Congressman Garamendi Supports Travis and Beale Air Force Bases in Defense Bill Debate — Press Release

WASHINGTON, DC – Early this morning, the House Armed Services Committee completed consideration of the Fiscal Year 2015 National Defense Authorization Act (NDAA). Congressman John Garamendi (D-CA-03) voted in favor of the bill. The legislation was voted out of Committee 61-0 and awaits a vote on the House Floor in the next few weeks.

“This legislation is very important for the military communities in my district. I am glad we were able to develop a bipartisan bill to provide for a smart and strong defense,” said Congressman Garamendi. “While every bill can be improved, this legislation is a good step forward.”

Supporting Travis and Beale Air Force Bases

Throughout the process, Congressman Garamendi has supported the vital missions at Travis and Beale Air Force bases, which are both located in the 3rd Congressional District. Travis is located in Fairfield and carries out an Air Mobility mission. Beale, located near Marysville, carries out an Intelligence, Surveillance, and Reconnaissance (ISR) mission.

“The work of Travis and Beale Airmen is crucial for America’s 21st Century national defense. The ability to rapidly collect intelligence and deploy defense assets is key to advancing our national interests: winning on the battlefield, preventing conflicts, and responding to humanitarian disasters,” Congressman Garamendi said. “In promoting the interests of the bases, my office has an excellent partner in the Solano and Yuba/Sutter communities. I am grateful for their support.”

Faced with Congress’s constraining austerity budgets, the President’s Budget proposed phasing out the KC-10 tanker and the U-2 reconnaissance aircraft, which are based at Travis and Beale respectively. Congressman Garamendi inserted NDAA language that would prevent the premature retirement of these aircraft (click here for text of this language and click here for text of the entire NDAA). This language was included in the “Chairman’s Mark” of the NDAA and the amended version voted out of Committee.

“I am proud to support language in the NDAA that would prevent a dangerous capability gap in our Air Mobility and ISR missions,” said Garamendi. “We can’t put the cart before the horse by retiring the KC-10 before the KC-46 is ready to meet our Air Mobility needs. Similarly, the top commander for American troops in South Korea, Army General Curtis Scaparrotti, recently testified before Congress and said that the U-2 is essential for knowing what the North Korean regime is doing – just one example of how the information the U-2 provides strengthens our national defense and saves lives.”

Congressmen Garamendi and Jon Runyan (R-NJ-03), who are co-chairs of the Air Mobility Caucus, introduced bipartisan legislation that would prevent gaps in the Air Mobility mission with the transition from KC-10 to KC-46 tankers.

Garamendi also added language to emphasize the critical and complementary capabilities that High Altitude ISR assets such as the Global Hawk Block 30 and the U-2 provide to combatant commanders. These highly specialized platforms and the Airmen at Beale who support the overall ISR capability play a vital role in executing U.S. defense strategy. The language also speaks to the capability of the KC-10 Extender (click here for the text).

Increasing Oversight of Pentagon Spending

Congressman Garamendi offered several proposals to look for ways to eliminate wasteful Pentagon spending on projects that do not advance America’s national security. The Committee failed to accept his commonsense proposals to evaluate the nuclear triad, B-61 gravity bomb in Europe, and the far over budget MOX facility in South Carolina. However, the Committee did adopt Garamendi’s amendments to direct the Department of Defense to provide the defense committees with briefings on the justification for both the Long-Range Standoff Weapon (LRSO) and the requirement to reach a 50-80 new plutonium pits per year. Additionally, the Committee incorporated his proposals to direct increased oversight and accountability of money spent on the war in Afghanistan.

“There is agreement across the political spectrum that there is waste in the Pentagon budget that comes at the expense of critical defense missions, job creating investments in education and infrastructure, and responsible deficit reduction. My proposals aim to address the most glaring examples of waste: outdated Cold War era nuclear weapon systems and massive corruption in Afghanistan. I am glad that we reached common ground on some of these proposals,” said Garamendi.

Highlights of the NDAA

The NDAA would:

· Increase troop pay by 1.8%;

· Reject proposals to reduce military commissary benefits (Garamendi is a cosponsor of the Save Our Military Shopping Benefits Act, which also prevents reductions in this earned benefit);

· Combat sexual assault in the military through a variety of bipartisan proposals. The bill would eliminate the “good soldier defense” – a consideration of general military character toward the probability of innocence in sexual assault prosecutions. It would also call for a review of the terms of discharge for those who are victims of sexual offenses, to ensure that they have not been persecuted for reporting crimes. Victims would also be consulted as to their preference for prosecuting offenders by court-martial or through civilian courts; and

· Increase funding for behavioral and psychological health programs to address the scourge of suicides within the military.

