95 U.S. Programs Show $64B Increase in Costs

The Pentagon is expected to revise its total program cost estimate for the recently restructured F-35 Joint Strike Fighter effort next month, according to a Defense Department information paper.

The F-35 Joint Strike Fighter is one the programs the Pentagon is expected to revise cost estimates for after a review of 95 major acquisitions programs. (CHERIE CULLEN / U.S. DEPARTMENT OF DEFENSE)

This comes as the Pentagon told Congress today that its latest review of 95 major acquisition programs showed $64 billion in increases, or 4 percent, over already projected program price tags. DoD also told lawmakers that three of its programs - Chemical Demilitarization-Assembled Chemical Weapons Alternatives; Expeditionary Fighting Vehicle (EFV); RQ-4 Global Hawk - suffered, so-called, "critical" Nunn-McCurdy breaches.

Four others programs - the C-27J Joint Cargo Aircraft; Increment 1 of the Early-Infantry Brigade Combat Team (E-IBCT); Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System (JLENS); and National Polar-Orbiting Operational Environmental Satellite System (NPOESS) - suffered "significant" breaches.
The majority of the breaches were caused by quantity changes. For instance, the Pentagon canceled the EFV program, so unit costs have soared because DoD will not buy any vehicles but has already invested billions of dollars in research and development. The same is true of the C-27J. The Air Force and Army were supposed to collectively buy 78 aircraft, however, the Army bowed out of the program and the air service only plans to purchase 38. The Army dramatically reduced the buy in the E-IBCT program and the Pentagon canceled the NPOESS program.
Pentagon officials have been aware of issues within the Global Hawk program for awhile. Last year, acquisition officials initiated a major review of the program in June. The Air Force began its own review in December and declared the breach on April 6.
The program's cost growth is primarily due to quantity reduction, spares and sensor depot standup, diminishing manufacturing sources, and ground station and communications system modernization, according to the information paper.
Engineering problems, schedule slips and the addition of new requirements have contributed to the JLENS program breach. The Chemical Demilitarization program breach is attributed to design changes, construction costs and increased staffing and labor costs.
The previous two Selected Acquisition Reports pegged the F-35's total program cost at $328 billion. Since then, some cost estimates have put the program's overall price tag at around $380 billion. Last year, Defense Secretary Robert Gates ordered a major review of the effort, leading the program to slow production and focus on development.
Officials will now develop a new program baseline next month. After that, DoD will prepare an updated Selected Acquisition Report that will "provide higher fidelity unit cost data for the F-35 program," the information paper states.
The Nunn-McCurdy statute requires the Pentagon to notify Congress when a program's cost has risen 15 percent above its original baseline estimate. The statute calls for a program's termination once costs exceed 25 percent of the original estimate unless the defense secretary deems the system essential to national security, there are no alternates that will provide equal or greater capability, new program acquisition costs are reasonable, and the management structure for such a system is adequate to manage and control program costs.
A significant breach occurs at the 15 percent threshold and critical at the 25 percent level.
The Pentagon attributes the other 89 programs' cost increases primarily to a rise in planned quantities.

India Eyes German Help on Sub Upgrade

NEW DELHI - Construction delays to four French-designed submarines have led India to reverse an 11-year-old decision and seek German help to upgrade four older subs.
Estimated to cost about $500 million, the upgrade of the four HDW T-1500-class subs will replace their weapon control systems, data links, torpedoes and missiles. The Indian defense ministry wants the German submarines to be upgraded at Indian facilities with technical assistance from HDW Germany.

The Indian Navy has seen its fleet of usable submarines shrink from 21 in the 1980s to 14 today, while the Chinese sub fleet, including nuclear boats, grows, said a Navy official.
In 2000, when the Navy decided to buy the new Scorpene submarines, it shelved plans to upgrade the T-1500s, which have now been in disrepair for several years.
The French-designed boats, now planned or under licensed production by Mumbai-based Mazagon Docks Limited (MDL), are more than three years behind schedule, a senior defense ministry official said.
Under the $3.9 billion contract signed in 2005 with France, construction of the first three Scorpenes began in December 2006, December 2007 and August 2008. The MDL contract said the six subs were to be delivered annually beginning in December 2012. Instead, the first one is now scheduled for delivery in 2015.
Besides the Scorpene troubles, the Navy is also seeing delays in its $10 billion purchase of air-independent-propulsion submarines, the official said. The world's sub builders are expected to be invited to bid on the job, called Project 75I, in the next three months, the Navy official said.
The T-1500s were built under an $89 million deal signed in 1983. HDW's shipyard in Germany built two of the T-1500s in 56 months apiece; the other two were built under license by MDL, taking 98 months and 116 months respectively.
Later in the decade, New Delhi blacklisted HDW because of alleged bribery in the sub deal. The ban was lifted after an inquest by India's Central Bureau of Investigation ended without resolution.

