Filed under: Business Line, Companies, Congress, Contract Additions, Contract Awards, Department of Defense, development program, Dyncorp, Events, Federal Budget Process, IT, KBR, logistics, production program, Proposal, Restructuring, Services
The House Armed Services Committee (HASC) approved by a 60 to 1 vote their version of the 2012 Defense Budget. This is basically similar to what was requested by the Obama Administration and reflects the first real reduction to U.S. defense spending since the attacks of 9/11.
As in previous budgets it was split into three parts: first, the base budget which funds the U.S. military and its investment, production, training and support activities; second, the cost of “Overseas Contingency Operations” (OCO) which used to be called the Global War on Terror (GWOT) which are the costs associated with operations in Iraq and Afghanistan and finally it also includes money for the Department of Energy (DOE) support to the U.S. military which is primarily related to nuclear weapons.
The base budget was about $535 billion which was a slight increase on the $533.8 billion programmed in 2010 for such activities. Due to the fact that no 2011 budget was officially passed by Congress until late in the year the Department of Defense relied on continuing resolution which restricted spending to 2010 levels. When the final budget deal was struck funding the rest of the year total planned spending remained consistent with 2010 levels. The Obama Administration had requested $548 billion with almost $160 billion for OCO. This amount was not approved or provided.
The HASC bill approved amounts to a reduction as the OCO funding was reduced to only $119 billion from the $130 billion in 2010 and the $160 billion proposed in 2011. Total spending in 2012 based on the HASC will be $690 billion including the DOE funding of $18 billion. This is a net increase over 2010 but almost $20 billion less then the planned spending in 2011.
What does this all mean for defense contractors? If the House totals hold, and after the work with the Appropriations Committee and the Senate there may be many changes in what the money is spent on, it will be the first net reduction in U.S. defense spending in 10 years. This will mean that some contracts won’t get funded and some companies will see their revenue and earnings reduced.
The cuts to OCO mean those companies heavily involved in providing support and equipment for Iraq and Afghanistan will see the first cuts. The Army’s LOGCAP IV contract provides much of this support for deployed forces and companies like DynCorp International, Fluor and KBR have received large contracts as part of it. The reduction to OCO may affect LOGCAP and those companies involved in it.
It will also mean less bullets, beans and gas will be bought to support the troops in Iraq especially. Suppliers of basic items may see reductions in the amount of items purchased from them. This includes ATK who make ammunition as well as the various gasoline refiners and providers. As the fighting in Iraq and Afghanistan winds down the DoD will be concentrating on making new weapon systems and repairing and refitting the equipment used by the military in those operations.
If and when all of the U.S. and Allied forces return from the fight there will be no need for OCO funding at all. This seems to indicate that the base U.S. defense budget will sink to about $500 – $600 billion a year. This will provide opportunities for those companies providing new, advanced weapons as well as supporting the U.S. military in its bases in the U.S., Asia and Europe. The next round of cuts though will be to this base budget. That will affect the entire U.S. defense industry and may lead to reductions in the number of contractors either through M&A or just moving to other business lines.
Defense spending has been a major prop to the U.S. economy as a whole as it supports businesses and jobs across all of the states. If the civil market has not recovered sufficiently cuts to this money will have a negative effect on many local economies across the U.S. already being experienced as some contracts are eliminated or reduced.
This HASC vote may be the first step into a period like the Nineties which saw wholesale changes to the U.S. defense industry and the countries’ industrial base as a whole.
Photo from David Paul Ohmer’s Flickr Photostream.
Article first published as House Begins to Cut Defense Budget on Technorati.
House Armed Services Committee: Opening Statement of Chairman Ike Skelton – Hearing on the FY 2011 Department of the Army Budget Request
House Armed Services Committee
February 25, 2010
Opening Statement of Chairman Ike Skelton - Hearing on the FY 2011 Department of the Army Budget Request
Washington, D.C. – House Armed Services Committee Chairman Ike Skelton (D-Mo.) delivered the following opening statement during today’s hearing on the Fiscal Year 2011 budget request of the Department of the Army:
“Today, the House Armed Services Committee meets to receive testimony on the Fiscal Year 2011 budget request of the United States Army. Our witnesses are: The Honorable John McHugh, Secretary of the Army; and General George Casey, Chief of Staff of the Army. We particularly welcome the Secretary back home and hope he enjoys the view from that side of the witness table.
“Thank you both for appearing here, and of course please convey my gratitude to all those you lead —Active Duty, Reserve, and National Guard soldiers, and the civilian members of your team. But most of all please make sure that your Army families know that we are grateful for their continued sacrifice as they again and again send their loved ones off to do their duty.
“The wars in Afghanistan and Iraq continue to drive a relentless tempo and although we hope to see some relief soon, the pace has not slackened perceptibly yet. To support this level of activity, the administration has requested a $2.5 billion increase over last year’s base budget level for the Army. This would support a 1.4 percent across-the-board military and civilian pay raise and support the Army’s continued focus on providing support to military families. I am pleased to see the continued, sustained attention paid to the well-being of our soldiers.
