systems and Training

MST's net sales for the second quarter of 2014 were comparable to the same period in 2013. Net sales increased approximately $50 million for integrated warfare systems and sensors programs primarily due to increased deliveries for radar programs and increased volume and risk retirements for the Aegis program. The increase was offset by lower net sales of approximately $30 million for the settlements of contract cost matters on certain programs during the second quarter of 2013 (including a portion of the terminated presidential helicopter program) that were not repeated in 2014; and about $15 million for various other programs due to lower volume.

MST's operating profit for the second quarter of 2014 decreased $90 million, or 33 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $75 million due to the settlements of contract cost matters on certain programs during the second quarter of 2013 (including a portion of the terminated presidential helicopter program) that were not repeated in 2014; and about $50 million for reserves recorded on certain training and logistics solutions programs. The decreases were partially offset by higher operating profit of about $30 million due to increased risk retirements on MH-60 and combat systems programs. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $80 million lower for the second quarter of 2014 compared to the same period in 2013.

Industrial Capabilities
By John Liang
July 22, 2014 at 12:00 PM

The Defense Department recently issued an instruction that "updates the policy and responsibilities for assessing defense industrial capabilities."

DOD wants to "ensure that the industrial capabilities needed to meet current and future national security requirements are available and affordable," according to the July 18 document.

The memo, signed by Pentagon acquisition chief Frank Kendall, provides guidelines for DOD managers to determine:

(1) Whether a specific industrial capability is required to meet DoD needs, relies on specific characteristics that make it more efficient to sustain than to reconstitute later, and is truly endangered; and, if so,

(2) What, if any, action the DoD should take to ensure the continued availability of the capability.

It also gives guidance on setting up "appropriate uses of industrial base data to enable expanded data sharing and effective decision making across the DOD."

By law, Kendall's office is required to send Congress an annual industrial capabilities report, the most recent of which was submitted last October. As Inside the Pentagon reported at the time:

In the department's 2012 annual industrial capabilities report sent to Congress Oct. 18, Kendall states that decreased acquisition spending due to budget cuts and sequestration will negatively impact the industrial base, potentially leading to the loss of vital national security capabilities.

Because DOD cannot simply increase procurement spending to preserve these capabilities, defense officials are weighing a number of options, the report states. The best chances to help companies are a block production model or a hedging approach, "which produces a highly capable system with a high-technology operational advantage against current or near-term threat[s] and forms a basis to build out larger production runs, if necessary, while preserving critical human, manufacturing and technical capabilities," according to Kendall.

Under this hedging strategy, the "cutting edge of the industrial base" can remain focused on advanced technologies, Kendall states, noting that it also leaves the government in a better position to deal with unexpected threats. He points to earlier downturns in which defense leaders made difficult decisions to invest in technologies that helped lead to the Abrams tank and the F-16 aircraft.

"DOD recognizes that only a small fraction of our enormous industrial base capabilities are truly at risk (fragile) and, therefore, in danger of disappearing without dedicated efforts to sustain them," the report states. "Even in these cases, when properly identified and vetted, DOD may choose to invest in the next generation of technology or, in some cases, simply be forced to accept the disappearance of a certain skill or capabilities if assured suitable alternatives are available."