The Insider

Veto Threat
By Christopher J. Castelli
June 28, 2012 at 8:18 PM

The White House strongly opposes House passage of H.R. 5856, the House's fiscal year 2013 defense appropriations bill, according to a statement of administration policy issued today.

"If the president were presented with H.R. 5856, his senior advisers would recommend that he veto the bill," according to the statement. By adding unrequested funding for defense, lawmakers have crafted a bill that would require "significant and harmful cuts to critical national priorities such as education, research and development, job training and health care," the statement notes.

The legislation also "undermines key investments in high-priority programs," impeding the ability of the defense secretary to carry out the Defense Strategic Guidance issued earlier this year, and hindering the ability of the U.S. military to carry out missions consistent with the new strategy, the White House writes.

Additionally, the statement complains about proposed limitations on the retirement of aircraft, as well as cuts to the Medium Extended Air Defense System, the MQ-8 Fire Scout drone and the Defense Acquisition Workforce Development Fund, among other priorities.

New Army G-8
By Jen Judson
June 28, 2012 at 6:29 PM

The president has picked Army Maj. Gen. James Barclay to become the service's new programming chief, according to a Defense Department statement issued today. Barclay is in line for a third star if his nomination is approved by the Senate.

The Army G-8 deputy chief of staff position has been vacant since Lt. Gen. Robert Lennox left the job earlier this year, when he took over as chief of the Pentagon's cost assessment and program evaluation office.

Barclay is the assistant deputy chief of staff of the Army's G-3/5/7 branch.

GAO On NNSA
By John Liang
June 28, 2012 at 4:34 PM

The agency responsible for managing the U.S. nuclear weapons complex still has lots of room for improvement, according to the Government Accountability Office.

In prepared testimony for a House Armed Services strategic forces subcommittee hearing held yesterday, GAO had this to say about the National Nuclear Security Administration:

NNSA has made considerable progress resolving some of its long-standing management deficiencies, but significant improvement is still needed especially in NNSA's management of its major projects and contracts. GAO reported in June 2004 that NNSA has better delineated lines of authority and has improved communication between its headquarters and site offices. In addition, NNSA's establishment of an effective headquarters security organization has made significant progress resolving many of the security weaknesses GAO has identified. Nevertheless, NNSA continues to experience major cost and schedule overruns on its projects, such as research and production facilities and nuclear weapons refurbishments, principally because of ineffective oversight and poor contractor management. In some areas, NNSA can be viewed as a success. Importantly, NNSA has continued to ensure that the nuclear weapons stockpile remains safe and reliable in the absence of underground nuclear testing. At the same time, NNSA's struggles in defining itself as a separately organized agency within DOE, and the considerable management problems that remain have led to calls in Congress and other organizations to increase NNSA's independence from DOE. However, senior DOE and NNSA officials have committed to continuing reform, and DOE’s and NNSA's efforts have led to some management improvements. As a result, GAO continues to believe, as it concluded in its January 2007 report, that drastic organizational change to increase independence is unnecessary and questions whether such change would solve the agency's remaining management problems.

Sequestration Request
By Christopher J. Castelli
June 27, 2012 at 8:35 PM

House Armed Services Committee Chairman Buck McKeon (R-CA) has issued a formal request for acting Office of Management and Budget chief Jeffrey Zeints to testify on July 18 about the mechanics and impact of automatic defense cuts known as “sequestration.”

In a letter issued today, McKeon writes that the House has acted to resolve sequestration through the reconciliation process. “Given the apparent impasse, it is appropriate to provide information to members of Congress, industry, and the public about the administration's interpretation of the law and how sequestration would be implemented mechanically," he writes. "At a minimum, this information is critical for planning, and perhaps the additional insight into the realities of sequestration will incentivize all parties to offer alternative deficit reduction plans. I was pleased to note the statement by your spokesperson earlier this week that indicated your staff was conducting the analysis necessary to implant sequester if need be."

The committee has also invited representatives from the defense industry as well as senior defense officials to participate in the hearing.

