James Hasik

Stand by for BRAC 2013, and the closure of at least one Air Logistics Center

That's still to be decided. The Air Force depots are operating at about 50 percent, so we're probably well positioned to protect the depot now.
— Lt. Gen. Harry Blot, USMC (Ret.), on the prospects for the Marine Corps aircraft depot at Cherry Point, in Sue Book "Officials: F-35B Will Make the Cut," New Bern Sun Journal, 8 January 2012

At a conference at Quantico two years ago, a SETA contractor for the USMC asserted to me that we'd never see another Base Realignment and Closure (BRAC) process in our lifetimes, because "Donald Rumsfeld used up all the available political capital for that in 2005." I nearly told him that smoking crack was not good for his health, and that he should really stop. To wit, let me reiterate the general's point:

operating at about fifty percent capacity... [Cue ominous music.]

I haven't toured any of the USAF's three Air Logistics Centers recently—at Hill AFB (Utah), Tinker AFB (Oklahoma), and Robbins AFB (Georgia)—so I cannot corroborate the assertion physically. But I did check the books, which are available through the Pentagon Comptroller's website. The depots, along with the USAF's supply stocks and transportation functions, are funded through the Air Force Working Capital Fund (AFWCF). Like all WCFs, the AFWCF is a revolving account whose monies do not expire at the end of the fiscal year, and which is supposed to aim to break even. It's rather a business enterprise within the government—an attempt by the feds to provide transparency in intergovernmental pricing. And what's clear is that, according to the comptroller, the AFWCF has fun a significant "net cost of operations" in almost every year in the last decade or so.

FY Costs Net cost Margin
2011 13,099 (1,246) (10%)
2010 11,822 (1,494) (13%)
2009 10,534 (154) (1%)
2008 10,727 57 1%
2007 10,735 (303) (3%)
2006 8,671 (2,111) (24%)
2005 10,514 (900) (9%)
2004 5,399 (1,294) (24%)
2003 5,448 38 1%
2002 4,864 984 20%
2001 6,667 (4,298) (64%)
2000 6,093 (1,801) (30%)
1999 6,560 (527) (8%)

It's important to note what is meant by "net cost of operations". In business, we'd call that a loss. In most years, a billion dollar loss. And that's not good, even if the USAF's accounting is off a bit, because a billion is usually what accountants term "material".

I can't explain the fillip in 2001 and 2002, as the USAF's management notes are pretty opaque, but the whole thing just doesn't look good. And as aggregated as federal financial reports often are, it's really hard to tell whether it's the depots, the supply system, or Air Mobility Command that's losing the money. Moreover, in one sense, we could call all of this an accounting fiction. If the Air Force's depots are breaking even, it's because they're correctly charging their (mostly USAF) customers a lot of money, so the Air Force is paying. If they're losing money, they're not, so the Air Force is paying. But consistently getting the business estimates wrong at the beginning of the year is bad news. One can lose money with a full factory, but it's more likely with a half-empty one. Consistent losses, that is, suggest overcapacity—idle workers and equipment who must be paid for, but who aren't bringing in the coin they should.

It hasn't uniformly been that way. After a big operating loss in 2006, as the GAO reported last year, the USAF's depot system sacked about 2,000 staff. During the subsequent increase in workload, the depots experienced considerable labor shortages in some fields. But they're again losing big bucks on operations, which suggests that General Blot may be right about this one.

What does this mean for the future? First, as the US federal government tries to keep its financial hemorrhage from drifting towards the proportions of a truly Greek tragedy, everything is on the table. So word to the Congressional Depot Caucus: that means you too. The figures suggest that the workload at these three bases has increased considerably with the war in Iraq. American involvement in that war is now over. If the depots are running at about half capacity now, that workload will not be increasing. It's true that USAF's aircraft are rather old and maintenance-intensive, but the administration pledged late last week to continue the process of deleting the so-called Cold War assets from the force structure. This really must happen, as maintenance costs are pretty much eating the military's lunch these days. Word has already been passed to Capitol Hill that the Pentagon will ask for a 2013 BRAC, and in the given fiscal environment, that will be even harder to resist that the past five rounds. So the USAF will be losing at least one depot.

Second, this closure naturally will be ex ante of great interest to the aircraft maintenance industry. Boeing, for example, would be delighted to assume Tinker's transport aircraft workload at its facilities in Oklahoma City and San Antonio. A host of others will line up, from traditional defense contractors to commercial specialists—note how, in Australia, Qantas has the contract to maintain the RAAF's Airbus tanker-transports.

So for commercial enterprises of all sorts, 2012 will be a good year to start planning for how one's business could thrive in the aftermath of a good BRAC round. For the management, staff, and other interested parties at the depots, it will be a good year to show how your enterprise is the least ugly of the three, and for various reasons, the one that absolutely must be spared. All around, it's going to get interesting.

Truck Industry Mergers, and Why a Little Pricing Power is Good for Even the Customer

Loren Thompson at the Lexington Institute had an interesting essay last week on his Early Warning blog about Carl Icahn's proposed merger between Navistar and Oshkosh. As his title goes, he argues that the "Truck Merger Could Undermine Army Competition Strategy For Vehicles". Even though I don't agree with all the analysis, I'll recommend reading it, as I think that it is well thought through. Loren doubts that Icahn can realize the synergies for which he hopes—a point that I've separately argued to a number of journalists and financial analysts who have called about the issue. He also thinks that the Army is enjoying working with commercial truck builders, as the procurement folks there believe that "companies that operate in the commercial marketplace are more efficient and responsive, capable of tapping economies of scale not available to the military's captive supplier base." I have repeatedly argued this point myself as well. His last paragraph (reproduced below) proffers an interesting opinion about how this could evolve:

That reasoning isn't necessarily wrong, but it ignores the loss of control implied for the Army customer. When you are by far the biggest source of demand for a company's products, then you can pretty much dictate the terms of the relationship. When you are only one of many customers, you have less influence over how managers and investors choose to deploy their capital. In the case of Mr. Icahn, he doesn't much care what the long-term consequences of combining Oshkosh and Navistar might be for the price and performance of Army vehicles, because he is motivated by near-term financial results. The fact that submerging Oshkosh into the Navistar culture will give the Army fewer competitive options in the future is fine with him; that's how you get pricing power. So even before the Army's strategy of relying more on commercial sources for its vehicles has fully coalesced, the marketplace is sending a signal that there may be consequences service officials hadn't considered.

Oshkosh may not yet be submerged. There is first to be, as Lawrence Garfield once put it, "a good old-fashioned proxy fight." And for convincing shareholders that not all is wrong, the Milwaukee Journal-Sentinel usefully reports today in an article's headline, Oshkosh Contract to Turn Profit Sooner than Expected. So the company in Wisconsin is pulling up a bit.

But this is where I diverge from Loren's opinion. There is still gross overcapacity in the military truck industry in the US. Oshkosh's low bid for the FMTV contract may yet prove to have knocked BAE Systems out of that business without actually knocking out Oshkosh as well. And General Dynamics has absorbed Force Protection. But there are still market exits to come. Whether that's a combination of Navistar with Oshkosh, or some other combination, is yet to be seen. Either way, the manufacturers need to recover some pricing power for the health of the industry overall. It's rather like the Feds' weird attitude about airline ticket prices: constantly scrutinizing merger deals for "anticompetitive" potential, and then wondering why the companies are repeatedly filing Chapter 11 papers. In the long run, that's just not good for anybody.

Some observations about past programmatic disasters, and a New Year's business resolution for 2012

A Navy Department told me the other day that every year, his New Year's resolution is to quit smoking. He has never smoked; he just figures that it's an easy way to annually "come in for the big win". For myself, I remembered this morning that I've been a consultant in this business for ten years—I decided in September 2001 to get involved again, and really got rolling that December. So I figured that I ought to catalog a few salient predictions and recommendations, and one memorably failing one, before planning what to do in 2012. The strictures of client confidentiality prevent me from commenting on exactly what I said to whom, and quite what they did with it, but at least in a general way, I can showcase a few of my own big wins.

The Stryker is a real 'Future Combat System'. In this column, I was chiding Loren Thompson the other day that the late FCS was probably his worst choice to defend as a memory of a programmatic cash-sucking chest wound. The Army Department famously couldn't tell its contractors, several years into the program, whether the howitzer (er, XM1203 "Non-Line of Sight Cannon") would have a 105 mm gun, a 155 mm gun, or something in between. Chaos of that kind and a few others told me that the concept was going nowhere.

So, in the middle of 2005, almost four years before its actual demise, I started loudly telling folks with an interest in the program that they needed a Plan B. For General Dynamics, at least, it turned out that said plan rhymed with "Stryker". For BAE Systems, that might yet be an A4 version of the Bradley, whatever the base vehicle's underlying challenges. But I know one thing—at $10 million or more a pop, it sure isn't going to be a "Ground Combat Vehicle", and the Army should quit pretending otherwise.

