Inside the Pentagon’s 2019 budget request; GD to buy CSRA; Lockheed challenges Air Force data request and a lot more.
Making sense of the the Pentagon’s new budget request is a little difficult, but don’t worry, we’re here for you.
The defense budget is on the rise, but as I wrote earlier in the week, it’s tough to measure the size of that increase. Why? Congress still hasn’t passed a detailed fiscal 2018 budget (despite being nearly five full months into the current year); indeed, lawmakers only reached a two-year federal budget deal late last week. Among the consequences of this financial roller-coaster ride is that some of the calculations and projections in the Pentagon’s 2019 budget books are wrong, unsupported, or just plain unknowable at this point.
That said, defense is expected to get about $700 billion in fiscal 2018, which is way over the $606 billion appropriated in fiscal 2017.
Pentagon officials say the $716 billion 2019 spending plan supports the U.S. return to “great power competition” with China and Russia, the big emphasis of the new National Defense Strategy. You can read our macro take on the proposal. Here are some more details:
The Army saw the most growth of the three services, writes Jim McAleese of McAleese and Associates. The Navy came in second and the Air Force ranked third.
Our friends at Avascent, who calculated the growth between 2017 and 2019, add that ”the largest percentage gains went to areas highlighted in the National Defense Strategy.”
The largest gains between fiscals 2017 and 2019:
- Ground forces: up 59 percent
- Space systems: up 48 percent (in unclassified accounts)
- Missiles and munitions (including missile defense & nuclear deterrence): up 32 percent
- Research and development, overall: up 24 percent
Other areas of growth that everyone likes to talk about:
- Procurement and R&D for ships: up 8 percent
- Procurement and R&D for aircraft: up 9 percent
More budget fun after the jump!
You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Find something interesting in the Pentagon’s budget proposal? Let me know at email@example.com or @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!
From Defense One
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Some Analysis of the Budget Request
So what does that shipbuilding increase (noted above) mean for that goal of a 355-ship Navy? It will get the Navy to 326 ships by fiscal 2023 and 355 ships...well, several decades from now, “sometime in the early 2050s,” writes Roman Schweizer of Cowen and Company.
So let’s talk about aircraft. Sure, the request for 77 F-35s is obviously tied to that “great power competition” strategy, but there are some other notable projects. For instance, there’s a new project to start “sensor enhancement” on the F-22 Raptor “to meet advanced threats in 2025 and beyond,” the Pentagon budget documents note.
The Air Force’s other air-to-air jet, the F-15 Eagle, is slated to get a host of upgrades, another signal the born-in-the-1970s plane will be sticking around for awhile. The budget plan continues “the development of an Infrared Search and Track System intended to provide an air-to-air targeting capability in a radar denied environment.” That language is code for the type of battlefield expected in the future during that time of great power competition.
McAleese also notes an Air Force request for $504 million for “next-generation combat aircraft.” On Monday, Carolyn Gleason, the Air Force deputy for budget, said the money would be used “to finish an analysis of alternatives.” But the nine-figure number suggests that the work includes more than just a paper study.
Back to the ground, where 2019 will see the Army buy 3,390 Joint Light Tactical Vehicles, the Marine Corps, 1,642; and even the Air Force, 81. The total cost: about $2 billion. The Army also plans to spend $2.7 billion to upgrade 135 Abrams tanks — $20 million apiece.
Lots of bombs & missile in budget: Pentagon officials have been talking about the need to boost bomb and missile stockpiles for two years now. Defense companies have increased production, but have been trying to figure out what the long-term demand will be. Judging from this week’s budget request, the answer is: a lot. The request seeks to buy 43,594 Joint Direct Attack Munitions, 7,045 Hellfire missiles, 6,826 Small Diameter Bombs (Version 1), 1,260 Small Diameter Bombs (Version 2), 1,121 Joint Air-to-Ground Missiles, and 9,733 guided rockets, just to name a few. The price for these alone is about $4 billion.
Pentagon Stops Pushing for Base Closures
After years of Congress rejecting proposals supported by basically everyone except those whose jobs depend on the excess bases, the Defense Department is throwing in the towel. “[W]e're looking at doing two things, going forward,” explained David Norquist, the Pentagon comptroller and CFO. “One is, working with Congress to find common areas where we can make reforms and changes that don't create the same types of obstacles. The other is that we are undergoing a financial-statement audit that includes a look at property, and assets and investments and improving the accuracy of the data behind it. And as a view of being able to take advantage of the data coming out of that process, to help us make better decision-making on real property.”
