Few Details Released On '12 USAF Procurement

A White House overview of the 2012 defense budget request included a few details about Air Force weapons.
Proposed spending for the Advanced Extremely High Frequency (AEHF) satellites is $975 million, while the total for the F-35 Joint Strike Fighter program is $9.7 billion. Cyber security was budgeted for $2.3 billion, of which the nascent U.S. Cyber Command received $119 million.

The budget request also provides money to sustain the Air Force's arsenal of Minuteman III intercontinental ballistic missiles through 2030, so the bomber force can continue to fly for the "indefinite future."
The Air Force, however, loses two air operations centers in the United States and two in Europe. That money is being plowed back into more urgent priorities.

Proposed U.S. DoD Budget: $670.6B

The Pentagon has proposed a $670.6 billion operating budget for fiscal year 2012, which is more than $38 billion less than it asked Congress for last year, according to federal spending documents released this morning.

The DoD request includes a $553 billion base budget and a $117.6 billion overseas contingency operations portion that would go directly toward the war in Afghanistan. (U.S. Air Force)

The request includes a $553 billion base budget and a $117.6 billion overseas contingency operations portion that would go directly toward fighting in Afghanistan, according to an overview of the proposal posted Feb. 14 on the White House Office of Management and Budget website.

As Defense Secretary Robert Gates announced in January, the budget proposal shifts $100 billion of expected savings over the next five years to "high-priority areas such as the development or purchase of unmanned intelligence, surveillance, and reconnaissance assets; more ships; a new ground combat vehicle; the Advanced Extremely High Frequency satellite; and the stealthy F-35 Joint Strike Fighter," the document said.
The budget proposal includes $113 billion for procurement; $75.3 billion for research, development, test and evaluation (RDT&E); $204.4 billion for operations and maintenance' $13.1 billion for military construction' $142.8 billion for personnel; $1.7 billion for family housing; and $2.7 billion in revolving management funds.
DoD's 2010 budget, which included two war supplemental spending bills, totaled about $693 billion. For 2011, the Pentagon proposed a $708 billion budget, including war funding, but Congress has yet to pass an appropriations measure. Instead, DoD has been operating on a continuing resolution, which is set to expire the first week of March.
The Pentagon's 2012 RDT&E request is about $800 million less than the still-looming 2011 request. Procurements accounts rose slightly over 2011.
This documents released by the White House this morning did not include a service-by-service breakdown.
As previously announced in January, the 2012 request recommends terminating several programs that are "experiencing significant development problems, unsustainable cost growth, or are not suited for today's security challenges," according to the documents. The list includes the Marine Corps Expeditionary Fighting Vehicle, the procurement of the Army Surface Launched Medium Range Air-to-Air Missile air defense system and the Navy's SM-2 Block IIIB surface-to-air missile.
"The capabilities that were to be provided by these niche systems will be largely met through the modernization and upgrade of existing systems at a fraction of the cost," the document said. "The total cost savings that will be realized from these terminations will exceed $13 billion."

Thales Issues 2010 Profit Warning

PARIS - French systems company Thales issued Feb. 14 a profit warning on its 2010 preliminary financial results, which are expected to show an operating loss of nearly 100 million euros ($135 million), due to provisions of more than 700 million euros for program overruns.
"EBIT (earnings before interest and tax) should be close to -100 million euros, due to additional charges and provisions exceeding 700 million euros booked on the contracts and activities mentioned below," according to a company statement.

The fresh provisions come on top of the 500 million euros of charges booked for 2009, making a total of 1.2 billion euros over the two years.
Thales set a target of 5 percent operating profit margin for 2011, rising to 6 percent in 2012. That compared to a net loss of 128 million euros in 2009, and a sharply lower operating profit of 151 million euros from 877 million euros in the previous year.
From 2005 to 2008, Thales's operating profit margin was between 5 and 7 percent, which included a capitalization of a significant amount of its research and development (R&D) spending, senior vice president Patrice Durand.
The present financial reporting excludes R&D from the profit line.
The 700 million euros of provisions included Thales' work on the Meltem Turkish maritime patrol aircraft program, the flight management system (FMS) for the A400M military airlifter, a ticketing contract for Denmark, and the Lorads III air traffic management contract for Singapore, Thales executive chairman Luc Vigneron told journalists.
The provisions were in part made possible by an agreement in principle with the Turkish government reached in September on the Meltem program, which gave Thales a "clear vision of the remaining costs," Vigneron said.
Thales is also in contract negotiations with Airbus in which the systems company hopes to get extra funding for its work on the flight management system for the A400M, Vigneron said. If Thales succeeds in the commercial negotiations, that might allow a claw back of some of the provisions on the A400M. Thales also supplies avionics and cockpit equipment on the A400M.
Vigneron declined to break down the provisions allotted to each of the programs. "This is commercially sensitive information," he said.
Thales engineers had worked intensively last year to clarify the work that needed to be done to deliver the Airbus A400M FMS to specification, he said.
"These recent developments significantly enhance the visibility on the execution conditions of these contracts and allow to remove the main operational uncertainties and better assess the estimates of their cost at completion and associated risks," the company said.
The detailed program analyses led Thales to take a "more prudent vision than we had before," Vigneron said. The programs were ones which dated before 2009 when Vigneron was made executive chairman of the company.
Thales has cut jobs in Australia, Britain and Spain as part of its reorganization, Vigneron said. The figures on the job losses were undisclosed for the time being, and come on top of an announced plan to cut 1,500 posts in France.
Sales for 2010 were forecast to rise two percent to 13.1 billion euros, due mainly to favorable foreign exchange effects, while orders worth 13.1 billion euros were booked, slightly down from 13.93 billion in 2009. Restructuring charges for 2011 were estimated at 1.5 percent of sales, while those for 2012 were forecast at 1 percent.
Net cash for 2010 stood at 191 million euros, up from a negative figure of 91 million a year ago. Free cash flow totaled 271 million euros in 2010.
Vigneron maintain the target for the Probasis restructuring program which was expected to yield 1.3 billion euros of cost cuts by 2014. Cuts in general overheads were ahead of target but the savings from tighter program management, dubbed "non-quality costs," were slower in coming, he said.