Stalled
By Gabe Starosta
June 27, 2012 at 3:46 PM

Seven months after Rolls-Royce and General Electric stopped self-funding the Joint Strike Fighter's second engine -- and more than a year after the Defense Department issued the contractors a stop-work order on the F136 engine -- termination proceedings are still not complete, Rolls-Royce officials said today.

The GE-Rolls-Royce team developing the F136 engine formally ended its work at the end of calendar year 2011. At that point, it was unclear where F136-related property, such as spare and test engines, would end up. At a media briefing today, Tom Hartmann, Rolls-Royce's senior vice president of U.S. government programs, said the status of those items remains undecided.

“We are currently in the termination process for the F136 with the U.S. government, and so it is premature to say how that worked out until that process is complete,” Hartmann said. “There's a legal time frame -- I think we have up to a year -- to complete that work.”

The parts developed under the F136 program are property of the Defense Department, so the two companies are awaiting direction on the final disposition of those items, Hartmann said. Rolls spokesman George McLaren added that the parts have remained where they were at the time the F136 team received its termination notice -- namely, at a Rolls-Royce facility in Indianapolis, a General Electric facility in Evendale, OH, in the possession of some suppliers, and possibly at some government sites.

DOD issued the GE-Rolls team a stop-work order on the F136 on March 24, 2011. The companies then self-funded development on the motor until early December, at which point they announced plans to wind down the program at the end of the year.

TRANSCOM Strategy
By John Liang
June 27, 2012 at 12:01 PM

A U.S. Transportation Command "cross-directorate team" is scheduled to complete work on a new command strategy by the end of July. According to excerpts from a June 20 command statement:

Representatives from across the command as well as peers from components and subordinate commands have worked to establish a framework for the plan.

The group began by assessing the current and future strategic environment and then analyzed the command's Department of Defense-assigned missions and critical tasks. The team distilled the command's core responsibilities into three strategic priorities:

* Transportation services and enabling capabilities

* transportation-related information

* transportation billing and financial transactions

"This strategic plan will address what we've been hearing from our internal staff and partners from a variety of avenues," said Air Force Gen. William M. Fraser, III, commander, USTRANSCOM. "We are working to show folks that there is a rationale behind what we do, and I will be taking the opportunity in the future to talk with people about how we're knitting together our strategic plan, stakeholder input, and command initiatives."

Air Force Brig. Gen. John Michel, deputy director, strategy, policy, programs and logistics, is leading the cross-stakeholder strategic planning effort on behalf of Gen. Fraser. Brig. Gen. Michel plans to visit partners in the coming weeks to provide a progress report. In addition, he will hold town hall meetings at the end of the month to share information with staff and gather input.

"We are including as many people in this process as possible," said Michel. "We want to be transparent about why the command is moving in a particular direction. The next part of this process involves better aligning ourselves to meet our nation's needs in the coming years and we want to help everyone to be supportive of these efforts." . . .

Next steps will be to define strategic objectives that support and advance the three command priorities and make the related resourcing recommendations. The team will deliver this framework to Fraser on July 31. Implementation of the approved plan will take place this fall.

Early Adopter
By John Liang
June 26, 2012 at 3:20 PM

The Pentagon is prepared to be an "early adopter" of some technologies in ways that other departments cannot be, according to Deputy Defense Secretary Ashton Carter. In an April 16 speech on energy security at the Georgia Institute of Technology, Carter said:

First, there's some areas where we are cost insensitive in a way that the rest of the economy won't and can't be. We're prepared to invest and adopt before the rest of the economy and, sometimes, after we do -- sometimes but not always -- sometimes, that leads to a more economical version of the same product down the line as technology improves, a product that can be adopted and accommodated by the rest of the economy.

In the meantime, we both benefit on our own terms.

Secondly, unlike so many in the economy, we in the Department of Defense take the long view. We're going to be around a long time. Our cost of capital compares extremely favorably to anyone else's in the economy.

We're prepared to make investments that are sure to pay off, but won't pay off for a while, whereas others can't afford to place those kinds of bets as easily. We're prepared to do so. It’s in the national interest. It's in the warfighters' interest. It's in the taxpayers' interest. We can justify it as a larger value and a larger meaning over time to society as a whole.

