James Hasik

John Young: “We have to question the requirement from the beginning"

I will miss John Young, the outgoing US Under Secretary of Defense for Acquisition, Technology and Logistics, who plans to stay in his job until the day after the change in government in January. Aerospace Daily and Defense Report covered his talk at a Defense Writers Group breakfast on 20 November, and noted fabulous comments on three (or four) interesting military requirements:

1. The USAF’s combat search and rescue aircraft replacement requirement (CSAR-X)
2. The Navy’s desire for new joint command ships (JCC-Xs).
3. The Army’s airborne common sensor (ACS) and the Navy’s electronic patrol aircraft replacement (EP-X)

I’m admittedly a bit late reporting on this, but his comments were too good to pass up. Apparently, regarding all of these, he simply said that “we have to question the requirement from the beginning.” What follows are the problems with each.

First, the USAF may not need a whole separate fleet of helicopters for rescuing downed aircrews, since as Young put it, downed aircrews in recent wars have generally been “single digit“ numbers. The historical record is important here. In 1995, US forces lost one aircrewman (Captain Scott O’Grady) over Bosnia. In 1999, they lost two (one each from an F-16 and an F-117) over Yugoslavia. Figures for 2001 and 2003 similarly amounted to a handful, though the details are less public. The flyers in 1999 were picked up by dedicated CSAR crews and aircraft. O’Grady got a ride in 1995, however, from the Marine Corps expeditionary unit aboard the helicopter carrier Kearsarge that threw together a rescue force on the spot. That seemed to work.

According to the US GAO’s recalculations in its bid protest decision, the lowest mean probable life cycle cost (MPLCC, they call it) amongst the offered helicopters was $35.853 billion over about 27 years for 145 aircraft. Without discounting, that’s an annual cost of $1.3 billion to rescue aircrews, regardless of whether there are any aircrews to rescue. If future campaigns are like the past few, that’s a lot of money per downed aviator. It’s dramatically more than one spends per foot soldier in an MRAP, which calls into question the sensibility—and thus the sustainability—of the outlay.

Second, the LCC-Xs would replace US Ships Lasalle and Coronado, which were recently decommissioned, and eventually Blue Ridge and Mount Whitney, which are now almost forty years old. As Young put it, “I’m not sure buying [the ships] because we had them in the past is the right thing to do.” No other navy in the world operates dedicated command ships, much less command ships the size of small aircraft carriers (the latter two ships). If entire squadrons of attack drones over the Middle East can be controlled from Las Vegas, it’s not obvious that any force afloat needs so much command-and-control capacity right in the middle of the action.

Third, regarding the previous, abortive attempt to integrate the Army and Navy’s aerial signals intelligence requirements, Young had one simple comment. “Obviously, ACS was a disaster, from my point of view.” That’s owning up to the problem, in that the debacle substantially occurred on his watch as Director of Defense Research and Engineering and as Assistant Secretary of the Navy for Research, Development and Acquisition. At this point, the bigger and broadly applicable question is, as he put it,

how many times can the Department buy pockets of aircraft [or ships]... for billions of dollars? We may decide that’s exactly what we have to do... But I think it merits more debate than rubber-stamping unique service requirements.”

Indeed! I had once heard the assertion that John Young was “great at staying in his swim lane”—at the Navy Department, he limited his job to finding the best way to procurement the kit needed for whatever requirement the admiralty had validated. He seems to have rethought that idea. Regarding the incoming government, observe that Deputy Defense Secretary-apparent Richard Danzig had little time, as Bill Clinton’s navy secretary, for flimsy but long-winded justifications for new gear. As he told Greg Jaffe of the Wall Street Journal in 2000,

The idea behind most of these briefings is for us to sit through 100 slides with our eyes glazed over, and then to do what all military organizations hope for... to surrender to an overwhelming mass.

That may not work much longer. What’s more, there are conservative alternatives to each of these procurement ideas. The US armed forces could still buy a bunch more Chinooks, but provide them to the Army for troop transport, using them only for rescues when they were needed for that. If the armed forces really need joint command ships, there is a wide range of options, from ordering a flag-outfitted San Antonio to converting a commercial transport ship. Not all signals intelligence needs can be fulfilled with unmanned aircraft, but the lower, slower, closer to the front needs of the Army could more substantially be fulfilled this way.