The EFV is sunk. The Expeditionary Fighting Vehicle program was a disaster from its beginning back in 1996. The US Marine Corps had demanded a troop carrier that could swim ashore at 20 knots, and keep up with tanks moving cross-country. General Dynamics dutifully agreed to try, dropping in the biggest supercharged diesel anyone had ever seen in an armored vehicle, and devising a retractable planing system that made the EFV function like a Transformers toy. Honestly, the folks there were trying hard; it was just that the Marines, in their quest for the very difficult (the opposed beach assault), had asked for the even more difficult.

So, back in 2006, I started recommending to boat and armored vehicle builders that they shake off their ten-year frustration about GD's endlessly fat contract, and start showing some alternatives in PowerPoint. The disaster of the EFV was foundering, even if it took nearly another five years to fully sink. But it was obvious, at least to me, even then that the Marines needed to cut their losses and move on. Every other amphibious landing force in the world would just stare in institutional disbelief at what they were trying to do.

The Zumwalt-class überzerstorer has all the legs of the battlecruiser concept. Like John Lehman, from whom I first heard the comment, I don't necessarily know what to call a 12,000-ton ship, but I know it's not a destroyer. There was never any real chance that even the US Navy was going to build air defense ships of that size, whatever the savings from automation of the crew. Automation is automation, so whatever its merits, it can also be applied to more modestly sized ships.

So, back about five years ago, when plenty of folks were scoffing at the Littoral Combat Ship concept, I was asserting that, at a minimum, the Independences and Freedoms had more programmatic staying power than the Zumwalts. I won't say anything about their staying power in combat; that's often an oddly separable issue.

There may be something to this blast-protection idea. Back in 2006, I spent some weeks cataloging American combat fatalities in Iraq by cause, service, branch, weapon—all sorts of stuff, including the vehicle (if any) in which the combatant was riding at the time. I found, as quite a few reported afterwards, that one was statistically safer in a Force Protection Cougar or a BAE Systems RG31 than in an Abrams tank—and particularly safer than in a Bradley. I briefed some folks at the Pentagon, and quite a few around the industry. At one meeting at a tank factory in Europe (I'll not say where), before I could say anything, the company's head of strategy urged me and everyone else in the room to read the report (he didn't realize that I was the author). I won't pretend that I had a lot to do with Bob Gates' eventual instruction to buy thousands of MRAPs, but I do think that I had a supporting role in the important process that led up to it.

For completeness, I should note my one famously wrong prediction: the US Air Force's decision to buy Airbuses will stick. That didn't happen. Honestly, I didn't have a strong opinion about the merits of either plane, just a mild preference for the A330s, based on my expectations of the long-term operating profile that will emerge. But that preference did and would again depend on price as a component of overall cost, and I will say that the repeated recompetitions may have secured a very good price for the USAF. The folks at EADS certainly don't think that Boeing will make money on this deal.

So what does this all tell me? Notably, all my big predictions have involved American programs. That might seem odd, as I have had plenty of European clients over the past ten years, and plenty of American clients trying to sell overseas. The US market may be perhaps half of the total worldwide, but even that is only half. Frankly, I think that the answer is obvious: as a friend in the armored vehicle industry once put it to me, only the British are better are mismatching their would-be requirements to their actual resources. The Pentagon will keep blowing up its programs if the political appointees keep letting the services write stupid specifications. Thus, even while predictions of Berra's type (those about the future) can be difficult, I think that I can resolve to be in this prediction business for some time yet.

Sunk Costs, the F-35, and the Increasingly Unfortunate Commentary from Forbes

Economics professors are more likely to walk out of bad movies than their colleagues in the humanities. Hold onto that thought for a moment; I’ll get back to it.

First, let me apologize for not having written for some time. Our business has been, to a certain extent, stumbling through limbo these past few months, at least in the United States, and the profound uncertainty has sent me back to more fundamental research looking for answers. But just now, something really stirring has reappeared, an idea so offensive and casually destructive that I might call it an intellectual kraken. Yesterday, that is, Forbes’ military-industrial columnist hauled ashore a really foul one. Here’s how the installment starts:

        One of the most unsettling facets of federal finance is the way the government devalues past investments. The political system is so focused on the next budget—and the next election—that it ignores sunk costs. Thus, every program termination is considered “savings,” without regard to the money that was spent to get the project in question to its current state.
— Loren Thompson, “How To Waste $100 Billion: Weapons That Didn't Work Out,” Forbes, 19 December 2011

The preceding emphasis is mine. I didn’t catch the column when it first appeared yesterday. Rather, a colleague in Virginia sent it with the advisory that I not read too far in, “or your head will explode.” Better, as he continued, “you don’t even need to read past the first paragraph (and in fact I’d encourage you to stop reading there to avoid wasting your time). It’s astounding that Forbes is even willing to publish him at this point.” I didn’t say it; I’m just reporting it—right?

Now, on that comment about bad movies. Such was the finding of Richard Nesbett and two colleagues in their survey of professors and students at the University of Michigan some years ago: the economists, and even their economics students, better knew how to cut bait. If the movie really is a turkey, then the time and money spent there already is no basis on which to proceed. The reference is found in Alan L. Otten, “Economic Perspective Produces Steady Yields”—there’s an apt title—in the Wall Street Journal of 31 March 1982, on p. B1. I found that reference in the first microeconomics textbook I used during my master’s program at the University of Chicago: B. Peter Pashigian’s Price Theory and Applications (McGraw-Hill, 1995). The citation is found therein on page 228, in a box labeled Why “Never Give Up” Is Not Always the Best Advice. Get the point?

Certainly an old friend in the Marine Corps did; as he related to me on seeing Loren’s column, “I got a B– in intro micro and the only two things I remember are (1) always pay down principal on your mortgage first, and (2) sunk costs must be ignored in decision-making. This is disgraceful.” For my part, in writing all this up, I didn’t need to consult notes from my intermediate or advanced microeconomics courses; by the time we had gotten there, we were rather expected to grasp at least that much.

But contrary to advice, I did continue reading, and found that the rest of the column was a series of rolling assertions about how nearly every big, legendarily underperforming American weapons program of the past decade had merited continued funding, because the government had already spent so much. And that’s just the classic sunk cost fallacy, as the textbooks relate it. Monies spent are monies gone, unless they have been capitalized in an already useful asset. The measure of which to take stock is the costs of the alternatives: how much would need to be spent if starting anew, and how much would be lost—in defense, often admittedly an intangible—if we simply decided not to have one at all.

Since it’s topical, and heck, because Loren is a consultant to Lockheed Martin, let’s take the F-35 Lightning II Joint Strike Fighter program as an example. No one in his right mind expects that the full program will come to fruition. But just yesterday, the Japanese government announced that it would order perhaps fifty of the planes. That’s not surprising, as the Japanese Air Force had been salivating about the presumably stealthier and commercially more elusive F-22 Raptor for years. The decision is also an endorsement of the survivability of the program; clearly Tokyo doesn’t think that it’s on the verge of termination. But if sequestration does come to pass, and all options are indeed on the table, killing the JSF becomes tempting, because removing that chunk of money solves much of the budget problem fast.

The calculation then does not involve how many billions have already been spent—some set of assets has been attained for those monies, but the demonstrators, test articles, and LRIP aircraft have been bought, whether half as much or twice as much was spent. The capitalized value is an accounting measure, but of little raw value for decision-making. Rather than that, we’d want to hear about the probable cost to finish the program, the relatively known cost of an equal number of F-18Es or Rafale Ms, and an assessment of what those Boeing or Dassault aircraft couldn’t do that the Lockheed aircraft presumably could have done. Note the difference in language: any assessment of the potential of the unfinished program must be probabilistically discounted, and its future costs viewed similarly within a probability distribution, because the facts are simply not all in.

Thus we find the general problem grossly misidentified. It’s not that generals, admirals, air marshals, bureaucrats, and politicians all don’t understand the concept of sunk costs. Most of them do. Plenty of them, across the world, have been through places from the Kennedy School to the ENA, and a host of less luminary institutions, at all of which I’m pretty certain the concept is taught. It’s not that military decision-makers fail to account explicitly for sunk costs, for which they should not be accounting at all. Rather, it’s that they sometimes do account implicitly for them, in a group-thinking way, without admitting what they’re doing. They conceive of the future in terms of the past, and then throw good money after bad.