Covering the Base
By Tony Bertuca
June 25, 2012 at 4:48 PM

Two Ohio lawmakers announced last week that the Marine Corps plans to keep vital vehicle machinery stationed at the Joint Services Manufacturing Center in Lima, OH, thereby abandoning plans to move the gear to a service-run facility and protecting the combat vehicle industrial base.

Sen. Rob Portman (R-OH) and Rep. Mike Turner (R-OH), members of the House and Senate armed services committees, released a statement on June 22 heralding the Marines' decision to maintain their hull machining line located at the Lima plant.

“Following the Obama Administration’s cancellation of the Expeditionary Fighting Vehicle (EFV) Program, the Marine Corps' program manager began reviewing the future use of all EFV-associated equipment procured as part of that program,” the statement reads. “Although there was a preliminary determination to relocate that equipment to a Marine Corps facility, further consideration determined that this was not a time-sensitive decision and the disposition of this equipment will not happen until after the issue can be more thoroughly studied.”

The Marines are also scheduled to conduct a business-case analysis that will allow them to compile a cost/benefit analysis focused on maintaining the defense industrial base, according to the statement.

Portman and Turner have been lobbied hard by General Dynamics, which runs the government-owned and contractor-operated JSMC, to keep the facility's production lines warm in spite of Army plans to pause spending on the Abrams tank, which is built there.

According to the statement, Portman and Turner “worked with the Marine Corps to ensure proper consideration was given” to the matter before a final decision was made to relocate the hull machining line.

“We’d like to thank Senator Portman, Congressman Turner, and the entire Ohio delegation for their constant work on behalf of the Joint Services Manufacturing Center at Lima,” said Keith Deters, the plant manager who JSMC for General Dynamics. “They know that the work done there is important to the defense of this country and helps ensure our manufacturing base remains strong.”

V-22 Meeting
By Christopher J. Castelli
June 22, 2012 at 7:40 PM

Defense Department officials held a "director-level" meeting at the Pentagon this morning with officials from the Japanese defense and foreign-affairs ministries to provide an update on issues related to recent crashes of V-22 Osprey aircraft, Pentagon Press Secretary George Little said in a statement.

The meeting was led by Christopher Johnstone, the Pentagon policy shop's director for Northeast Asia, and Brig. Gen. Terrence O'Shaughnessy, the Joint Staff's deputy director for politico-military affairs for Asia, Little said. The session also included representatives from the Marine Corps and Air Force, who provided updates on the status of the investigations into recent Osprey mishaps, he said. Assistant Secretary of Defense for Asian and Pacific Security Affairs Mark Lippert, who Little said Thursday would participate in the session, did not.

"DOD takes the inquiries made by the Japanese government very seriously and provided relevant information to the extent currently possible, and will continue to do so," Little said. The Marine Corps' plans to base MV-22 Ospreys in Japan are facing potential delays amid increasing concern there about the safety of the aircraft. An Air Force CV-22 Osprey crashed June 13 during a routine training mission at Hurlburt Field's Eglin Range, north of Navarre, FL. "The Osprey is a highly capable aircraft with an excellent operational safety record, which includes more than five years of worldwide deployments and 140,000 flight hours," Little said.

Space Shuffle
By John Liang
June 22, 2012 at 6:08 PM

The Air Force is doing a bit of reshuffling within its senior space and missile defense ranks, according to a just-released Pentagon announcement:

Maj. Gen. Terrence A. Feehan, program executive for programs and integration, Missile Defense Agency, Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, Huntsville, Ala., to vice commander, Space and Missile Systems Center, Air Force Space Command, Los Angeles Air Force Base, Calif.

Brig. Gen. Samuel A. Greaves, who has been selected for the rank of major general, director, strategic plans, programs and analyses, Headquarters Air Force Space Command, Peterson Air Force Base, Colo., to deputy director, Missile Defense Agency, Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, Huntsville, Ala.

Brig. Gen Roger W. Teague, vice commander, Space and Missile Systems Center, Air Force Space Command, Los Angeles Air Force Base, Calif., to director, strategic plans, programs and analyses, Headquarters Air Force Space Command, Peterson Air Force Base, Colo.