“The Army expects to end FY11 with an end strength of 562,400 with the potential to grow to approximately 570,000 to compensate for the wounded warriors and other soldiers who are not deployable. This will ensure units are deploying to combat 100 percent filled.
“If all goes well, and the number of soldiers deployed to Iraq recedes and Afghanistan maintains a steady state, I hope that the Army will be able to provide units with a reasonable amount of dwell time between deployments. This dwell time is important as it gives them time to recover, and then to train to the full range of tasks required of them – something that I fear we’ve neglected over time.
“Therefore, I remain concerned that this temporary increase in end strength will not really solve the problem. We saw this before, when the Army began its temporary growth in 2005. In the end, we made that temporary growth permanent. That was the right thing to do. I remain concerned with the size of the Army as it remains in persistent conflict for the foreseeable future.
“With regard to the Army’s readiness levels, I am deeply troubled by what I see. While units deployed overseas are, for the most part, properly equipped, manned, and trained, this deployed readiness has come at the expense of the rest of the Army.
“Despite billions in additional funding provided by Congress, these elements of the US Army that are not deployed overseas remain woefully unprepared should another conflict arise on short notice. In almost all cases, non-deployed units lack the full complement of people, equipment, and training necessary to conduct full-spectrum operations.
“Even for units about to deploy, many are configured for non-standard missions that are appropriate for Iraq and Afghanistan, but may be less useful should the Army be called upon to fight a more conventional enemy.
“As a result, the nation is assuming a great amount of risk. While I am sure the Army would eventually be able to deploy the required forces, I worry that it may take so long to do so that critical national objectives in a future conflict may not be achieved or can only be achieved at much higher human and financial cost.
“Just as important, I am concerned that the Army’s unreadiness for another conflict reduces our strategic deterrence. Any leader considering a conflict with the United States must be assured of swift and decisive response, yet in terms of land combat power, I fear such a response may not today be what we expect and require.
“Let me be clear that my concerns do not lie in the area of the professionalism, skill, and devotion to duty of the members of the US Army. Those qualities have never wavered in 235 years, and are not wavering now.
“However, any troops, no matter how experienced and dedicated, must be properly equipped and trained in order to carry out their mission. Improvisation can only take a military unit so far. I do not raise this issue to level criticism at anyone. I raise this issue because I want to understand what more can be done to reduce the risk the nation faces.
“With that, let me turn to the Ranking Member, Buck McKeon, for any opening comments he might care to make.
“Before we proceed with the testimony, there is one more point of business at hand. Today is the last full committee hearing for one of our most long-standing and active members—Congressman Neil Abercrombie. I want to express my gratitude to Neil Abercrombie for serving Hawaii and our country for more than 19 years in the U.S. House of Representatives.
“On the House Armed Services Committee, Neil’s hallmark has been making sure our troops have the equipment they need to protect our country and stay safe. He has been an outstanding member of this committee and an exceptional Chairman of the Air and Land Forces Subcommittee. His leadership helped prompt the Pentagon to speed up the delivery of life-saving body armor and MRAP vehicles to our forces on the frontlines.
“I have been honored to serve with Neil, and I will greatly miss his wise counsel, his good humor, and his loyal friendship. I know Congressman Abercrombie will continue to be a forceful and effective advocate on behalf of Hawaii’s needs and interests. I ask my colleagues to join me in thanking Neil and wishing him best as he moves to his next challenge.”
House Armed Services Committee: Opening Statement of Chairman Ike Skelton – Hearing on the FY 2011 Department of the Air Force Budget
House Armed Services Committee
February 23, 2010
Opening Statement of Chairman Ike Skelton- Hearing on the FY 2011 Department of the Air Force Budget Request
Washington, D.C. – House Armed Services Committee Chairman Ike Skelton (D-Mo.) delivered the following opening statement during today’s hearing on the Fiscal Year 2011 budget request of the Department of the Air Force:
“Today, the House Armed Services Committee meets to receive testimony on the Fiscal Year 2011 budget request of the United States Air Force. Our witnesses today are: The Honorable Michael Donley, Secretary of the Air Force; and General Norton A. Schwartz, Chief of Staff of the Air Force.
“Thank you both for appearing here, and let me take the opportunity to thank all those you lead—the Active Duty, Reserve, and Air Guard personnel and the Air Force civilian employees.
“Every day, the Air Force flies well in excess of 200 sorties a day in Iraq and Afghanistan, totaling over 570,000 sorties since September 11, 2001. Additionally, about 29,000 personnel are currently deployed to Iraq and Afghanistan, including over 4,000 serving in Joint Expeditionary Task billets—that is, in nontraditional billets, often outside the wire. This continues to be an exceptionally busy Air Force and one that is contributing greatly to the current joint fight.