The specific result, to play upon one of Loren’s particularly egregious examples, is zombie programs like the so-called Future Combat System, the bureaucratic walking dead that stumble along for years without their managers being able so much as to specify whether the gun will be 105 mm, 155 mm, or something in between. The fiscal tragedy is not that the program died after so much was spent, but that it was ever allowed to start in the first place. Programs as these don’t need mollycoddling; like the sunk cost fallacy behind them, they’re cash-devouring monsters. What they need is what a Navy program manager friend of mine once termed “forty-five caliber therapy.” Damn the sunk costs—someone needs to shoot them in the head, and twice to be sure.

SRA sells ERA to OMNIPOL

Restructurings in the global arms industry usually catch my attention, but this one is really interesting. Here's the electronic lucite that I received the other day from the deal-doer, Houlihan Lokey:

Houlihan Lokey is pleased to announce the sale of ERA a.s. (ERA), a subsidiary of SRA International, Inc., to OMNIPOL a.s. (OMNIPOL). The transaction closed on November 21, 2011.

With over four decades of experience, ERA is a pioneer in state-of-the-art air traffic management and surveillance systems for civil and military applications. Located in Pardubice, Czech Republic, ERA is a world leader in developing and manufacturing high-performance, high-value surveillance and flight tracking solutions that employ multilateration, ADS-B and ADS-X technologies. ERA's signature surveillance systems include fixed, mounted and deployable technologies encompassed in its MSS, SQUID and VERA products. The company serves a global customer base with installations in numerous countries.

OMNIPOL is a Czech-based equipment and solutions provider.

As I will note below, that last line says less than it could.

ERA is the Czech electronics firm that has been said to have a developed some time back a passive technical means for detecting stealth aircraft. Supposedly it's a bit like the passive sonar technique of looking for where things aren't—if the biologicals aren't honking in that part of the ocean, there might be something else there. In this case, the wide area sensor array was looking for slight variations in the background noise—if it's being absorbed or scattered in an unexpected way, then there might be something there.

Just a few years ago, there was a widespread speculation in the Czech press that the US Defense Department had leaned on SRA to buy ERA, to keep it out of the hands of a Russian suitor. I naturally have no confirmation of this. Whatever the case, I can imagine SRA selling ERA again, but it is the buyer here that is particularly interesting. OMNIPOL (excellent name, truly of Bond-movie quality) is the formerly state-owned weapons export outfit that, back in the day, built some excellent customer relationships far and wide throughout the world. It was, incidentally, once the monopoly supplier of Semtex, which is just a whole other talk show.

Now, those marketing connections and skills are great assets in the business, and they've been pretty notable across the Czech industry for decades. But probably someone wouldn't be keen on OMNIPOL selling certain technologies of ERA to certain customers worldwide. So, either some technologies—and presumably people—were retained in SRA, or some assurances have proceeded from Prague regarding what will be sold where. That's pretty imaginable: it isn't generally in the interests of NATO members to export wildly.

The general point is that we may see more of these deals over the next few years. Falling budgets in the US will induce changes in spending patterns, which will in turn induce portfolio reshufflings. Some of the assets sold will go to successful bidders outside the US, and in some cases, the proposed transfer of the capabilities in those companies will invite scrutiny from the Committee on Foreign Investment in the United States—the CFIUS process, as they say. That's been with us for a long time; it's just that we should expect to see quite a few more interesting cases in the near future.

"To do less with less... won't work this time. The world won't co-operate." Here's a modest proposal.

So said General Martin Dempsey, chairman of the US Joint Chiefs of Staff, yesterday evening in the Colin Cramphorn memorial lecture at the Policy Exchange think tank in London. As The Guardian reported, the general did provide an alternative. "With cost as an independent variable," he said, "we must now seek the synergies and possibilities of capabilities that are integrated and combined in innovative ways."

I have a few reservations about his statements. Cost hasn't just been an independent variable since the early 1990s, when the Pentagon dreamt up the acronym CAIV; willingness-to-pay, at least, has been independent all along. And as uncooperative as this-or-that country may be, I'm not sure that the world will always and everywhere need the same level and nature of American and allied military involvement. It is just possible that less could be more, as they say.

But I do admire the general's can-do attitude. Any decent military strives to show its civilian employers that it can rise to challenges. So just what might be some of these innovative-and-integrated, synergistic combinations? Recent experience points to at least one:

SpecOps + CSAR = fewer airplanes.

I have watched at least two NATO air wars now in which the US Marine Corps seems to have had the hammer for combat search-and-rescue (CSAR). It's important to note that the Marines don't actually have specialized CSAR units or aircraft. Heck, they don't always have real special operators available. What they do have is long-range rotorcraft and guys who train hard. So, they just grab what's available on the nearest carrier. In Bosnia in 1995, that was a CH-53 and some escorts from the Kearsarge, pulling out a US Air Force F-16 pilot. In Libya in 2011, it was an MV-22 from (coincidentally) the Kearsarge, pulling out a US Air Force F-15 crew.

Since the USAF seems to have already mostly outsourced its CSAR to the USMC anyway, it may be mystifying why the bluer service insists that it needs a whole fleet of dedicated CSAR aircraft and crews. A whole fleet, as former Defense Under Secretary John Young once put it, for "single digit rescues." The economics of this enterprise don't even begin to compute. Worse, the USAF seems intent on replacing its CSAR MH-60s with more CSAR MH-60s. The model may be newer, and the Pave Hawk a fine machine to start, but the range just isn't what's available in a bigger airplane.

I apologize for drum-beating if I have made these points before (and I have). But this modest idea—letting the Army and Marine Corps handle CSAR with their long-range rotorcraft—seems to me integrated and synergistic. If they want to hand it to their specials, good for them; if not, I trust their judgement. I suppose that one could even leave it some of it with the USAF, but strongly suggest that it consolidate the mission in Air Force Special Operations Command. Yet whoever staffs the missions, necking down responsibility for CSAR would continue to foster some healthy interservice competition while cost-effectively combining assets. It would seem to hit almost all the general's points; and if it's not particularly innovative, well, I'll take that criticism. Better that it just make sense.

Consolidation begins—on General Dynamics' Proposed Purchase of Force Protection

I had been asked several times in the press over the past few weeks about the mooted merger between Oshkosh and Navistar, an idea seemingly brought up simply because Carl Icahn now owns something close to ten percent of each company. OK, Carl doesn’t buy companies to run them for the long term, so it’s easy enough to imagine his intent. But each time, when asked what I thought of the merger, I had to admit that it wasn’t the first deal that I would have expected. I could think of a few others, including almost anything involving Force Protection, I would say, if the company wasn’t so fiercely independent.

Not eternally, it seems. General Dynamics Land Systems and Force Protection announced earlier this week that GDLS would be buying the smaller firm for $360 million, or $5.52 per share—about 31 percent above its recent price on the market. That’s a considerable premium, but I’ve already heard some grousing in both directions—that the price wasn’t high enough, and that FP just isn’t a good acquisition for GD. Since I generally don’t comment publicly on transaction prices, at least not without a lot of analysis, I will simply strive to explain why I think that this deal makes sense in principle.

As I’ve commented previously, in this column and in the press and to clients, the military vehicle business is shrinking quickly. When the commandant of the USMC notes that he has 40,000 vehicles, but only needs 30,000, there’s not a lot of room for new programs. That’s before the force structure cuts that we all know are coming, which will also damped enthusiasm for remanufacturing of old vehicles. And yet, there are at least eleven industrial enterprises in the US alone involved with either manufacturing or remanufacturing military vehicles: Oshkosh, Navistar, Daimler (Freightliner), GDLS, FP, BAE Systems, AM General, Textron Land Systems, the Red River Army Depot, the Marine Corps Logistics Base at Albany (Georgia), and MCLB Barstow. It’s pretty inconceivable that all these entities will be left standing after the full extent of the projected declines in spending are felt. After all, in the 2005 Base Realignment and Closure (BRAC) process, the Army itself nominated Red River for closure, and only the BRAC Commission’s hesitation about closing a repair facility during wartime saved it.

So we know that consolidation is coming, that factories will be closed, and that jobs will be shed. The current costs, admittedly, are concentrated amongst those who did yeoman service building vehicles to protect the troops in two wars, but the benefits, if diffuse, will accrue to taxpayers who can reallocate those resources to more efficient future use. For those in the business, this can happen suddenly, in financial distress, or it can happen in an orderly fashion, with plenty of time to sort the assets into their most efficient groupings. GD and FP are choosing the latter path.

All that said, while it was an open secret that plenty of firms had discussed buying FP, the company wasn’t ostensibly being shopped around. GD’s bid was said to have been unsolicited. So why FP specifically? There are at least two reasons.