Conference Takeaways
By John Liang
June 22, 2012 at 3:06 PM

Credit Suisse analysts attended Bloomberg Government's aerospace and defense conference this week, and this morning issued their thoughts on what they heard:

* Plenty of Rhetoric and Congress Still Lacks Direction: There was clear consensus that sequester has disastrous ramifications ranging from decimation of the defense industry, massive job loss and severe weakening of national security and the economy. But, nobody offered any semblance of a solution. Of course, among the speakers only the congressmen and senators are in any position of real power and they generally pointed figures at one another and stayed to party lines, although there were minor signals that modest compromise could occur down the road. Our sense is that no solution is imminent and this will not be addressed until after the election.

* Lack of Visibility Should Drive Continued Defense Stock Volatility: We expect shares to be pressured through summer and into the election, although there may be support for companies like LMT ahead of its anticipated September dividend hike. While most speakers expect an ultimate deal through compromise on revenues, cost-cutting and entitlements, it appears that such a deal will not materialize until the lame duck and perhaps even calendar Q1'13. Mechanically, we see a CR in place in calendar Q4'12 and there is some risk that Sequester then triggers on Jan 3rd. Our understanding is that such a trigger won't take effect until Feb 13th (CR in place until then), but we suspect eventual compromise on cuts of $250-300B, which is what we believe is currently discounted in the shares. If cuts are limited to $100B as Senator McCain (R-AZ) and Carl Levin (D-MI) hope, we see modest upside vs more severe downside with full sequester.

* Notable Comments: Perhaps Dov Zakheim (former DOD Comptroller) said it best. Sitting on a panel with Democratic and Republican congressmen, Zakheim was frank in saying he does not think that this Congress can cut a deal because it "would've done so already". He added that he expected GDP to decline 0.5% on Sequestration. Marian Blakey (CEO Aerospace Industries Association) quantified potential job loss at 1 million jobs (330k directly from contractors and another 570k associated positions).

Regarding negotiations, Congressman Forbes (R-VA) said it's easy to say "let's put everything on the table", but we [Congress] don't even have a table.

On a positive note, Senator McCain mentioned that an amendment had been tagged onto the Farm bill requiring a report on the effects of sequestration on DOD and the economy by August 15th and said it is irresponsible for the administration not to have done this analysis earlier.

Of course, InsideDefense.com was at the conference as well. Scroll down the Defense:Next blog to view our coverage.

No Plans
By Jordana Mishory
June 21, 2012 at 8:46 PM

The Pentagon is not planning for potential sequestration cuts because it does not want to end up having to face the effects of its plans, a senior defense official said.

During a Bloomberg Government defense conference in Washington today, Assistant Secretary of Defense for Research and Engineering Zachary Lemnios said the department is not planning for potentially hundreds of billions of dollars of cuts from sequestration “because if you do, you sort of end up on that slope. And the secretary has made that point and we’re absolutely clear on that.”

Lemnios said the two chambers of Congress and the administration have to work together to solve the crisis. “It has to happen in that fashion rather than in this glide slope that ends up being a precipice that no body wants to be in,” Lemnios said.

He argued that it would be much more productive to spend the administration’s energy on proposing a solution rather than planning for a set of options that could possibly not happen.

During the session, Rep. Mo Brooks (R-AL) said he was completely puzzled by the Pentagon’s refusal to plan, contending that it was more political in nature than substantive. He said he and his colleagues on the House Armed Services Committee have pressed officials on the issue of what happens when sequestration gets triggered in January. Brooks said the administration responded that the Defense Department was going to start terminating contracts for the convenience of the government or renegotiating them.

“I would encourage the White House to start planning and the Pentagon to be freed from this restraint so that they can start planning, and most importantly so that they will be in a position where they can describe to the public the adverse affects of sequestration, so the public can make perhaps some informed decisions on the election day in November,” Brooks said.

He anticipated seeing massive numbers of industry layoffs due to these cuts.

Brooks laid out some scenarios that could occur to meet the sequestration funding levels: mothballing one or two carrier battle groups; mothballing one or two submarines; or mothballing a significant percentage of the fighter and bomber capabilities.

Lemnios did note that the Pentagon is planning for a future research and engineering portfolio that is more tightly coupled with academia and with industry.