This is not advocacy for any particular procurement approach, but sober illustrations of some alternatives should money become tighter in the US military budgets. Plan B might just be worth considering if your program was built on an overly ambitious requirement.

Towards a long-term demand model for the tools of counterinsurgency

The headquarters of General David McKiernan’s International Security Assistance Force (ISAF) in Afghanistan recently sent a very brief, unclassified version of its campaign strategy to the well-regarded Small Wars Journal. Therein, the staff offers the following “key planning factors” (expanded slightly for clarity), which may be taken as how the general plans to wage war:

• [It’s a] counterinsurgency campaign [not a peacekeeping mission.]
• Shape, in order to clear, in order to hold and build.
• Prioritize the areas to clear and hold.
• Establish and maintain freedom of movement.
• Apply greater effort on the narcotics-insurgency nexus.
• Identify and engage key Afghan community leaders.
• Interdict and disrupt insurgent movement to and from sanctuaries in the border region.
• Build Afghan capability, capacity, and credibility.

Just about all of these planning factors demand a lot of good foot soldiers, in some proportion of infantry, commandos, and gendarmes. That, and the list itself, are not remarkable to anyone who has spent time studying classic approaches to counterinsurgency. As such, it is not quite controversial, even if other recent articulations of US counterinsurgency strategy have drawn detractions.

What may be remarkable, though, is what these factors imply for material requirements. Preparing for the campaign in Afghanistan is not preparing for any given war, but it is, to use the British term these days, the war. To maintain freedom of movement requires at least two things (items 1 & 2 below). A third flows logically from the needs both to disrupt insurgent movement and to hold and build. A fourth is essential both to engage key leaders and to build Afghan capability:

1. off-road armored vehicles that can handle the Kalashnikov, the rocket grenade, and the mine
2. rotorcraft for high and hot environments
3. light combat aircraft for persistent surveillance and precision strike
4. a lot of Pashto and Dari lessons

This is not to say that every other area should expect a shrinking budget, but the emphasis here does not bode well for the top line of military research, development, and procurement spending. The proposed “MRAP all terrain vehicle” will doubtfully cost nearly as much as a Bradley fighting vehicle. The USAF’s 2009 budget requested more unmanned than manned aircraft, but the former segment soaks up much less cash. Helicopter recapitalization will continue to be a priority, as the shortage of rotorcraft in Afghanistan has been a huge bone of contention amongst the governments supplying troops there. And seven years into the campaign, it’s almost scandalous the paucity of language skills amongst the troops deploying to that country.

In short, while there are other growth areas today, these are the obvious ones. If you’re in the business, and you’re not in these, you should have a good plan. That’s a long way from a long-term demand model, but we’re definitely working on the parameters.

This just in about Somali piracy and shipbuilding needs

This just in from Brit Hume of Fox News Channel, as quoted by this morning’s Early Bird:

Shipping officials are calling for a military blockade along Somalia’s coast to intercept pirate ships going out to sea. But NATO is rejecting the idea, and the U.S. Navy says such a blockade would require a ship every 5-10 miles along the 2,400-mile coastline. That would require more than 240 ships, and the U.S. Navy is only 283-ships strong—it's not the 600-ship Navy of the mid-'80s.

I couldn’t devise a better argument for the Freedom or Independence-class Littoral Combat Ships, the Visby- and Braunschweig-class corvettes, and any other hardy little blockade enforcer for any other fleet. This is the whole point of what Elmo Zumwalt called the high-low mix: cruisers aren’t available in the same numbers as corvettes, and there are roles for large flotillas of smaller ships. Like securing the sea lanes for petroleum tankers—which seems today a rather pressing need.

For more on the situation, see my immediately preceding commentary. In general, it’s well worth considering how needs like this will affect the naval shipbuilding market in the next few years.