On a related note, Air Force Secretary Heather Wilson tweeted on Monday that the five Air Force bases that have bombers now will keep them. Per the budget proposal, the service intends to buy new engines to keep around its oldest bomber, the B-52, and will start to retire B-1s and B-2s as the new B-21 enters service.
Lockheed to Open New Missile Facility in Orlando
The world’s largest defense contractor is getting a little larger, with plans to open a $50 million, 255,000-square-foot facility for its missiles and fire control business in Orlando, Florida. Employees there will do engineering, program management, and research and development projects. The company plans to hire 1,800 people, 500 of which will be based in Orlando.
Speaking of Orlando, the Air Force Association’s annual Air Warfare Symposium begins next Thursday. This year, there’s supposed to be a large focus on technology. I’ll be there; if you are too, make sure you say hi!
General Dynamics to Buy CSRA
News of the $9.6 billion deal broke a few hours before the Pentagon released its budget on Monday. The deal would make GDIT the largest business within General Dynamics, according to Vertical Research Partners analyst Rob Stallard. “[D]oubling down on Fed IT seems to move GD in the opposite direction of where the Prime contractor peers are heading,” Stallard writes. Will the deal encounter any hiccups? “Given the fragmented nature of the U.S. defense and federal IT services market, we doubt that Justice or the FTC will object to the GD-CSRA deal or require divestitures for its approval,” writes Byron Callan of Capital Alpha Partners.
Update on Northrop’s Acquisition of Orbital/ATK: The European Commission has approved the deal, Northrop announced this week. On that news, Jefferies upgraded Northrop’s from hold to buy.
Lockheed Doesn’t Want to Give Data to Air Force
Here’s the latest from in the battle between the defense industry and the Pentagon over intellectual property. This week, Lockheed Martin’s Sikorsky filed a protest with the Government Accountability Office, challenging an Air Force request for “ambiguous and overreaching technical data” about its Black Hawk helicopter, Steve Callaghan, vice president, strategy and business development at Sikorsky, said in an interview. Lockheed contends that the Air Force’s request for the data is “inconsistent with the [project’s request for proposals] and contrary to law.”
The firm is competing against a Boeing-Leonardo team to replace the service’s old UH-1N Hueys with 84 helicopters that will (mostly) fly security teams over ICBM fields in the northern U.S.
“Those positions would require relinquishment of rights by our suppliers in privately developed software and technical data, even where that data was developed at private expense,” Callaghan said in a statement provided to Defense One. “In addition, the unbounded requirements make it very difficult for an offeror to calculate its price for a firm fixed price contract. We are filing the protest now to ensure that the competition is fair for all offerors.” The Pentagon, of late, has been wanting more technical data from companies about their products.
No word yet on how this protest might delay a contract award, which was expected in the coming months.
2017 Aerospace & Defense Export Totals
The U.S. aerospace and defense industry exported products and services worth $142.8 billion in 2017, up 26 percent over the past five years, according to an Aerospace Industries Association analysis of new data released by the Commerce Department. Two other key data points: The aerospace and defense industry is the third-largest gross exporter in the U.S., accounting for 9 percent of all U.S. exports in goods. It also enjoys the largest trade surplus of any U.S. industry: $86 billion last year.
Confirming a long-rumored move, President Trump on Feb. 13 nominated Adm. Harry Harris, the head of Pacific Command, to be the U.S. ambassador to Australia. Harris’ PACOM job would be filled by Vice Adm. John Aquilino, who leads U.S. Naval Forces Central Command, and its subsidiary forces Fifth Fleet and Combined Maritime Forces, Bahrain.
Retired Adm. Mike Mullen, a former chairman of the Joints Chiefs of Staff, will lead Sprint’s “more aggressive push into the federal and public sector space,” according to the telecom firm. Sprint is pushing its work in artificial intelligence/robots, smart buildings, hardware/chip technology, satellite and more advanced connectivity, fleet tracking or general cloud-based communications. Mullen sits on the firm’s board.
Roman Romanov, the head of UkrOboronProm, the Ukrainian defense industry announced that he is resigning amid a scandal involving salary debts owed to shipyard workers.