U.S. Will Not Field MEADS

The United States can no longer afford to purchase and field the trinational Medium Extended Air Defense System (MEADS), according to the Pentagon.

The United States cannot afford to increase funding for the design and development phase as requested by the NATO MEADS Management Agency, according to a Pentagon fact sheet on the program. (Lockheed Martin)

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DoD has decided to continue the design and development (D&D) phase of the program under the current memorandum of understanding, but after schedule and cost overruns, the United States can no longer afford to fund production of the system, according to a Feb. 11 Pentagon fact sheet on the program.

Managed by NATO, MEADS is being developed for the United States, Italy and Germany. Lockheed Martin leads MEADS International, the industry team developing the system for the three countries.
The United States cannot afford to increase funding for the D&D phase as requested by the NATO MEADS Management Agency, the fact sheet said. Instead, it will provide up to the cost ceiling established in the current memorandum of understanding ($4 billion in 2004 dollars).
Since its conception in the mid-1990s, MEADS has suffered from a number of technical and management problems that have led to delays and cost growth.
MEADS was originally slated for production in 2007. When the countries signed an agreement for the D&D phase in 2004, production was moved to 2014.
This fall, the three countries had to consider whether to approve a restructuring proposal by the NATO MEADS Management Agency, which called for extending design and development by 30 months from the original 110-month program established in 2004. This extension would require at least $974 million of additional U.S. funding. The Pentagon's Cost Assessment and Program Evaluation Office put the figure at $1.16 billion, according to the Pentagon.
Currently, the U.S. funds 58 percent of MEADS, Germany 25 percent and Italy 17 percent.
Under this new plan, U.S. production would not begin until 2018.

Three Options Considered

Due to these changes, the Pentagon considered three options: terminating the program immediately, continuing development within the 2004 funding limits, or adopting the NATO MEADS Management Agency's plan and providing the additional funding.
The Pentagon has selected option two, saying "terminating the program now, just after successful completion of the MEADS Critical Design Review, would force the nations to devote significant funding to contractor termination costs instead of using this funding to bring MEADS development to a viable level of maturity."
With the remaining funding, the Pentagon proposes focusing the remaining activities on a "proof of concept" effort "that will provide a meaningful capability for Germany and Italy and a possible future option for the United States."
MEADS was designed to replace the Patriot systems in the United States and Germany and the Nike Hercules system in Italy. The proof-of-concept D&D program would end by 2014, when the current memorandum of understanding expires.
The Pentagon says this is the best option because it allows the countries to harvest the technologies.
To complete the D&D phase of the program under the 2004 cost limits, the United States will pay roughly $804 million between 2011 and 2013.
"This work would place the D&D program on stable footing should Germany and Italy wish to continue a MEADS development and production effort after the current funding is expended," the Pentagon says. "The same options would be available to the U.S. if its air defense plans should change."
However, the United States cannot afford to both purchase MEADS and make "required" upgrades to Patriot over the next two decades, the Pentagon says.
The Pentagon has already spent $1.5 billion on MEADS. In addition to the $974 million required by the NATO MEADS Management Agency, the Pentagon estimates another $800 million would be needed for U.S.-unique test and evaluation activities.

'Accept Some Risk'

Because of the schedule delays, the United States would not be able to replace Patriot with MEADS when originally envisioned. This means funds would have to be spent on Patriot modernization and MEADS purchases simultaneously, something the Pentagon cannot afford in the "current DoD budget environment," the fact sheet says.
"The U.S. is willing to accept some risk in our air defense portfolio in the near term, not just in MEADS, but in other major acquisition programs (for example, the [Joint Land Attack Cruise Missile Defense Elevated Netted Sensor], which has been scaled back, and [the Surface-Launched Advanced Medium-Range Air-to-Air Missile], which has been canceled) in order to increase investments in new capabilities that our soldiers can use today to counter threats in Forward Operating Bases in Afghanistan, such as capabilities to Counter Rockets, Artillery and Mortars (C-RAM)," the Pentagon fact sheet says.
The Pentagon maintains that the United States can achieve some of MEADS' promised capabilities through its existing missile defense systems.
Until now, the Pentagon's main reason for continuing with the program has been its unique opportunity for trans-Atlantic joint development.
In the DoD fact sheet, the Pentagon says that international cooperative programs are just one way that Europe and the United States can interact in the defense industry arena. They are becoming "increasingly less statistically relevant as trade continues to open on both sides of the Atlantic and global supply chains become more robust," it said.