First, FP has a large installed base of vehicles with relatively loyal customers around the world. The US Marines and the British Army in particular are quite fond of its vehicles, and its Buffalos, the heaviest MRAPs available, are now not just movie icons, but a program of record with the US Army. It’s hardly always the case that the original equipment manufacturer (OEM) captures the future upgrade work on its own vehicles, but the OEM always has a built-in advantage. Even if the government own the technical data package (TDP), there is tacit knowledge in the company, well beyond what’s in the TDP, about how those vehicles work. If the right people in the workforce are retained through the inevitable downsizing, they will form a sustainable competitive advantage in that market.

Second, FP has important technologies, some patented, some simply trade secrets, that bolster the robustness in combat of its products. With this acquisition, preferential access to FP’s armoring products and survivability concepts will accrue to GDLS’s vehicles. This is a bit more than the canard about sticking Navistar engines in Oshkosh trucks, as some Wall Street analysts ventured to the press last month (mostly when grasping at straws to try to sound smart). Engines are relatively modular products that are bought and sold on the open market. Navistar might make sense as a directed subcontractor for Oshkosh’s vehicles, but Catepillar seems to mostly have that role, at the Army’s insistence, and that’s the end of that story. About armoring solutions, military customers are much more flexible, simply because they know what they don’t know. FP’s armor is reasonably modular, in the sense of technology architectures, but the know-how for improving survivability is much more integral and sensitive. There are several companies in the business that are very good at this, but GD is buying one with differential, valuable intellectual assets.

It’s also important to note what this deal is and is not. In this month’s National Defense, Sandra Erwin takes the merger “as further proof that the defense sector increasingly will become vertically integrated as large companies swallow their financially weaker competitors.” The industry will become more concentrated, yes, but not necessarily more vertically integrated. The second explanation above is a matter of vertical integration, but the first is a matter of horizontal integration. Sandra does, however, have an excellent point about the truck business per se. Force Protection was a case study in my book Arms and Innovation: Entrepreneurship and Alliances in the Twenty-First-Century Defense Industry (University of Chicago Press, 2008). Therein, I wrote a bit about this issue, concluding that in the middle of the last decade, the company faced a great market with some great capabilities, but had a tight window for success. In the long run, the large-scale economics of truck production would come to favor larger firms, and FP would have trouble competing on that basis. With this deal, management is concluding that the best deal for shareholders is that 31 percent premium right now.

US and Canadian Army discontent in armored vehicles, and who will likely benefit

I have been away from public commentary for almost a month, as I've been extremely busy with both academic and professional work. I seem to be closing with the bottom of the pile, at least for now. Besides, in the past few weeks there has been a flurry of news, on which I must weigh in, about US and Canadian Army troop carriers. The two armies, it seems, are not exactly happy with most of them.

Last month, the US Army announced that the 3rd Brigade of the 2nd Infantry Division, the "Ghost Rider" Strykers of Iraqi fame in 2004, would not be taking those Strykers on their upcoming deployment to Afghanistan. Instead, the troops will draw MRAPs and M-ATVs from the thousands available in country. [1] One can understand the emphasis on blast-protection. When driving Strykers there in 2009, the 5th Brigade of that division suffered 37 killed and 238 wounded; 21 of those killed were lost to IEDs, and at least 40 of the wounded were as well. [2] As varying reports from Iraq and Afghanistan have indicated over the years, there are things the troops love about the LAV, and there are things about which they're clearly less enthused.

This loss rate was thus part of what led to the program to bolster American and Canadian LAV-IIIs with double V-hulls, greater ground clearance, and more powerful engines. The Canadian program includes 550 vehicles, and the government in Ottawa hopes that this will extend the LAV's utility out through 2035. [3] The American program is similar, and has so far has upgraded somewhat more than 300 vehicles from an initial order of 450. Three hundred or so is enough only to equip a single brigade, so another 292 vehicles were ordered from General Dynamics last month, at a total price of $634 million. [4]

At roughly $2.2 million per vehicle, depending on the variant, that price is a far cry from the $10 million that the US Army figures that it would need to pay for each new Ground Combat Vehicle (GCV). That short of the $13 billion that the Government Accountability Office figured that they'd cost, but it's still a whopping number in the face of serious financial constraints. And yet, the Americans are particularly underwhelmed by their Bradleys, the vehicle that the GCV is supposed to replace. The "Bradley is our most attrited vehicle," Lieutenant General Bill Phillips told the House Armed Services Committee last month, "we haven't used them in combat since 2007 or 2008." [5] Phillips is the military deputy to the assistant secretary for acquisition, so he has some visibility into the issue, and some authority on it.

So, the Army will shortly be spending $46 million on an analysis of alternatives (AoA) to determine whether either KMW and Rheinmetall's Puma or Israeli Military Industries Namer could work in place of the GCV. [6] As I have written previously, it's just plausible that the Germans and the Israelis know something about tanks. Frankly, $46 million should pay for a whole lot of AoA-ing, so one does hope that the work produces a usable answer. There are clear advantages to an off-the-shelf purchase, including the political benefit of showing the Army's political masters that it can actually get something right in procurement fast, after a decade of expensive and failed attempts to reinvent wheels. Or tracks.

Who should be expected to benefit, ex ante, in this shift? KMW and Rheinmetall are back in the game with GCV, after losing to BAE Systems and General Dynamics in the first round (even if that contract award is still under protest). But writ larger, GD may be the big winner, and BAE the partial loser. First, the Canadian Army remains committed to its LAVs, and seems sticking that way for some time to come, And even if the US Army isn't sending GD's to Afghanistan, it's still modifying them, and apparently raising an eighth brigade, when it's talking of consolidating other brigades into larger formations, and just cutting a whole lot of battalions.

For BAE's Bradleys, though, the Army is showing little but contempt. BAE may yet get the opportunity to turn some of those Bradleys into turretless utility vehicles as replacements for really, really aged and unbeloved M113s. But for despite earlier interest in an A4 version of the Bradley, that idea has been noticeably absent from recent Army chatter on the subject. More notably, while that Namer that is attracting notice was designed by IMI, it's currently being built by GD—at Lima, Ohio with American military aid funds. So, GD has a hot production line for an Israeli-endorsed GCV alternative that costs about half what a GCV would.

Some of this is fortune and some of this is virtue, but one really must be impressed with the places that GD has staked in the armored vehicle business. They've been paying off handsomely for about a decade now. In short, whether or not the Bradley gets replaced anytime soon, GD is in a great position to benefit.

—————

PS: In the interests of full disclosure, I'll note that I'm not currently a consultant to any of the firms mentioned in the preceding essay. In general, as I tell people, if you want to know for whom I'm not working, read about whom I'm actually writing.

NOTES

1. Adam Ashton, "Deploying JBLM brigade will leave Strykers behind," Seattle Times, 26 October 2011.
2. "US Army Moves Ahead with V-Hull Strykers," Defense Industry Daily, 30 October 2011.
3. "LAV LORIT—Standardizing Afghan LAV Upgrades," Canadian-American Security Review, 23 October 2011; Elise Stolk, "Federal Government to Spend $1.1 Billion on Combat Vehicles," Edmonton Journal, 21 October 2011.
4. "GDLS to Deliver Double V-Hull Strykers to Equip Two Brigades," Defense Update, 27 October 2011.
5. Philip Ewing, "New Army Optimism on GCV," DoD Buzz, 27 October 2011.
6. Michael Hoffman, "U.S. Army Still Eyeing Puma in GCV's Stead: McHugh," Defense News, 2 November 2011; Brendan McGarry, "U.S. Army May Look to Germany, Israel for Ground Combat Vehicles," Bloomberg, 2 November 2011.

That "extraordinary principle" about the MQ-9 Reaper

        The Bush administration, and even more aggressively the Obama administration, embraced an extraordinary principle: that the United States can send this robotic weapon over borders to kill perceived enemies, even American citizens, who are viewed as a threat.

So runs the line in the New York Times this weekend (see Scott Shane, “Coming Soon: The Drone Arms Race,” 8 October 2011). Honestly, it’s classic stuff for that newspaper—more breezy bogus ideas in one sentence than I can shake a stick at. Let’s pull that apart logically, bit-by-bit:

1.        embraced an extraordinary principle—It's only extraordinary if what follows supports that assertion.
2.        this robotic weapon—That the weapon is robotic isn't really relevant to the legitimacy of the attacks. It's novel, but would it matter if this were done with B-2s?
3.        over borders—That's usually where wars are fought.
4.        perceived enemies—I perceived Anwar al-Awlaki as an enemy. I'm sure that Anwar al-Awlaki perceived himself as an enemy, too.
5.        even American citizens—The US government once spent a lot of time trying to kill Robert E. Lee, and the government's whole justification for that war rested on its insistence that he was still a US citizen—that the individual states couldn't actually secede without permission. (Of course, the whole process of readmission to the union in the 1870s put paid to that argument, but that's a whole other talk show.)
6.        who are viewed as a threat—Not every enemy is a threat, but really, what does the Times think that these people are doing in Yemen and Pakistan? Working on their golf handicaps?

