I climbed aboard the Air Force’s Doomsday plane for the first time in 2012, to cover then-Defense Secretary Leon Panetta’s swing through Singapore, Vietnam, and India. It was Panetta’s first trip to the region since the Obama administration announced its so-called Pivot to the Pacific. At every stop along the way, the secretary talked about a series of moves the U.S. was making to enhance its presence in the region — but in reality, many of the measures had been in the works for years.
Policy is important to defense firms. It guides them as they shape their portfolios and research-and-development investment on new technology. It's the reason why American CEOs regularly show up at the Shangri-La Dialogue, an annual gathering of Pacific (and global) defense leaders in Singapore.
So when Susan Thornton, acting assistant secretary of state for East Asian Pacific Affairs, declared the Pivot (long since rebranded a “rebalance”) to be dead, it begged the question: Really?
Even a quick look at the Pentagon’s recent movements in the Pacific suggests the answer is a resounding no. The types of weapons the military has already purchased and the stuff defense firms are developing now will continue to be relevant. I'm talking about long-range missiles, stealth bombers, and other weapons geared toward a battle where distance and contested areas will persist. Commanders around the world are “hungry" for long-range strike, Gen. Robin Rand, the head of the Air Force's nuclear forces and bombers, said at a conference in Florida a few weeks ago. And the military is still moving ahead with plans to deploy its most advanced weapons to the region. Earlier this year, the Marine Corps sent a squadron of F-35 Joint Strike Fighters to their new base in Japan.
Military leaders regularly, and since the change of administration, have listed China, Russia, North Korea, Iran, and ISIS as the major areas of concern for the future.
From a security standpoint, tensions with North Korea continue to escalate, with reverberations throughout the region. In response to Pyongyang’s nuclear missile program, and spurred by four rocket launches earlier this month, the U.S. sped up the deployment of THAAD anti-missile interceptors to South Korea. This may reassure Seoul, and to a lesser extent Tokyo, but it has incensed Beijing.
From an economic standpoint — which is particularly important to Trump — the region is incredibly important. Half of America’s top-ten trading partners are there. In all, $5.3 trillion in trade flows through the South China Sea alone each year, as Adm. Harry Harris, the head of U.S. Pacific Command, said last year. Indeed, Japanese Prime Minister Shinzo Abe was the second world leader to meet with Trump after he became president. The two met in Washington, and then flew to Florida to play golf.
And from a defense-industry point of view: countries in the region want American weapons, while U.S. defense firms are investing in Australia. There’s also a Japanese F-35 factory, which is supposed to finish building its first jet this year.
Bottom line, while the Trump administration might call its Asia-Pacific policy something new, the same issues are going to persist.
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Air Force Still Has No Interest in New F-15s, F-16s
Now that service leaders anticipate having some extra cash in the next budget, the Air Force is planning to buy some more tactical aircraft. Expect that money to go toward the F-35 Joint Strike Fighter and maybe a new light fighter jet or turboprop; do not expect it to buy more F-15s or F-16s.
Service leaders have generally viewed proposals to add fourth-generation jets as a threat to the F-35. (Boeing’s countless pitches for its upgraded F-15 have largely fallen on deaf ears.) When I asked acting Air Force Secretary Lisa Disbrow and Chief of Staff Gen. David Goldfein about it, Disbrow noted that the Air Force’s upcoming budget submission to Congress would include money to upgrade existing F-15s and F-16s. But she added:
“We love our legacy aircraft, don’t get us wrong. F-15s, F-16s have performed incredibly well. We’re upgrading them. But they’re not the F-35. They don’t bring [the capability] to bear in the same way. And they’re so old that they’re breaking in ways that are very difficult for junior maintainers to fix. These are things that more experienced maintainers are having to figure out how to fix. It’s all about tail availability. Because they’re older, they’re going to go through the maintenance points a lot more frequently, which takes them offline, which means we can’t use them. You have to balance all those things — and cost, ultimately — to get that inventory balance of where you buy new and where you’re keeping legacy.”
Goldfein said his priority is boosting production of the F-35 to 60 jets per year as quickly as possible: “Before we’re going to look at additional fourth-generation aircraft, given the global security environment…and the attributes of future conflict, we’re going to continue to look at the possibilities of increasing the speed of procurement of fifth-generation aircraft that we currently have on the line.”
Pentagon officials are also focused on pushing the price of the Air Force version of the jet down to $80 million per copy or even lower. The previous target was $85 million by 2019.
“When you look at some of the older aircraft” that are still in production, “and then you look at those price points and compare where we believe the F-35 program’s going, you have to balance that,” Disbrow said. “How close you’re getting to those price points and why not go to fifth-gen, which obviously is much more capable.”
Yet the Air Force is also considering buying an attack plane that’s not even 4th-generation. To be flown only where there are no surface-to-air missiles or enemy aircraft, it’s the type of plane that would have been incredibly useful during the past 15 years of counterinsurgency battles in Iraq and Afghanistan.
There was passionate debate about buying a plane like this in 2009 and 2010. (Here’s my own extensive look at the proposal.) In the end, the project became a victim of budget cuts. Now it’s back on, kind of. The Air Force is planning to evaluate planes like this that already exist. That list could include props like the Beechcraft AT-6, Embraer Super Tucano and Air Tractor AT-802U. On the jet side, there’s the Textron-Airland Scorpion.
Disbrow said the Air Force would “analytically look at — and see what industry can offer to introduce this lower-cost, permissive environment aircraft to service some of that mission set.”
Is There Too Much Budget Optimism?
There’s been a cautionary theme sounding through recent investors’ notes. The most recent came from Cowen’s Roman Schweizer, who wrote: “We worry investors may not realize the short-term political hurdles to Trump's ‘historic’ defense buildup.”
Even though Republicans control both the legislative and executive branches, lawmakers and President Trump still need to find areas of common ground to repeal the Budget Control Act and remove its spending caps. Right now, Trump is proposing $54 billion in government cuts in order to boost defense spending by that same amount.
“[T]he scope of the required cuts in non-defense discretionary is so great that it is unlikely Congress would ever agree to such a budget,” writes Matt Vallone, who directs research and analysis at Avascent. “Instead, we are likely to see a rehashing of the budget arguments of the past several years, with Democrats and deficit hawks opposing increased defense spending and defense hawks pushing for increased spending.”
Recall that just two weeks ago, Citi downgraded Northrop Grumman, General Dynamics, and Huntington Ingalls from “buy” to “neutral.”
Big Week Ahead
First up on March 21 is the annual Lockheed Martin Media Day, featuring lots of side sessions around two major briefings. The first is a “state of the company” briefing from #chairCEOpresident Marillyn Hewson. There’s usually an F-35 briefing as well, which should gain some extra interest this year with all of the additional White House interest of its own. Another must-attend is the annual Defense Programs Conference on March 22 put on by Jim McAleese and Credit Suisse. Speakers include Marine Corps Commandant Gen. Robert Neller; the vice chiefs of the Air Force, Army and Navy; Peter Navarro, director of the White House National Trade Council; lawmakers; and senior acquisition officials. There’s also New America’s Future of War Conference on March 21, whose speakers include the Army and Air Force chiefs (the latter interviewed by D1’s Kevin Baron) and Alphabet’s Eric Schmidt, who also heads the Pentagon’s innovation board.
Correction: Due to an editing error, last week’s Global Business Brief misattributed a quote in the lead section to Bill Lynn. The quote should have been attributed to Stephen Lovegrove. The corrected version is here.