V-22 Briefing
By Christopher J. Castelli
June 21, 2012 at 5:43 PM

The Defense Department will brief Japanese defense officials tomorrow on the status of investigations concerning recent V-22 Osprey crashes, Pentagon Press Secretary George Little told reporters today. Assistant Secretary of Defense for Asian and Pacific Security Affairs Mark Lippert will participate in the briefing, Little said.

The Marine Corps' plans to base MV-22 Ospreys in Japan are facing potential delays amid increasing concern there about the safety of the aircraft. An Air Force CV-22 Osprey crashed June 13 during a routine training mission at Hurlburt Field's Eglin Range, north of Navarre, FL. InsideDefense.com reported last night that the Air Force has removed the commander of the 8th Special Operations Squadron, citing a lack of confidence in his leadership following that crash. The Marine Corps, meanwhile, has been investigating a fatal MV-22 Osprey crash in Morocco on April 11.

Negative Behavior
By Jordana Mishory
June 21, 2012 at 4:02 PM

The threat of sequestration introduces a huge amount of uncertainty for the defense industry, which could lead to negative behaviors, Brett Lambert, the deputy assistant secretary of defense for manufacturing and industrial base policy, said today.

Speaking at a Bloomberg Government defense conference in Washington, Lambert said the industrial base needs certainty to be able to make plans six months, 12 months or 18 months down the road to provide goods and services to the warfighter.

Sequestration, which would cut hundreds of billions of dollars from the Pentagon over the next decade, is slated to begin in January 2013 if lawmakers do not act.

"In the absence of certainty, people will tend to gravitate to the most negative behaviors," Lambert said. He noted that the Budget Control Act of 2011, which set up sequestration as a trigger if Congress failed to create a plan to cut the deficit by at least $1.2 trillion, was pretty clear about how these cuts would affect the Defense Department. Defense officials state they are not creating plans to deal with these cuts.

Marion Blakey, the president and chief executive officer of the Aerospace Industries Association, said these negative, or conservative, behaviors that industry is engaged in consist of holding back on investments or not deploying capital in a way to help the economy. Industry is also not training or hiring, she said.

She noted that observers are beginning to see the "withering" away of both companies and vital capabilities. "You’re also loosing vital capabilities in terms of technology and our ability to advance in ways that will spur our economy," Blakey said.

She said time is running out for Congress to solve the sequestration threat. She said the rational approach would be to directly repeal the law.

Sequestration Blues
By Jordana Mishory
June 21, 2012 at 2:49 PM

Alarm bells continue to ring over the hundreds of billions of dollars in Pentagon cuts that could result from sequestration as several members of Congress today called for the Obama administration to take a larger role in solving the problem and encouraged fellow lawmakers to put everything -- including taxes and entitlements -- on the table.

During a Bloomberg Government defense conference, Rep. Norm Dicks (D-WA), Rep. Randy Forbes (R-VA) and Sen. John McCain (R-AZ) said the White House must take a larger role.

“The idea the administration can sit back and not do anything about this is unacceptable as far as I am concerned,” said Dicks, the ranking member on the House Appropriations Committee.

Forbes, who chairs the House Armed Services readiness subcommittee, said he was shocked by reports that the Pentagon was not planning for the cuts. McCain, the ranking member of the Senate Armed Services Committee, said the president needs to take the lead, and called on the president to start a dialogue with Republican leaders in Congress.

McCain added that he could be open to revenue increases.

Dicks concurred, and said House leaders should set up a bipartisan staff panel to find a way to resolve the sequestration issue before the election, rather than waiting for a lame-duck session afterwards.

Forbes called for the Senate to pass a bill to enable the two houses to deal with sequestration in the conference process. He also said the idea of sequestration should be debated during congressional campaigns this year, as well as the presidential race. He said he hopes it galvanizes the public to demand action.

During the session, former Pentagon comptroller Dov Zakheim said that if lawmakers were able to cut a deal they would have done so already. Zakheim said he does not understand why the White House has been sitting on its hands. He said the lame-duck Congress does not have the incentive to fix the problem of sequestration.

Zakheim recommended lawmakers pass a one-year continuing resolution and force the new Congress to solve the problem next year.