Russia to Deliver Carrier to India in 2012

NEW DELHI - Russia will deliver the aircraft carrier Admiral Gorshkov to the Indian Navy next year, a Navy official said.

In 2004, Russia signed a deal to refit and deliver the Admiral Gorshkov for $974 million, but the deal was delayed after the Russians subsequently demanded more money. (Alexander Zemlianichenko / AFP)

A team of 150 personnel - technicians, managers and others -from the Indian Navy has already arrived in Russia for training on the 45,000-ton carrier, currently being refitted for Indian needs there.

India is paying Russia $67.5 million for the training, the official said.
The carrier will ultimately be manned by some 1,500 sailors.
In 2004, Russia signed a deal to refit and deliver the Gorshkov for $974 million, but the Russians subsequently demanded more money. The work was delayed until the Indian government finally agreed to pay a total of $2.33 billion, the official said.
The Navy also placed a $526 million order for 16 MiG-29K aircraft, which began arriving last year and are currently on shore at Goa. These aircraft will fly from the carrier, which will be renamed INS Vikramaditya.
India currently operates one carrier, INS Viraat, and is building another, the Air Defense Ship, slated to enter service in 2014.

Italy Will Not Join Libya Bombardments

ROME - Italy insisted April 15 that its fighter jets would not take part in bombardments in Libya, saying that the country was doing enough to support the U.N. resolution to protect civilian lives.
Prime Minister Silvio Berlusconi told members of parliament at a cabinet meeting that Rome was "already doing enough" as part of the international coalition, government sources were cited on ANSA news agency as reporting.

"Bearing in mind our geographical position and colonial past, an engagement that goes beyond our current commitment would not make sense," he said.
Defence Minister Ignazio La Russa also ruled out a change of course for Italy, telling reporters at a press conference after the meeting that Italy had "already done a lot."
"We are not considering altering our contribution to military operations in Libya...we will carry on as we have done up to now. The government is united in thinking this is the correct line for Italy to take," he said.
Berlusconi said Italy's role was to "provide the maximum support with its air bases," seven of which have been put up for use by the coalition.
Italy has also taken part in air raids over Libya but only in order to neutralize Libyan leader Moammar Gadhafi's radar and defense systems.

Indonesia Seeks Offset Barter Over T-50 Jet Buy

SEOUL - Indonesia wants South Korea to buy four more of its locally built CN-235 maritime patrol aircraft in an offset barter deal over Indonesia's purchase of 16 T-50 trainer jets, according to government and industry sources here.
On April 12, the Seoul government announced that it won exclusive rights to negotiate the sale of the T-50 Golden Eagle, co-developed by Korea Aerospace Industries (KAI) and Lockheed Martin of the United States, to Indonesia. The T-50 had competed with Russia's Yak-130 and the Czech-built L-159B.

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Jakarta notified Seoul of a plan to "treat KAI as the de facto preferred bidder" for its advanced trainer acquisition contest, according to a spokesperson for South Korea's presidential office Blue House.
"Both governments agreed in principle to sign a memorandum of understanding on the sale of the T-50 within the next nine months," he said.
In a news conference at the Ministry of National Defense, KAI Chief Executive Officer Kim Hong-kyung said the T-50 would be sold "much cheaper" than its original price tag of $20 million to $25 million.
"We asked our suppliers to lower the costs of manufacturing T-50 spare parts, and based on those efforts, we offered a per-unit price far lower than standard price," Kim said. He hinted that the total value of the trainer deal would be lower than the estimated $400 million, which is based on a per-unit price tag of $25 million.
"The final value of the trainer deal could be decided after negotiations," said Kim, expressing hope to conclude a final agreement within two months.
"Through negotiations, both sides will discuss a wide range of issues, such as the price, delivery timing, ground-based training equipment and systems, integrated logistics support and replacement parts," Kim noted.
Once a final contract is signed, the first delivery of T-50s will be made in 2013, he added.
The T-50 was defeated in competitions in the United Arab Emirates (UAE) and Singapore, where both countries selected Italy's M-346 trainer.
The single-engine T-50 features digital flight controls and a modern, ground-based training system. It is designed to have the maneuverability, endurance and systems to prepare pilots to fly next-generation fighters, such as the Eurofighter Typhoon, the F-22 Raptor, the Rafale and the F-35 Joint Strike Fighter. The jet has a top speed of Mach 1.4 and an operational range of 1,851 kilometers.
Other potential customers include the United States, Israel, Greece and Poland.
According to industry sources, Jakarta requested that Seoul purchase four CN-235 aircraft built by PT Dirgantara Indonesia (PT DI) in return for buying T-50s. The per-unit price of the CN-235 is known to be around $25 million. Seoul purchased four of the aircraft in 2008.
Indonesia also asked South Korea to write off $10 million in penalties over the former's delayed delivery of CN-235 planes under the 2008 deal that was worth $100 million. The first batch of two of the four planes had been scheduled to be delivered to the Korea Coast Guard in December and the remainder in April.
PT DI sent a document to the Coast Guard recently, saying delivery would be delayed for production problems, Coast Guard spokesman Koh Jae-young said.
In addition, Indonesia demands South Korea pay for the costs of integrated logistics support, according to sources.
"Indonesia is expected to offer to locally produce some of the 16 T-50s to be ordered, should a contract be signed," a source said. "How many aircraft Indonesia wants to produce locally could be a contentious issue during negotiations."
Seoul and Jakarta had a similar barter trade deal in 2001 when South Korea bought eight CN-235 transport planes in return for selling 12 KT-1 Woongbi basic trainers.
The CN-235 is a medium-range twin-turboprop airplane, jointly developed by Spain's CASA and PT DI, formerly known as IPTN. The plane is used for VIP transport, maritime patrols, airlifts and troop carrying.
South Korea has 20 CN-235s, 12 built in Spain and eight in Indonesia.
In a summit last December, President Lee Myung-bak and his Indonesian counterpart, Susilo Bambang Yudhoyono, agreed to jointly manufacture tanks, submarines and fighter jets.