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Congressmen Garamendi and Runyan Introduce Bill to Strengthen Air Mobility Mission — Press Release

Legislation would prevent gaps in Air Mobility Mission with Transition from KC-10 to KC-46 Tankers

WASHINGTON, DC – Today, Congressman Jon Runyan (R-NJ-03) and Congressman John Garamendi (D-CA-03) introduced H.R. 4230 bipartisan legislation that seeks to limit the retirement of the KC-10 aircraft.

Retiring the entire KC-10 fleet was not part of the Obama Administration’s FY15 defense budget proposal, yet Secretary of Defense Hagel stated that “if sequestration resumes at full force in 2016, the Air Force would have to retire its entire fleet of KC-10 tankers.”

This legislation seeks to ensure that the KC-10 tanker aircraft fleet is not retired prematurely and is available to continue to carry out its critical air refueling and cargo missions. The bill specifies that no funds can be used to retire or store the KC-10 aircraft until the new KC-46A tanker has been tested, is fully operational, and four test and 18 initial tankers have been delivered.

“Air Mobility Command is responsible for the rapid delivery of military assets around the world – something that will continue to grow in importance. This bill would strengthen the continuity of this vital mission,” said Congressman Garamendi, co-chair of the Congressional Air Mobility Caucus. “This bipartisan legislation would ensure that the Air Force maintains its strategic refueling capability as it transitions from the KC-10 to the KC-46 aircraft over the next few years. The bill requires that critically important acquisition and delivery milestones for the KC-46 are met before a KC-10 divesture could occur. This bill would help maintain stability in the military operations at Travis Air Force Base, our nation’s ‘Gateway to the Pacific.’”

“The KC-10 aircraft, which is the largest, newest, and most capable refueling aircraft currently in the military’s inventory, is a workhorse and vital to meeting air refueling mission taskings for the Arctic, Trans-Atlantic, and Pacific routes,” said Congressman Runyan. “As one of two primary homes to the KC-10, JB MDL is vital to carrying out these critical missions. The KC-10 has made a huge impact on mission readiness by combining long-range aerial refueling and cargo transport, and can be refueled in flight. It is crucial that we keep the KC-10 in full operation until the new KC-46 is completely ready for prime time.”

Runyan and Garamendi, both members of the House Armed Services Committee, teamed up last October and sent a letter to Secretary Hagel urging the DoD not to eliminate the entire fleet of KC-10 aircraft. Both Congressmen have also addressed this issue on several occasions with Air Force and DoD leadership in recent and past House Armed Services Committee hearings and conference calls, expressing their strong concerns that the KC-10 not be retired prematurely.

Click here to read text of H.R. 4230.


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Congressman Garamendi Supports Military Retirement Restoration Act — Press Release

December 19, 2013 by · Comment
Filed under: Congress, Events, Federal Budget Process, Press Releases 

Legislation would undo military retiree benefit cuts included in the Bipartisan Budget Act

WALNUT GROVE, CA – Today, Congressman John Garamendi (D-Fairfield, CA), a Member of the House Armed Services Committee, announced that he is an original cosponsor of the Military Retirement Restoration Act, legislation that would repeal cuts to military retiree cost-of-living adjustments (COLAs) included in the Bipartisan Budget Act. This legislation will be fully paid for by closing tax loopholes for offshore corporations. Congressman Dan Maffei (D-Syracuse, NY) is introducing the bill in the House of Representatives. Companion legislation has been introduced in the Senate by U.S. Sen. Jeanne Shaheen (D-NH) and U.S. Sen. Mark R. Warner (D-VA).

Congressman Garamendi said, “The bipartisan budget compromise was needed to support our economic recovery and to prevent harmful unfocused cuts to vital defense functions. However, the bill’s provision that cuts military pensions places an unjust burden on military servicemembers who have already made enormous sacrifices for our country. It seems eminently fairer to end loopholes that allow corporations to avoid paying taxes. Simply put, I cosponsored the Military Retirement Restoration Act, so that we don’t balance our budget on the backs of the men and women who valiantly served us and earned their pension.”