Sentiment for stopping Somali piracy, and the implications for the naval market

Insurance rates may be rising again for shippers, at least those wild enough to test the waters around the Horn of Africa. As Admiral Mike Mullen, chairman of the Joint Chiefs of Staff put it a few days ago, the Somali pirates’ seizure of the Saudi ship Sirius Star was shocking not so much for the size of the target—a supertanker—but the range of the action—400 miles southeast of Mombasa (I spell, Mike-Oscar-Mike...)* The Times of London reports today that Maersk, the world's largest shipping company, has announced that it would reroute, for the time being, its tankers around the Cape of Good Hope, rather than risking passage near the Horn to make use of Suez. The problem may indeed be getting out of hand.

Sentiment against paying tribute seems to be rising. The Saudi and British foreign ministers separately observed yesterday, admittedly unnecessarily, that paying pirates’ ransom demands may recover ships and crews, but absolutely encourages more piracy. One merchant captain, Russell Davies of Interorient Line, told the Wall Street Journal this week that he would welcome privateer marines aboard his ship. Blackwater has already proposed just that. After all, the pirates have been bold and splendidly equipped with Kalashnikovs, but they have also been stupid. On the 18th, a Somali pirate ship, hailed for inspection, threatened to blow up the Indian frigate Tabar. The Indians sank the opposite quickly with heavy gunfire.

Call that a red shirt demonstration, like the kind from the opening of a Star Trek episode. More governments are beginning to take a firm line against this sort of behavior. The Los Angeles Times reports that the Egyptian government is conferring with neighboring ones over what to do about the problem. The UN Security Council has approved more sanctions, for what that’s worth. The Moscow Times reports that the Russian Navy will keep the frigate Neustrashimy off the Horn, to which she was dispatched after pirates captured the Ukrainian freighter Faina, loaded with Russian tanks, in September. Her 100 millimeter main gun will be more than enough for any vessel the pirates put to see. The Royal Swedish Navy plans to send the corvettes Stockholm and Malmö, and the support ship Trossö to the Horn for a cruise from April to July of next year. The aim is specifically to protect World Food Program shipments into Somalia, but pirates are fair game for anyone on the high seas.

What’s fascinating, from an Anglo-Saxon perspective, is that the Swedes are recruiting sailors for the mission, presumably because this sort of duty falls outside the terms of service for the draftees who typically comprise half the complement of Swedish ships. The issue is another illustration of the need in Europe to devolve more territorial defense and security roles to home guard and militia forces, and to professionalize fully air and naval forces. A navy tethered to the shore is really just a coast guard.

A navy that can range cost-effectively across the global commons to deter or defeat threats as these, however, is quite a navy, no matter how small. There haven’t been many engagements in the past few decades like those of 1916 or 1942, but there have been a few like those of 1799 (the Quasi War with France, for example). What sorts of ships might a navy want for those, were it still interested in participating the big fight, in being more than a coast guard? It could call the shipbuilders, or it could even just take out an advertisement:

In short, the classic frigate, in the Patrick O’Brien sense, updated for the 21st century. That’s not to denigrate the importance of missile cruisers and aircraft carriers. It’s just to point out that most navies have relatively shifted from ordering destroyers to frigates, and from frigates to corvettes. We are likely to see more of this in the future, for there is no job more easily agreed upon as a naval priority than the suppression of piracy.

Meanwhile, USS Freedom, the first littoral combat ship (frigate, corvette, whatever) is making its way across the Lakes toward the Atlantic. None too soon.

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*If you don’t get the joke, ask any US Navy officer above the rank of lieutenant commander. And incidentally, I would understand the name Sirius, and the term Dog Star, but Sirius Star? Isn’t that redundant?

The talking heads are wondering why Ford, GM, and Chrysler don't just make some military vehicles

I was asked just today what I thought of the spectacle of the talking heads on the cable news shows wondering aloud “why Detroit isn’t making military vehicle so they can stay in business.” Taking Detroit to mean Ford, GM, and Chrysler, we had a bit of a chuckle about that. Automotive assembly may be automotive assembly, but designing a military vehicle, as we’ve discovered in the Mine-Resistant, Ambush-Protected (MRAP) vehicle program, requires more than an F350 chassis and some hillbilly armor.

That said, Ford recently gave this the old college try, teaming up with Textron, Boeing, and SAIC for a Joint Light Tactical Vehicle (JLTV) bid. It's not as though Textron’s ASV facility in Louisiana was going to have the capacity for the production numbers desired for the JLTV program. Ford would have had the muscle, but Textron, Boeing, and SAIC were supposed to bring the knowledge of land warfare, which is admittedly critical for a successful bid——like those of the three teams that actually won development contracts.