So, I'm voting for "not extraordinary". Whether it's a good idea is a whole other question, but the idea is no more extraordinary than Black Jack Pershing chasing Pancho Villa into Mexico in 1916.

But that’s entirely why the article is unhelpful. Contrary to whatever misperceptions might be floating about, there’s no intelligence in those drones themselves. Like any other two-seater attack aircraft, they’re controlled by a pilot and an observer—who just happen to sit in Nevada or somewhere else stateside while the planes go about their business over Afghanistan or Pakistan or Yemen or anywhere else. Grasping that is pretty important to analyzing what the aircraft are and are not good for.

"Systems engineering will be done up front" and other scary stories

        ...requirements too often represent wishful thinking. Too rarely do they reflect military needs... Yet the services have never trusted the judgment of either defense contractors or civil servants. In their view, only military professionals can understand what is needed for warfighting. Too often as a result, the services end up asking contractors for the impossible or the barely possible.
— John Alic, Trillions for Military Technology: How the Pentagon Innovates and Why It Costs So Much (Palgrave, 2007), pp. 107–108.

Sometimes, at least, when things are going well, they also reject the judgment of pundits, the crowd whom a staffer at the Senate Armed Services Committee once told me had generally experienced vastly more fluorescent lighting than actual operational service. I’m writing, of course, about the latest from Mackenzie Eaglen of the Heritage Foundation, the editorial she penned last week for AOL Defense—“Is Next-Gen Bomber Biggest Air Force Mistake in Last 50 Years?” This was bad enough that I felt compelled to pull away from my Monday afternoon to comment.

“It may surprise many,” Eaglen wrote, “but today's [U.S.] Air Force cannot hold every contested target at risk, a fundamental strategic goal.” The USAF is paying some contractors to think up a new, presumably manned, long-range bomber to do just that. However, she fears, with constrained resources, the USAF will not dream big. Rather,

        Systems engineering will be done up front. The goal is to incorporate low-risk technology sooner, rather than build an exquisite solution later. That approach may turn out to be the Air Force's greatest missed opportunity in a half century. Due to budget constraints alone, it seems the Air Force may build a less than 80% solution when the service in fact needs a next-generation capability. This is primarily because precision munitions and battle networks are proliferating, while advances in radar and electro-optical technology are increasingly rendering stealth less effective.

Systems engineering done up front! How pedestrian! Seriously, this is perhaps the first time since the concurrent engineering craze of the 1990s that I’ve heard someone say that dismissively. Doing it as you go has produced such memorable programs from the Joint Strike Fighter to the Future Combat System. Why stop now?

I must state that I do agree with Eaglen’s assertion that “advances in radar and electro-optical technology are increasingly rendering stealth less effective”. I wrote about that in Naval Institute Proceedings shortly after the Kosovo War. I have been warning clients about such for some time. For as I’ve heard Bill Sweetman of Aviation Week & Space Technology put it, the exterior lines and materials of any airplane are pretty much baked in at the factory for the next twenty or forty years, but computer processing power is still following Moore’s Law. Air defenses will catch up, at least somewhat.

But what of that? Is holding every possible, imaginable target at risk really a “fundamental strategic goal”? Declaring such sans analysis is to abdicate any responsibility for setting strategy, for it blithely asserts that any single military service must be able to do anything that it chooses to want to do, whatever the price. That’s hardly a Clausewitzian thought; the politicians are supposed to be the ones making those choices. It’s hardly an economically rational thought, perhaps dreamt up by those who once thought that cost wasn’t always an independent variable.

Thinking strategically, creatively, and critically is what lead recently General Hoss Cartwright of the USMC to comment that he had never seen a manned ICBM. Somehow, they work quite well for deterrence. True, there are targets that only big, penetrating bombers with big gravity bombs can service, but this set consists basically of deeply buried fortifications. And at a certain point, one must ask whether Kim’s führerbunker or some Iranian centrifuging plant is really worth the huge expense of building a hundred successors to the B-2. Sometimes, like the Israelis at Osirak, you’re good, your opponent is incompetent, and you get lucky. But more frequently, that’s not remotely worth the risk, as even Benjamin Netanyahu may be concluding.

This points to a more general problem of doomsaying about defense today, and one that’s not quite working. Winslow Wheeler (though I sometimes tremble at agreeing with him) assailed this in a separate editorial at AOL Defense just the next day—“Elites Are Wrong; Deep Cuts Won't Damage Military”. Eaglen’s writing, as that of every other pundit inveighing on this topic lately, is lacking a serious analysis of just what would be in jeopardy. If there’s no big bomber; if there are half as many Joint Strike Fighters; if there’s no whatever—what practically would happen? Who would be emboldened to create unpleasant facts on the ground in some vital corner of the globe?

So, without good answers to that, the USAF is actually stopping the madness, at least with some of the big stuff. As Aviation Week featured in a big section on ISR programs in its 29 August issue, there is still envelope-pushing spooky stuff going on in the California desert. That is well-and-good. It’s just that the US military services are starting to figure out that the they can’t keep betting the farm on lead-ahead programs that “must succeed” (another favorite line from the press about the JSF) with cash getting a tad constrained.

An observation of some incoherent USAF thinking at the AFA

As I was reading the reports from this past week's conference of the Air Force Association conference in Maryland, I was struck by four comments by USAF generals that might make sense taken individually, but taken together, really don't. As this is one team making pronouncements, and in some cases one person, the incoherence is rather notable. I list them here with the references to the press reports:

The government will not, Chief of Staff Norton Schwartz stated flatly, fund programs just to keep certain companies in business. "We're not going to pay for something without any return on investment," for that "isn't the American way of doing things."
— Sandra Erwin, "Air Force Chief: No Corporate Welfare for the Defense Industry," National Defense, 21 September 2011

The chief also stated that the Next-Generation Bomber is the only manned military aircraft in development today, and as such, it's crucial to the industrial base.
— Dave Majumdar, "AFA: Bomber Program Vital to Industrial Base," Defense News, 21 September 2011

The USAF also wants new air-launched nuclear-tipped cruise missiles for its B-52Hs, but doesn't foresee getting them into production before the mid-2020s.
— Dave Majumdar, "AFA: Service to Replace ALCMs on B-52s," Defense News, 21 September 2011

"Land-based aviators" (drone pilots) will eventually outnumber cockpit aviators in the USAF, according to Chief of Air Education & Training General Edward Rice.
— Dave Majumdar, "AFA: UAV Pilots Will Outnumber Those of Manned Aircraft," Defense News, 19 September 2001

Kudos to both Sandra and Dave in the choice of the titles for their articles: one doesn't need to read the actual text to get the point. And that glaringly points to how the underlying plan isn't quite holding together:

(1) We're not going to pay contractors just to keep them around
(2) Unless they're building a big bomber, which is really, really important
(3) Except that it's not so important, because we can do much of that now with our existing cruise missiles
(4) And drones.

We could all have a little more faith in the USAF's sense of strategic planning if it didn't inadvertently expose contradictions like this.

By the way, whatever my enthusiasm for robotic aircraft, I must say that the term "land-based aviator" has the ring of "shore-based sailor". It will induce giggles initially, but there's some sense behind it all the same.

Parkinson, Krulak, and now Romney on Overstaffing in the US DoD

Testifying in front of the US Senate Armed Services Committee the other day, presumably incoming Deputy Defense Secretary Ashton Carter warned about the consequences of a failure in the Budget Control Act's Supercommittee. Automatic sequestration, he said, would result in the cancellation of training activities, the "abandonment" of weapons programs, and furloughs amongst the Defense Department's civilian staff.

This short list of savings opportunities prompts in me some quick reactions. Canceling training? One should tread carefully, for that is a greater source of American military advantage, in many cases, than advanced technology. Abandoning weapons procurement projects? I can think of a few that might go on the list, and a few that shouldn't. But furloughing staff? Sure—and I'll raise the secretary this. Don't furlough. Fire.

Why the harshness? First, because it's not clear how the monies sequestered would return to the budget. Spending is heading in one direction for the moment, and most probably will for some time. Second, because people furloughed are frequently people not needed anyway.

I am not here to suggest that the US Defense Department does not need civilian staff. But I will state that the department has far too many civilian staff—and military headquarters staff—for its own good. The problem is not endemic to the United States, and it was built up worldwide over a long time. But given the direction in which spending is heading, it's absolutely time to redress the problem now.