“To support this level of activity, the administration has requested a $5.3 billion increase over last year’s base budget level. This would support a 1.4% across-the-board military and civilian pay raise and support the Air Force’s continued focus on providing support to military families. As someone who has often commented that if ‘momma ain’t happy, ain’t nobody happy,’ I strongly approve of the continued emphasis on personnel and family issues.
“Nonetheless, there are aspects of this budget request that cause me concern. For starters, I see we’re back to square one on building a new bomber. Two years ago, Secretary Gates gave his blessing for the Air Force to begin a new, well thought-out bomber program. As I understand it, the direction is now to reconsider where to go with this program—going back to first principles. I find this confusing as these issues were recently studied in depth over a five year period.
“I hope the witnesses will explain to us why redoing this study is a good use of taxpayer dollars. Our national security will continue to require bombing capability and the smart design engineering workforce—a national treasure in my opinion—should not be lost.
“I also hope the witnesses will discuss the F136 alternate engine issue. We have long funded the development of an alternate engine for the Joint Strike Fighter as an insurance policy for our national security. Twenty five years from now, the F-35 will comprise 95% of all U.S. fighter aircraft.
“It seems to me then that relying simply on one engine means accepting a potential single source of failure. The Secretary of Defense promised us, starting on February 1st, that he would provide us the analysis on which this year’s decision was made. We have still not received this analysis and remain deeply concerned about receiving it quickly.
“I also have questions about the status of the F-35 program more generally. This is a critical program for us and for our allies, but three recent reviews of the F-35 program have challenged the current development schedule, cost increases in the F135 engine, and the future production schedule. Given this, I ask our witnesses to help us understand how we can stay on target for a 2013 initial operating capability and—in the absence of full testing—why the Air Force wants to buy 23 in 2011, an increase from 13 in 2010.
“There are many other important issues that I hope we can get to in during questions--including our strike fighter force structure requirements, cyber attack and defense, and future plans for a light attack aircraft, to name a few. In addition, I will say that I am pleased that OSD and the Air Force will soon be issuing the final request for proposal for our next tanker. We must get a new tanker contract awarded and start replacing current planes as soon as possible.
“I now turn to my good friend, our Ranking Member, Buck McKeon for any opening comments he might care to make.”
Filed under: Department of Defense, Syndicated Industry News
Department of Defense
February 1, 2010
President Barack Obama today sent to Congress a proposed defense budget of $708 billion for fiscal 2011. The budget request for the Department of Defense (DoD) includes $549 billion in discretionary budget authority to fund base defense programs and $159 billion to support overseas contingency operations (OCO), primarily in Afghanistan and Iraq. This proposal continues the reform agenda established in last year's DoD budget request and builds on the initiatives identified by the 2010 Quadrennial Defense Review (QDR) and 2010 Ballistic Missile Defense Review (BMDR).
The QDR examines DoD strategies and priorities. It assesses the threats and challenges that the nation faces and re-balances DoD’s strategies, capabilities, and forces to ensure the U.S. military has the flexibility to address today’s conflicts and tomorrow’s threats. The BMDR evaluates the ballistic missile threat to the U.S. and its allies and articulates policy. It determines the appropriate role of ballistic missile defense in the country’s national security and military strategies.
“The fiscal 2011 budget request builds on the reforms begun in last year's defense budget,” said Defense Secretary Robert Gates. “These substantial changes to allocate defense dollars more wisely and reform the department’s processes were broadened and deepened by the analysis and conclusions contained in the Quadrennial Defense Review.”
The fiscal 2011 base budget request represents an increase of $18 billion over the $531 billion enacted for fiscal 2010. This is an increase of 3.4 percent, or 1.8 percent real growth after adjusting for inflation. The DoD needs modest real growth to maintain, train, and equip the forces that sustain our wartime efforts.
The fiscal 2011 OCO request will provide additional resources needed to sustain U.S. forces in Operation Enduring Freedom – in Afghanistan and elsewhere – and Operation Iraqi Freedom. Included are funds for pay and benefits, logistics and other support, force protection, continuing efforts to counteract improvised explosive devices, as well as funding to fully support the buildup in Afghanistan and to carry out a responsible drawdown in Iraq.
“The choices made and priorities set in these budget requests and strategic defense reviews reflect America's commitment to succeed in the wars we are in while making the investments necessary to prepare for threats on or beyond the horizon,” said Gates.
Also accompanying the 2011 budget proposal is a fiscal 2010 supplemental request of $33 billion to support the added costs of the President's new strategy in Afghanistan and strengthen U.S. force levels with approximately 30,000 additional troops.
“To make sure we have the resources needed to support our troops deploying to the Afghanistan theater, I will be asking the Congress to enact the supplemental by spring 2010,” said Gates.
Key highlights of the proposed DoD budget are outlined in the attached summary and charts. For more information and to view the entire fiscal 2011 budget proposal, please visit http://www.budget.mil and download the "FY 2011 Budget Request Overview Book."
The 2010 QDR and BMDR are available online at www.defense.gov/DefenseReviews.
Transcripts from applicable budget and strategic defense review briefings can also be viewed at www.defense.gov/transcripts.