There are lots of places in the world where just "making military vehicles" could have been a plausible strategy. Daimler, Tatra, and Renault sell a lot of trucks to military customers around the world, but most of them are "commercial trucks painted green", as the head of marketing for a US-based military truck manufacturer put it to me recently. He wasn't being derisive about the products: if that's the level of off-road mobility and durability that one needs, then it's a good business decision. The US Army is one of the few customers in the world that has such a bespoke collection of vehicles, the prosaically-named Family of Medium Tactical Vehicles (FMTV), for hauling cargo. Stewart & Stevenson licensed the original FMTV design from Steyr in Austria, but heavily modified it to meet the US Army's demands. It’s not quite the same truck now.

Ironically, then, the US military's insistence on developing custom products for its own use has foreclosed that avenue to those three companies, at least as they exist today. Of course, if they had wanted to get into that market, they could have done so at plenty of points. Just look at what Force Protection did with far fewer resources. Meanwhile, Waggoner, Mullaly, and Nardelli each flew into DC today on separate corporate jets to grovel for money. They couldn’t have carpooled, so to speak? These guys must have tin ears.

Should General Atomics have outsourced more parts production?

I recently received an excellent note from a doctoral candidate at the Turkish Military Academy who had read my book Arms & Innovation. He had a number of poignant questions on which I am still working, and one that I could answer a bit more quickly. Rephrased slightly, this is what he asked—

Should General Atomics have sought production alliances as Force Protection did for ramping up output?

That’s a fair question. I wrote back that I had heard from former staff, sometime consultants to General Atomics (GA), and press reports that the company is very vertically integrated, but also that I have never been able to confirm this with a visit. GA is legendarily secretive, so I have been writing about the company from a viewpoint that is not fully informed. That said, the company is probably disregarding common industry practice in keeping so much fabrication work in house. That may or may not be a good thing; it’s just not quite standard practice. In suggesting that a higher level of subcontracting could be appropriate, I would not be necessarily suggesting the level seen in the 787 program, but perhaps just that more common in military aircraft. So, while I can't say for certain, I suspect the GA could have profitably subcontracted more of its airframe work. When I next get to talk privately with a manager from GA, I will ask this question pointedly.

What of the possibility of a major debacle in the arms industry?

I received a question the other day from a major trade publication in the business as to whether I saw “a major debacle coming" for the defense industry. After taking some time to study the possibility, and to think about what would constitute a debacle, I responded. What follows is my response.

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I'm not sure, for example, that I'd call the fates befalling Ford, GM, and Chrysler a debacle. Dénouement might be a better term, as long as their collective demise has been in the works. A more sudden and less predictable failure—if financial failure is required—might better fit the meaning. The defense business has been short on those for some time. Lockheed famously faced bankruptcy in the 1970s after huge cost-overruns on the fixed-price C-5 Galaxy development program and its own L-1011 project. So, management exacted a $500 million unilateral price increase from the government for the C-5, and a loan guarantee for the L-1011, which also famously failed to live up to what Lockheed claimed in its pleas to the congress. The latter is a classic case study by Uwe Reinhardt ("A Breakeven Analysis for Lockheed's Tri-Star: an Application of Financial Theory," Journal of Finance, September 1973). General Dynamics was in similarly bad shape with the Los Angeles class submarine program, and extracted its cash from the government as well. There's a pattern, I think, in convincing the federal government of the importance of current management and ownership, regardless of performance.

I'm also not certain that the contraction in defense spending in the early 1990s would qualify as a debacle for anyone. That was seen coming for some time, and everyone had plenty of time to prepare. General Dynamics made a fortune for its shareholders by shrinking; until recently, sellers have made more than buyers from mergers in the long run, and the evidence from the last few years is not completely in. Perhaps oddly, the Pentagon was sufficiently stressed about a bankruptcy at any given large contractor at the time that it commissioned RAND to study the question. That it took the authors 26 pages to conclude that bond yields were the best predictor is an indication of how unsophisticated the Defense Department's financial analysts, hired or otherwise, must have been back then. That was a basic lesson in my introductory graduate finance class.