The classic observation about this problem came in a 1955 essay in The Economist, in which the naval historian (and sometime humorist) C. Northcote Parkinson described the burgeoning of boffinage in the British Admiralty after the First World War. The figures were pretty appalling:

1914: 62 capital ships, 146 000 sailors, 57 000 dockyard workers, 3 249 dockyard officials, 2 000 Admiralty staff
1928: 20 capital ships, 100 000 sailors, 62 439 dockyard workers, 4 558 dockyard officials, 3 569 Admiralty staff

The Washington Naval Treaty of 1922 was specifically designed to let the Royal Navy economize on battleships, and relatively shift back towards its 19th-century priority of patrolling the Empire with smaller ships. Thus, it's not surprising that the RN only dropped by 46 000 sailors; there were a lot of cruisers and destroyers to man. It's just possible that the increase in dockyard workers and officials was reasonable, for as Northcote wrote,

It might be urged, at this point, that the period under discussion was one of rapid development in naval technique. The use of the flying machine was no longer confined to the eccentric. Submarines were tolerated if not approved. Engineer officers were beginning to be regarded as almost human. In so revolutionary an age we might expect that storekeepers would have more elaborate inventories to compile. We might not wonder to see more draughtsmen on the pay-roll, more designers, more technicians and scientists.

The trouble is that this couldn't possibly explain why, as he went on

the dockyard officials increased only by 40 per cent in number, while the men of Whitehall increased by nearly 80 per cent. For every new foreman or electrical engineer at Portsmouth there had to be two more clerks at Charing Cross.

What would explain it? Parkinson's Law—as he observed, there are two ironclad laws of bureaucracy:

1. An official wants to multiply subordinates, not rivals; and
2. Officials make work for each other.

This naturally leads to bureaucrats constantly pleading that they can't possibly do their jobs without more staff to help them respond to the staff work of other staffs. After staff are added, those staff come to plead effectively for yet more staff. And so on, and so on.

Parkinson seemed to "doubt the stability of an economy based upon reading each other's minutes." But chiefly these days, the staff work consists of PowerPoint slides, which are even less enlightening—unless they have been produced in the US Army, in which case they are habitually dazzlingly confusing.

Naturally, I am far from just the second to air this grievance about military-managerial make-work. Lieutenant General Victor Krulak made this observation in a revised edition of his book First to Fight: An Inside View of the U. S. Marine Corps (Naval Institute Press, 1999):

In late 1985, for instance, our Defense Department research and engineering function embodied a defense under secretary, six deputy under secretaries, seven assistant under secretaries, fifty-eight directors, and seventy-eight other senior individuals. And the development process itself—the so-called program planning and justification sequence—now embraces fifty-two sequential steps. Had the same procedure been in effect in 1939, it is doubtful that there would have been an amphibian tractor available in time to take up it's important role in the march across the Pacific. (p. 102)

What's less clear is how much worse this has gotten lately. One would think so, from former Governor Mitt Romney's speechifying broadside about the inefficiency of Naval Sea Systems Command, or what was more elegantly once called the Bureau of Ships:

While the output has declined, the bureaucracy at the DOD has increased. There is enormous waste. Let me give you an example that was reported to me by former secretary of the Navy John Lehman. During World War II we built 1,000 ships a year. And there were 1,000 people in the Bureau of Ships. That's the purchasing department, if you will. In the 1980s we built 17 ships per year, and we had 4,000 people in purchasing. Today we build nine ships a year. Guess how many people are in purchasing? Twenty-five thousand people.”

The Washington Post called this a fact too good not to check, and came up with a decidedly unsatisfactory answer of "maybe not" The Post recommended the Defense Business Board's figures, which suggest that the overhead may actually have stopped getting dramatically worse some time ago. But it's still not good: the DBB suspects that there may be some 350,000 uniformed US troops performing inherently civilian functions. And some of those functions are useful on their own, and some are not.

That is, a few years ago we all heard then-Defense Secretary Bob Gates lament the loss of skilled engineering staff within the department. Truth be told, a good case can be made that the Pentagon and its field agencies need more smart engineers. But that's entirely within the bounds of Northcote's observation, and Krulak's assertion. Engineers thinking about submarines and amphibious tractors—good. Fonctionnaires engaging in briefing slide engineering—bad.

The challenge, then, is sorting the useful from the useless, and the useless from the worse-than-useless. And this can be quite challenging, indeed. Bob Gates, as Max Boot notes in this month's issue of Commentary, was quite good at firing high-ranking people who didn't meet his expectations. But it's much harder for a secretary or deputy secretary to know which hundred thousand people to pull out of the several hundreds of thousands in the department, both to save money and improve processes. We should hope, though, that the current leadership attempts just this, for it's far more productive to fire officialdom than to disband regiments and mothball ships. The difference in combat capability between weapons pointed downrange and viewgraphs of weapons pointed downrange is pretty striking.

A Lesser Future for Supercarriers? Why cutting the fleet might be quite reasonable.

If you are interested in aircraft carriers, read Robert C. Rubel’s article, “The Future of Aircraft Carriers,” in the latest issue of Naval War College Review. I will state up front that I have some quibbles with individual items. I notably don’t care for his assertion that ships like American America-class and the British Invincible-class are not “true aircraft carriers”—if the ship’s primary mission is to carry aircraft, then what else would we call it? But otherwise, it represents some very good thinking on the issue.

Particularly helpful is Rubel’s brief, high-level history of the evolution of aircraft carriers’ roles, particularly in American service:

1. Scouting for the fleet (back in the day, for the battleships)
2. Hit-and-run raids with aircraft
3. Capital ships meant for the destruction of the enemy battle fleet
4. Nuclear strike platforms (mostly in an interservice competition with the USAF)
5. Mobile, self-protecting airfields afloat

While even today, American supercarriers perform most of these roles, it is mostly the last that is their stock-in-trade today. For as a writer in Naval Institute Proceedings recently put it, in the past few decades, war at sea has largely been replaced by war from the sea. (And I think that I read some Navy Department white paper with that title once...) But the first trouble for the carrier enthusiasts, as Rubel tells it, is that not all these roles are equally important anymore. For example, the raiding role has largely been taken up with cruise missile-carrying submarines. For a short-duration strike, a $2 billion submarine with a crew of 100 is a lot more affordable than a $10 billion carrier with a crew of several thousand—and that whole air wing as well.

Even the mobile airfield role seems not as important as it once was. The entire air campaign against the Qaddafyists in Libya was usefully supported by aircraft carriers, at various times including the Kearsarge, Enterprise, Garibaldi, and Charles de Gaulle. But the entire campaign could have been run without any of them. For as the Air Chief Marshall Sir Stephen Dalton put it a few months ago, “on the periphery of Europe,” land-based fighter-bombers flying from secure NATO airfields can do the work of aircraft carriers considerably more cost-effectively.

The second trouble flows from improvements in the speed and accuracy of antiship missiles, whether ballistic or cruising, and the range and fidelity of electronic scouting systems. Counter-scouting is absolutely an option, but it’s not foolproof. As American fighter-bombers today have considerably shorter ranges than American carrier aircraft of the 1940s, the modern supercarriers wouldn’t be approaching the fight with a great deal of standoff—at least not without an airplane like the forthcoming X-47B attack drone.

The third trouble, if one that Rubel does not directly address, is that the American federal government is essentially out-of-money. This has put everything into play as a possible source of budgetary savings, including those heretofore sacrosanct supercarriers. But fortunately, the situation is not so grim if we can glom up to a few more-than-plausible hypotheses:

1. Supercarriers are not terribly useful anymore in the Atlantic
2. Supercarriers are still very important in the Pacific, even if all those Chinese missiles are pretty scary
3. All that deploying and “presence” is not as useful as the Navy pretends

Here’s how that all works. Hypothesis (A) has substantially been proven by that campaign in Libya: the Navy doesn’t really send carrier strike groups into the Mediterranean anymore, and this just hasn’t been a problem, Arab Spring or not. Besides, despite all the recent grousing about European commitment to military strength, the Mediterranean can more than adequately be patrolled and secured by the French, Italian, and Spanish navies. They have, if you haven’t noticed, more than a few ships.

Hypothesis (B) seems self-evident, though it should be noted that presence, such as it is, in the western Pacific is pretty adequately provided by that supercarrier permanently stationed in Japan.

That gets to hypothesis (C): single carrier air wings don’t really deter war. And with the assumption of the sudden-strike role by submarines, they’re not really needed for those much-beloved short-notice smack-downs. In short, it might be time to save a lot of money in steaming back-and-forth by keeping much more of the fleet closer to home.

Without the urge to deploy constantly to the far side of the world, and without the need to balance the fleet between the Atlantic and Pacific, the US Navy could adopt a very different approach to its carrier strike groups. If the six carriers assigned to the Pacific Fleet are today adequate to the job of deterring or defeating some future Chinese malfeasance, then they might be presumed to be all that’s needed on that side of the world. It’s the five carriers of the Atlantic Fleet, all homeported at the moment in Hampton Roads, that are less clearly needed. If two would do the job, so that one was always available in a pinch, then are three more excess to real needs?

