A Surprise at COMDEF; Arms Exports Soar…Again; Record Sales to Saudi; and more.

Early-fall heat waves notwithstanding, COMDEF is a good place to take another kind of temperature reading.

The conference — held annually at the National Press Club the week of the Labor Day holiday and heavily attended by defense industry executives and foreign military attaches — is a good opportunity to get a sense of Pentagon acquisition and budget leaders’ priorities for the rest of the year. This year delivered a few surprises amid the now-sadly-standard pleas for Congress to pass a yearlong defense spending bill.

Frank Kendall hinted that he might release one more update to Better Buying Power, the initiative designed to get the Pentagon more bang for its buck when buying weapons. The defense undersecretary for acquisition, technology and logistics said he wants to focus Version 4.0 on sustainment, the money the Pentagon pours into the weapons after they buy them. (Think of it like this: After buying a car, you still need to get oil changes, install new brakes and tires over time, not to mention anything unexpected that pops up along the way.)

This is a huge deal; it would affect just about everything the Pentagon buys — everything. The military spends tens of billions of dollars annually to maintain its aircraft, ships, tanks, trucks and tons of other types of equipment. It’s part of the reason why Boeing can eat more than $1 billion as problems crop up in building the Air Force’s new tanker, and still expect to turn a profit over the 179 planes’ operating lives.

Kendall said he’s already started working the new draft, called Better Buying Power 4.0. Remember: Kendall’s predecessor, now Defense Secretary Ash Carter created Better Buying Power and Kendall has updated it twice with 2.0 and 3.0 versions.

“I don’t feel that we take sustainment cost into account enough in source selection,” Kendall said referring to the period when the Pentagon chooses companies to build expensive weapons. “It’s hard to do that because those costs are a long, long way away.”

Kendall says Carter and his reforms are working in their quest to negotiate better contracts and he has the data to back it up. Now he enters new territory in the sustainment world and for good reason.

“For just about every major acquisition program, well over half of the total lifecycle cost comes in operations and sustainment,” said Todd Harrison of the Center for Strategic and International Studies.

Not not all of that money dished out over the life of a plane, tank or ship goes to the company the built it; fuel for instance is included in those lifetime costs, but oil companies get that money.

“It’s probably a ripe area for reform, particularly in [the Pentagon’s] business practices,” Harrison said.

But this won’t be easy. One reason is that government overhaul depots must perform 50 percent of the maintenance work. It’s the law. And don’t expect that to change because it creates lots of jobs.

“That fundamentally prevents [the Pentagon] from making smart, macro-level trade offs between insourcing and outsourcing,” Harrison said. “Ideally you wouldn’t want to constrain the percentage of the work done in depots to any particular level, you would want to let it float according to market demand and supply.”

Harrison also argues reforms could include incentivising companies for equipment that does not break down or need repairs frequently.

“Give contractors an incentive to build things and maintain things and improve things over time so that we get higher mission capable rates,” he said.

Imagine that concept: paying for things that actually work.

Welcome!

Here is the Defense One Global Business Brief by Marcus Weisgerber, your new weekly source for all things future-of-the-business-of-defense. Send your tips, comments, and random thoughts to mweisgerber@defenseone.com, or hit me up on Twitter: @MarcusReports. You can check out the Global Business Brief archive here. And don’t forget to subscribe!


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Arms Exports Soar…Again

We spend a lot of time tracking foreign arms sales in this space. And for good reason. So far this year, the State Department has OKed just under $35 billion in arms deals. And there’s a report that the Obama administration could soon approve a $7 billion in F-15 and F/A-18 fighter jet sales to Qatar and Kuwait, respectively. (We won’t hold our breath on that one as the sale has supposedly been close for more than a year). Regardless, Cowen’s Roman Schweizer reminds us in a note to investors that this will be the third consecutive year that State will approve more than $30 billion in foreign sales. In fact, he writers, the value of foreign sales approved this year could be the second- or third-highest ever (dating back to the 1950s, at least).

“The U.S.[foreign military sales] process is not broken,” says Heidi Grant, deputy undersecretary of the Air Force for International Affairs. “It’s actually thriving and doing better than ever.”

But the buzz around defense companies is that it takes the government too long to approve sales, making foreign-made weapons — which don’t have to clear the same bureaucratic hurdles — more attractive to some countries. Vice Adm. Joseph Roxey, director of the Defense Security Cooperation Agency, the arm of the Pentagon that overseas arms deals, has this message to executives that complain about the speed of these sales: chill out.

“If our industry partners are on the wrong side of getting to that contract award so desperately needed, it might be because we’re bogged down in a foreign-policy review about the particular system that you want to provide, or the technologies that you’re trying to push may be a concern to us,” he said.

If necessary, the admiral said, the government can move quickly on certain cases.

Grant said the Air Force is evaluating new technologies for foreign sales even before a country requests it. The new process has taken six to nine months off of the foreign sales process within the Air Force, she said. “We’re always looking for new innovative ideas on how do we streamline the process [and] how do we be more proactive,” Grant said.

Obama Has Approved Most Arms Deals Ever to Saudi Arabia

That’s according to new white paper from William Hartung of the Center for International Policy. “Since taking office in January 2009, the Obama administration has offered over $115 billion worth of weapons to Saudi Arabia in 42 separate deals, more than any U.S. administration in the history of the U.S.-Saudi relationship,” Hartung writes. “The majority of this equipment is still in the pipeline, and could tie the United States to the Saudi military for years to come.”

Deals with the kingdom usually raise eyebrows. Some U.S. lawmakers are calling want to block a $1.15 billion Abrams tank deal following numerous reports of civilian casualties in Saudi’s war against the Houthis in Yemen. Hartung’s paper with more details about the Obama administration’s arms deals with the kingdom is here.

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