At this stage, it seems to me that a financial debacle—if not bankruptcy, then a serious contraction in the size of one of the larger contractors—is possible, if unlikely. Two things would have to come to pass. First, Obama's people at Defense would have to get serious about reconfiguring the US armed forces for the more probable fights, and the ones that really matter to them. Second, those same folks would have to get ruthless about terminating programs that were not meeting financial expectations or security needs. I am not advocating a change; as a consultant in the business, I merely observe what would happen. That said, since the overall level of defense spending might not crash, any debacle could work out very well for someone. I'm not really in the predictions business, but I'll hazard a few guesses that might be relevant.

You mentioned shipbuilding; we might consider what could happen if someone took a serious look at real needs for air defense ships. Enough people questioned the need for a 14,000-ton Zumwalt that the class is almost dead. Since the Navy has 62 Arleigh Burkes afloat, under construction, or planned, one might ask why it needs more of those as well. The Burke herself is just 17 years old, so it's barely conceivable that the government might decide to take a capital ship holiday of sorts. That would be extremely bad for shipbuilders in Maine, where the Bath Iron Works builds literally nothing but Burkes. The possible addition of landing ships could salvage the situation for Northrop Grumman. The money that would free up for Littoral Combat Ships and Joint High Speed Vessels would constitute a bonanza for Austal.

This talk of expanding the ground forces will likely come to nought, because people are very expensive, and that quantity of troops just isn't necessary if the incoming crew is so skeptical about invading countries the size of Iraq. As the Army will emerge from that campaign with a fully rebuilt and modernized fleet of Abrams, Bradleys, and Paladins, interest in the FCS, apart from the sensors and UAVs, will be collapse. The MRAP business may continue for some time, as long as casualties continue to be primarily caused the big three threats: mines, rocket grenades, and Kalashnikovs. However, since BAE Systems and General Dynamics have hedged their bets well between big war and small war vehicles, they should both handle the slide decently. Some of the electronics specialists who are more committed to FCS than the MRAPs may have some problems.

The most intriguing question lies with the air arms. Bell would be in a world of hurt were the V-22 not performing so well in Iraq. Boeing's helicopter business (even apart from Bell-Boeing) will continue to sell Chinooks for decades, it seems. General Atomics, whatever the Navy said about its performance on USAF contracts, will be building drones for some time. This is because these are airplanes that actually get used in combat these days. It's notable, then, that over half of the aircraft that the USAF requested in the 2009 budget are drones. The F-35, however, could be in for some deep reductions in procurement quantities. It's rather difficult for me to see how the CTOL version would be brought to bear against the Chinese, and why very many of them would be needed against anyone else. Lockheed Martin would hate that, of course, but Saab could greatly benefit from additional sales of new or refurbished Gripens.

All that said, I don't really expect this to happen. The likelihood of something like this would have been greater had John McCain gotten himself elected, for only Nixon could go to China. Obama's people may conclude that they must essentially bunt, and do less than Clinton's people did for restructuring. They had some big successes with the JDAM, the F-18E/F, and ultimately the Stryker, but at the end of the 1990s, the armed forces were mostly a scaled-down version of what stood on the line during the Cold War. Following that plan again would leave most of the long-term business relationships intact.

Why the automotive industry has nothing to do with international security

The other day I was forwarded a copy of an “issue brief” written by some colleagues who share an interest in analyzing the arms industry. I immediately sent a dissenting letter back. While I will not recycle the entire note here, I will state that I took extreme exception to the title and the argument it conveyed:

Economic Security: We Must Save American Manufacturing (yeesh)

The essay asserts that bailing out Ford, GM, and Chrysler is a matter of national security. Over the past few years, I had a few things from that group that I thought were well considered. This is not one of them. Since that essay was distributed widely, I feel similarly compelled to disseminate my review of it to people I know to be interested in either national security, the automotive industry, or economic policy in general. I wouldn’t want anyone get the impression that the economic analysis in the essay was sound.

Just to be clear, I can find no link between the fates of these three companies and the military capabilities of the United States.

The essence of the remainder of the letter, which concerns this claim of a link to national security, I reproduce below.