At this moment, anyone from the Virginia congressional delegation reading this might be having a coronary attack. But that’s just the geopolitical reality laid bare by the campaign of the past several months. A fleet of eight supercarriers—would this be so problematic to American security?

For the details on how this could work, I will shortly have a study for clients on the sequencing, the rough cost savings involved for the government, and the implications for business—most notably, of course, Huntington Ingalls Industries.

The Ground Combat Vehicle: to GCV or not to GCV?

Late last week I published an update (DIRM 2011-06) for clients regarding my view of the US Army's current flagship acquisition program, the Ground Combat Vehicle, or GCV. Here's the abstract from the report:

The US Army recently got the go-ahead to budget $890 million for the development of the Ground Combat Vehicle (GCV), a very heavy replacement for the M2 Bradley. While the goals are laudable, the costs are impressive, and the program will not possibly attain the production run planned. It may not attain a production run at all. We analyze the costs and requirements to argue that the program is not particularly cost-effective. We then consider several scenarios with sticky quantities in the range of either zero or somewhere between 800 to 1400 vehicles eventually procured. Finally, we evaluate the impact on interested contractors, namely General Dynamics, BAE Systems, and the team of SAIC, Boeing, Rheinmetall, and KMW.

Note that I'm evaluating the possibility of the full production run—the 1800 that the Army says it wants—as close to nil. While I could explain more one-on-one, it's just not reasonable given the current fiscal limitations.

How Should Unmanned Aircraft Be Manned?

I spent much of the week at Washington DC, largely at the annual symposium and exhibition of the Association of Unmanned Vehicle Systems International (AUVSI), which is effectively the global trade group for (mostly) military robotics. While I was there, a colleague and I had a poster presentation (rather the consolation prize for not getting to present), the text of which I’m posting below for wider distribution.

The show itself was a pretty compelling affair again this year, as it has been for some time. Over the weekend, I’ll have an analysis of the take-aways for policy (on the blog) and for the industry (sent to clients).

—————

HOW SHOULD UNMANNED AIRCRAFT BE MANNED?
A Comparative Analysis of the US Army and US Air Force’s Approaches to Staffing their Respective MQ-1 Units

James Hasik, Stanton Coerr
Symposium of the Association of Unmanned Vehicle Systems International
Washington DC, 18 August 2011

ABSTRACT

Both the US Air Force and the US Army operate similar versions of MQ-1 aircraft on similar missions, but their approaches to manning them differ radically. As the two services each seem remarkable effective despite their dissimilar approaches to personnel management, we ask which approach is more cost-effective. We find a considerable difference in cost-effectiveness between the two, but can attribute it entirely to the Army’s approach to asset management. We close by recommending an alternative organization for the Army’s MQ-1 units.

INTRODUCTION

Both the US Air Force and the US Army operate similar versions of MQ-1 aircraft on similar missions, but their approaches to manning them differ radically. Army controllers are enlisted soldiers who proceed from high school to flight school; Air Force pilots are college-educated officers. Most Army fliers have never flown manned aircraft; until recently, all Air Force drone pilots were required to have done so. The Army rotates its flight crews to war zones along with their planes; the Air Force keeps the planes in-country, and the flight crews in Nevada.

Yet both services seem to be operating their aircraft successfully, albeit according to their own ideas of how a military force should operate. After all, when disruptive military technologies are tested against battlefield realities, planners frequently rely first with their hitherto proven methods. These choices, however, may be simple artifacts of conservative, if differing, military cultures. In new circumstances, these proclivities may be beneficial or hindering. Thus, rather than accepting the differences as immutable, we should want to know under what circumstances aspects of each approach are more effective for troops on the battlefield. We should also want to know which is more cost-effective, given the expectation that military budgets in much of the world may decrease considerably in the future. And our conclusions should be of interest to more than just these two services, for unmanned aircraft seem well on their way to becoming an increasing substitute in many roles which are now substantially or totally the domain of manned aircraft. [1]

ORGANIZATIONAL APPROACHES

The US Air Force organizes all its MQ-1B Predators and MQ-9 Reapers into a single formation, the 432nd Wing, largely based at Creech Air Force Base in Nevada. The 432nd is composed of two groups, one each for operations (flying) and maintenance. The former comprises a support squadron, a training squadron, a testing squadron, and four reconnaissance-attack squadrons. All told, in late 2010, the 432nd had approximately 140 Predators and 35 Reapers. [2] Official figures are not publicly available, but the Air Force's plan recently held that the personnel strength of the wing would have been approximately 600 aircrew and 900 ground crew (a sizable fraction contractors) by the end of that year, and mostly located at this single base. [3] This centralization of assets and personnel matches the service's foundational view of the importance of centralized control of military aviation, a corporate viewpoint dating to the 1930s and 1940s. [4]

The US Army approaches the organizational question quite differently. The ground force ethos of the Army has generally more valued decentralized execution—and increasingly so in recent years, as the counterinsurgency experience in Iraq and Afghanistan has necessarily foist greater responsibility upon captains and corporals. Since losing the Predator mission to the Air Force in the early 1990s, the Army has chafed at its lack of direct control. As one Grey Eagle pilot in Iraq recently rejoiced, “ten years ago the Air Force had Predators and they were working for three-letter agencies. When this thing goes full production, every aviation brigade is going to have it.” [5] Thus, the Army is parceling out its drones rather as it has long done with its manned helicopter fleet. The aviation brigade of each division is receiving a single company of twelve MQ-1Cs, at a rate of about three companies standing up annually. [6] Organizational details have been sketchy. The first Quick Reaction Capability (QRC) flights sent to Iraq consisted of just four aircraft, but included sixteen aircrew. [7] Strength per fully formed company has since been variously reported as 115 and 128 troops in headquarters, flight, and maintenance platoons.

SALIENT DIFFERENCES

Automation has been perhaps the most widely discussed difference in the Air Force and Army approaches. While the original MQ-1B was not designed for automated takeoffs and landings, the MQ-1C has been ab initio. As the commander of the first QRC unit said of the Grey Eagle, “you don't have to be a certified pilot to fly it. The aircraft is very autonomous.” [8] After comparing its own accident rates to those of the Army, the USAF is now more than considering this feature for current and future drones. In theory, full automation of these functions would mean that no pilots—even the current contractors—would need to deploy to overseas wars, allowing for completely centralized management of aircrews stateside. [9]

Rank and experience are the next obvious differences in approach. As is widely known and remarked upon, the Air Force's drone pilots initially came entirely from officer ranks and from the cockpits of manned aircraft. The Army's pilots, however, have always been enlisted soldiers, and generally without prior flight experience. In the past decade, however, the Air Force has altered this approach as its demand for drone pilots has increased. First, it began placing pilots straight from undergraduate pilot training (UPT) into Predator squadrons. Later, it began training a corps of "combat systems officers" (CSOs)—drone pilots of officer rank, but with merely civilian instrumented pilot ratings. Despite the service's initial misgivings, the Air Force Research Laboratory's research indicated that CSOs and UPT graduates have “performed nearly as well as the much more experienced pilots currently selected for Predator training.” [10]

Location is a third and dramatic difference. As noted, the Air Force bases its crews stateside. The Army, however, bases its crews at the airfield from which its Grey Eagles fly in the war zone. One can imagine how routine deployment leads to greater strain on aircrews, though it must be admitted that the ground crews will endure this regardless—as will the ground troops they aviators support, and to a considerably greater degree yet. As has been widely speculated, remote basing of combat troops may induce emotional stress without physical risk. [11] There is also some reason to believe that face-to-face planning. briefing and debriefing has some value, particularly when teaming with ground troops and gunship pilots. But as well presently show, the costs of choosing one manning approach or the other are not the driving difference in cost between the Air Force and the Army’s MQ-1 fleets.

COMPARISON

The monies that the Army and Air Force want to spend on fixed-wing drones over the next decade rather pale before what could have been spent if their missions could only have been accomplished by manned aircraft. Even the most expensive of these planes, the Reaper, costs a mere fraction of an F-16, a J-STARS, or a surveillance satellite. But the sums are still considerable. Through 2014, the Army is seeking to spend over $4 billion on 107 more Grey Eagles; through 2020, the Air Force would like to spend over $13 billion on 480 more Reapers. With an allowance for attrition, the US fleet of MQ-1s and MQ-9s could total over 700 combat aircraft at the end of the decade. [12] Thus, if only to guard the unmanned nest from efforts to raid its budget for competing priorities, it is reasonable to ask whether these amounts are being spent smartly.