Pentagon Seeks More Savings in Next JSF Order

The Pentagon is preparing to negotiate its next order of F-35 Joint Strike Fighter aircraft with Lockheed Martin, this time with a concerted effort to crank down the jet's price, according to the Air Force's top acquisition official.
The Defense Department will "focus on continuing to build the inertia on the program and production side and to continue to get the right price of the aircraft for both the Air Force and the Navy customers," David Van Buren, the Air Force's acting acquisition executive, said during an interview at the Pentagon.

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To that end, the Air Force has listed "a more affordable JSF" as its top acquisition priority, replacing the long-standing top priority of purchasing a new tanker. The service awarded the tanker contract to Boeing in February. Getting that program off and running is now the No. 2 priority.
The so-called low-rate initial production lot-5 (LRIP 5) includes the next batch of JSF aircraft requested in 2011. DoD's 2011 budget proposal requested 43 F-35 aircraft, however, Congress has indicated that it would not fund more than 32 jets. This factor prompted the Pentagon to request 32 JSF aircraft in 2012, according to DoD budget documents. Lawmakers are expected to vote on the 2011 budget this week.
Last year, the Pentagon converted its F-35 contract with Lockheed from cost plus incentive fee to fixed price. Those negotiations took about five months before a deal was reached in September.
"My sense is that it would be a shorter period of time than [LRIP] 4, because [LRIP] 4 was a conversion of the proposal that came in as a [cost plus incentive fee contract] that we converted to a fixed-price-type contract, basically, at the table as we evolved through that negotiation process," Van Buren said.
While a proposal for the multiservice jets has not been written, officials are looking at the upcoming negotiations as a continuation of the last round of talks.
"I think that is just a building block of what we did from LRIP 4, where we converted to a fixed-price-type contract, which I think was very important," Van Buren said. "This will just be a continuation of that endeavor."
Pentagon officials have yet to receive a finalized proposal for the LRIP 5 jets, but expect the negotiations to commence this year.
Over the years, the F-35 has encountered numerous setback and issues that have prompted cost projections to soar. Last year, DoD warned that the program, which includes more than 2,400 U.S. jets and an expected 700-plus international order, could top $380 billion.
Industry and defense officials have committed to lowering that price and last year's signing of a fixed-price contract with Lockheed was considered an initial step. The Pentagon's 2012 budget proposal reflects a restructuring of JSF development and production.
In recent months, the JSF program has exceeded flight testing goals, with a few speed bumps along the way.

U.S. Cost of Libya War at $608 Million: Pentagon

WASHINGTON - The cost of the air war in Libya for the U.S. military has reached $608 million, a U.S. defense official said April 11.
The cost estimate covers the period from the start of international air strikes in Libya on March 19 to April 4, the official, who spoke on condition of anonymity, told reporters.

U.S. officials previously had said the operation had cost $550 million through March 28.
The Pentagon has estimated the air campaign will cost the United States about $40 million a month, even after NATO allies took the lead in the U.N.-mandated operation designed to protect civilians against Moammar Gadhafi's forces.
For the U.S. Air Force alone, the war costs about $4 million a day, the top civilian in the service told reporters last week. Air Force Secretary Michael Donley said he expected that figure to come down with European allies carrying out bombing raids while U.S. aircraft play a support role.

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