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I have heard for many years now that, as you wrote, manufacturing is "the foundation of our economy." This is a meaningless assertion. Why is not agriculture the foundation of our economy? Why not education? Or childcare? Or healthcare? And whose economy? My economic activities do not stop at the borders of the United States. Those borders are an artifice that may contribute to physical security, but they do not directly improve economic growth on either side.

You wrote that "if America loses what's left of its auto industry, or its aerospace industry, or its chemical industry, our superpower status will ebb away too." If it is indeed desirable for me here in Texas that the federal government have superpowers, then I might be alarmed by Chrysler's impending evaporation—if I thought that domestic automotive assembly had anything whatsoever to do with military power. It isn't the 1940s anymore. There are few cars built in the UK, but Britain is one of only a handful of countries with global military capabilities. After all, it is not as though the US federal government needed domestic passenger car assembly facilities for buying blast-protected trucks for its campaigns in Iraq and Afghanistan. Not a single article in the Mine-Resistant, Ambush-Protected (MRAP) vehicle program has come from a factory owned by Ford, GM, or Chrysler. Rather, as I point out in my recent book, Arms and Innovation: Entrepreneurship and Alliances in the 21st Century Defense Industry (University of Chicago Press, 2008), the design concepts were imported from South Africa, after which some very clever American engineers and production workers figured out how to improve upon them. Detroit's only role in that was contract management from an Army Department office up on 11 Mile...

I am also not sure what you mean by "the last three US auto makers". GM makes trucks here in Texas, but so does Toyota—and in Indiana and California, too. Hyundai builds cars in Alabama; Daimler builds trucks there. Nissan makes vehicles in both Alabama and Tennessee. BMW builds several different vehicles in South Carolina. American Honda Motors (note the name) has two assembly plants in Ohio, and one in Alabama. There's that state again: if I were an Alabaman, I'd be downright torqued about this rush to bail out these Michiganders. All of these are domestic companies now: the Toyota Tundras built in San Antonio frequently roll with bumper stickers that say "Born in Texas; Built in Texas". From my perspective here in Lone Star State, that's more domestic than Chrysler or Ford.

So, indeed, there are not three automakers in the US, but nine. Call them the (formerly) Big Three and the Transplant Six. There is nothing fundamentally wrong with running an automotive manufacturing business in this country. It's just that the Three have been doing it very, very poorly. If the Three are nearly bankrupt, it's because their business models have been bankrupt for some time. The Six have sustainable models. The Six have intelligent approaches to managing labor; GM, Ford, and Chrysler's contracts with the UAW are insane. The Six have products that actually meet drivers' demands for reliability; GM and Chrysler's quality problems of the past forty years have had significant cumulative effects on the marketability of their products. Speaking of marketability, the Six have marketing strategies that makes sense: they each have one or two or three brands instead of GM's eight. The Six have channel strategies that makes sense; GM's vast dealer network is a huge problem. The list goes on.

No one who doesn't work there should personally care whether Chrysler, GM, and Ford all disappear as independent companies. They haven't really merited the term "going concern" for some time. If they do implode, the supplier networks that they share with the Six will be strained, but the strain will be necessary to the restructuring. Whatever happens, I will continue buying cars, and Americans will continue building them—or doing something else that makes money. And life, as Donald Rumsfeld used to say, will go on. To use a naval analogy, a sharp recession will be a valuable bottom blow for the boiler of the global economy. GM and Chrysler today are cash-devouring monsters of value destruction, and probably are done. Ford may get another chance, particularly if enough unprofitable factories across the industry are shut down. While building cars in the US can be a good business, there are simply too many companies trying to do so, and some of them will have to go. We all know which ones are on the market's short list, so trying to stand in the way with a five billion dollar band-aid is just not going to work.

There was one thing in your paper with which I did agree—your backhanded assertion that policy-making is not a breeze. Indeed! It takes hard work for economists to estimate which government regulations are the most marginally damaging, and which subsidies are the biggest wastes of money. It takes hard work for legislators to figure out where, in a representative system of government, to expend political capital to roll back growth-inhibiting barriers defended by interest groups. It does not take hard work, however, to write the essay that you published. That was a screed. James Lileks writes screeds, but they're clever ones. Yours was mostly an example, to quote Gary Becker, of confused hostility.