The difference in staffing costs between these comparative approaches is significant. For the Army, 115 or 128 troops in every company of twelve aircraft works on to either 9.58 or 10.67 people per plane. For the Air Force, 1500 troops for a wing of 220 authorized aircraft means 6.82 people per plane. As figures are admittedly sketchy, we will, for sake of the argument, round up the Air Force figure to seven, and roughly average the Army's figure at ten. We will also note that this approach probably underestimates the Army's staffing needs, as it assigns the cost of any headquarters staff overseeing the drone companies to other, manned, units. If so, the Army is using at least about three more people per aircraft in its approach, which should cost roughly $300,000 annually per plane. [13]

Since the operations and support cost of an MQ-1 is generally about $1 million annually, [14] the Army is tacking roughly another 30 percent onto the cost of its aircraft operations, just through its federated staffing model. With a long-term fleet of at least 120 aircraft, the overall marginal cost amounts to perhaps somewhat more than $36 million annually, a notable but not overwhelming sum. The need for more people is easy to grasp: with centralized staffing, the Air Force can employ fewer of the most highly skilled support staff, as it will not need to duplicate the skills of individual technicians across ten or twelve or thirteen separate companies. Pooling personnel, as in a call center, permits a lower level of overall staffing, as well as a lower average required level of human capital. [15]

What is remarkable, though, is that this approach is actually more suited to the Army's full reliance on unrated, enlisted pilots. Centralized staffing should actually lessen the need perceived in the Air Force for more highly-trained, university-graduate pilots, as common operation from Creech or other stateside locations would guarantee that one of these folks could always look over a shoulder when desired.

The difference in asset costs, however, is considerably larger. Earlier this year, the Congressional Budget Office suggested that the Army could save $1.3 billion, through the forecast end of US involvement in Afghanistan and Iraq, by adopting the Air Force's approach to remote operation of MQ-1s. [16] In its figuring of this plan, the CBO did not even consider personnel costs, which would be lower, or satellite communications costs, which would be higher. [17] Rather, its calculations were entirely based on pooling the assets of the individual companies in a single large unit that would dispatch Grey Eagles to war zones when needed. In this approach, individual division commanders would still control the aircraft directly; the companies would just not be permanently assigned to their formations.

IMPLICATIONS

So, in light of the Army's preference for local control, is the added personnel cost all that unwarranted? It seems hard to say so. In making measurements, there is a big difference between a dimensional parameter like cost—an easily measured, technical issue that is scenario-independent—and actual measures of force effectiveness—harder to gauge, military issues that are definitely scenario-dependent. [18] But whatever its efficacy, the location of the crews is not the real issue in assessing efficiency. The bigger question is whether drone units should be managed separately from manned aircraft units, at consolidated locations. The real issue is whether the aircraft inventory should be duplicated for each rotating formation that might deploy to a war zone for an enduring campaign. Our quick calculation shows the difference in staffing costs to be on the order of millions; the CBO's figuring shows the difference in asset management costs on the order of a billion. However unmanned aircraft should be manned, the comparative costs of differing approaches are insignificant in relation to the cost of effective asset management.

That said, there is a looming issue of airspace control that both services will face upon the full withdrawal from Iraq and Afghanistan, and it is a matter of both staffing and basing. The Federal Aviation Administration (FAA) and other airspace control authorities are quite leery of allowing unmanned aircraft to fly about their national airspaces without rated pilots in control. (Frankly, they may not be thrilled about permitting unmanned flight with rated aviators in charge.) For the Army, upgrading its unmanned aircraft operators to the status of pilots is possible—the curriculum at Fort Huachuca already relies heavily on a syllabus approved by the FAA for ground schooling. But even if the Army effectively provides its operators the same training as Air Force CSOs, the service will face the additional problem of where it can fly the planes. Operating aircraft from a single location in a sparsely populated state will be much more readily accomplished than flying from a dozen bases all around the US.

Thus, the Army and the Air Force can continue to argue over where their pilots park their chairs, but the Army should seriously consider parking its aircraft collectively—even alongside the Air Force's in Nevada, where the infrastructure already exists. The Army could form a single "Grey Eagles" Regiment at this or another single base, rather as the Air Force or the Navy puts whole fighter wings at single locations. It could still deploy the operators as it likes, and assign them to the direct control of field commanders, in a manner not unlike that of the Marine Corps. It could even park the pilots' consoles right inside the division commander's headquarters or the aviation brigade commander's operations center, if that would provide the highest level of comfort. [19] But it should not rotate its aircraft just to justify filling out its force structure. A few years ago, the Defense Secretary himself instructed the Air Force to dispatch the bulk of its drones to the battle, for they were doing the Army and the Marines little good waiting on the ramp stateside. It is strange that the Army itself would appear to institutionally prefer that approach.

NOTES

1.        Kenneth Anderson of American University, in William Warr and Peter Finn, "Global race on to match U.S. drone capabilities," Washington Post, 4 July 2011.

2.        US Government Accountability Office, Unmanned Aircraft Systems: Comprehensive Planning and a Results-Oriented Training Strategy Are Needed to Support Growing Inventories, GAO-10-331, 26 March 2010.

3.        Lisa Burgess, “Reactivated wing is first combat unit with UAVs,” Stars and Stripes, 3 May 2007.

4.        The Royal Air Force collocates its six MQ-9s with those of the USAF at Creech, and operates in a similar fashion. The unit, 39 Squadron RAF, comprises about ninety troops. Of those, 36 are control crew, in twelve teams of three: a pilot, a sensor operator, and a (non-aircrew) mission coordinator. See Sean Rayment, “RAF bomb the Taliban from 8,000 miles away,” The Telegraph, 21 March 2009, and the RAF's fact sheet on the Reaper.

5.        Staff Sergeant Raymond Ballance, Grey Eagle pilot with QRC-1-R1, in Roland Hale, “Army unit flies new unmanned aircraft in Iraq,” Army News, 28 November 2010.

6.        David Pugliese, “U.S. Army To Order More Grey Eagle UAVs,” Ottawa Citizen, 18 January 2011; “U.S. Army Aviation and Full-Spectrum Operations,” AUSA, December 2010.

7.        Guy Norris, “U.S. Army MQ-1C UAV Fires First Missiles,” Aviation Week & Space Technology, 11 December 2009.

8.        Captain Mike Goodwin, a Black Hawk pilot commanding QRC-1-R1, a company of the 8th Attack-Reconnaissance Battalion, 229th Aviation Regiment, at Camp Taji since June 2010, in Jason Sweeney, “Armed and Dangerous: the Grey Eagle Goes Lethal,” US Forces Iraq news release, 11 April 2011.

9.        Lt. Gen. Philip Breedlove, USAF, chief of requirements, in John Reed, “Auto UAVs Could Save Big Bucks,” DoD Buzz, 12 November 2010.

10.        Brian T. Schreber et al., Impact of Prior Flight Experience on Learning Predator UAV Operator Skills, US Air Force Research Laboratory Human Effectiveness Division, 2002, p. V.

11.        See notably the comments of Air Commodore Stuart Atha, Air Officer Commanding 83 Group, the RAF force in the Middle East, at a recent speech in London, as reported in Paul McLeary, Sharon Weinberger, and Angus Batey, “Drone Impact on War Draws Scrutiny,” Aviation Week and Space Technology, 8 July 2011.

12.        US Congressional Budget Office, Policy Options for Unmanned Aircraft Systems, June 2011.

13.        Our broad estimate of the cost of one more solider is from David S.C. Chu and Jeffrey Eanes, “The Trajectory of Personnel Costs in the Department of Defense,” Western Economic Association Conference, Honolulu, 30 June 2008.

14.        Eric J. Long, “Cost Valuation: A Model for Comparing Dissimilar Aircraft Platforms,” Naval Postgraduate School, December 2006.

15.        The RAF has about fifteen people per plane, but no scale economies with a six-plane fleet, so we do not infer much from that figure.

16.        CBO, op. cit.

17.        Michael Hoffman, "Money could be saved by Army Grey Eagle program," Air Force Times, 19 June 2011.

18.        Anthony Finn and Steve Scheding, Developments and Challenges for Autonomous Unmanned Vehicles: A Compendium, Intelligent Systems Reference Library, vol. 3 (Berlin: Springer-Verlag, 2010).

19.        A similar approach, devised for the Air Force, is described in some detail in Janie A. DeJoode, Nancy J. Cooke, Steven M. Shape, and Harry K. Pedersen, “Guiding the Design of a Deployable UAV Operations Center,” pp. 311–327 in Nancy J. Cooke, Heather L. Pringle, Harry K. Pedersen, and Olena O'Connor, eds., Human Factors of Remotely Operated Vehicles, Advances in Human Performance and Cognitive Engineering Research, vol. 7 (Amsterdam: Elsevier, 2006).