“The Bipartisan Budget Act is an important step in the right direction that creates some certainty for our middle class families and businesses across Central New York, but it is not perfect,” said Congressman Maffei. “The cuts to military pension COLAs included in the Bipartisan Budget Act unfairly target our military families and could create serious hardship for some of our veterans. The bill I am going to introduce will fix this problem and ensure our military retirees get the benefits they have earned and deserve. As a member of the House Armed Services Committee, I urge my colleagues on both sides of the aisle to support this common sense legislation.”

The Military Retirement Restoration Act would replace the cuts to military retiree benefits included in the Bipartisan Budget Act by preventing companies from avoiding U.S. taxes by abusing overseas tax havens.  Specifically the bill:

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Congressman Garamendi Supports Travis Air Force Base in Coauthoring Bipartisan Letter to OMB on KC-10 Tanker — Press Release

WASHINGTON, DC – In response to the impending across-the-board budget cuts of sequestration, the Air Force is considering eliminating the entire fleet of KC-10 tankers, which are crucial for the military’s aerial refueling mission. Congressman John Garamendi (D-CA 03) and Congressman Jon Runyan (R-NJ 03) coauthored a letter to the Administration’s Office of Management and Budget expressing opposition and warning that this move could “jeopardize our nation’s refueling capability and threaten our ability to conduct operations around the globe.” The letter also points out that retiring the KC-10 would be “contrary to the Air Force’s own long-term planning.” The letter is linked here and included below.

Garamendi, whose district is home to Travis Air Force Base in Solano County, California and Runyan, whose district is home to Joint Base McGuire-Dix-Lakehurst in Burlington County, New Jersey, are both Members of the House Armed Services Committee and the Congressional Mobility Air Forces Caucus.

The KC-10, which entered service in 1981, is the largest refueling aircraft currently in the military’s inventory and has made a significant impact to combat operations and overall mission effectiveness. With almost twice the capacity of the much older KC-135, this airframe is versatile because it combines the operations of aerial refueling, long range cargo transport, and aerial medical transport in a single aircraft. It can also be refueled, while in flight, increasing its delivery range.

“Eliminating the KC-10 fleet doesn’t make sense from the standpoint of military operations or budgeting,” said Garamendi. “The KC-10 serves a pivotal role in our Air Mobility and should for years to come. It is the bridge from the aging KC-135 fleet to the next generation of tanker aircraft. Tearing down this bridge would be penny-wise and pound-foolish. This idea should be taken off the table.”

“The proposal to retire the entire KC-10 inventory doesn’t take into account the critical air refueling mission requirements this vital platform has been meeting,” said Runyan. “As the new tanker gradually comes online there is no doubt that the KC-10 is fulfilling a crucial role in support of our warfighters. The Air Force’s slash and burn budget programming is contrary to the common sense approach that is needed in this tight budget environment. The emphasis should be on spending taxpayer dollars wisely while fulfilling mission requirements, not on creating unacceptable mission risk.”

This letter constitutes the latest step in their advocacy campaign. Last week, the Congressmen led a letter to the Department of Defense. In an Armed Services Committee hearing and in private conversations with the Air Force, Garamendi spoke with Air Force leaders about the importance of the KC-10. Congressman Runyan has also addressed this issue on several occasions with Air Force leadership in recent House Armed Services Committee hearings and conference calls, expressing his strong concerns that the KC-10 not be retired prematurely.

Text of the bipartisan letter to the OMB is included here:

November 01, 2013

The Honorable Sylvia Mathews Burwell

Director, Office of Management and Budget

Eisenhower Executive Office Building

1650 Pennsylvania Avenue NW

Washington, DC 20503

Dear Director Burwell:

We are writing to you to express our opposition to the possible retirement of the Air Force’s KC-10 aircraft fleet in the budget for Fiscal Year (FY) 2015. We have previously corresponded with Secretary of Defense Hagel on this issue and would ask you to consider the value the KC-10 provides to the Air Force mission and the risks incurred by discontinuing the fleet as you deliberate on programs for inclusion in the FY 2015 budget request.

Air Force Chief of Staff General Mark Welsh has commented both to the press and in testimony before the House Armed Services Committee on the Air Force’s consideration of divesting its entire KC-10 fleet to meet the spending targets imposed by sequestration. While we understand that some cuts may be necessary, eliminating the KC-10 fleet carries an unacceptable level of risk. If the KC-10 were retired, the Air Force would be left with only the much older KC-135 to perform all aerial refueling – leaving this important mission to a single aircraft with an average age of over 50 years. This move would jeopardize our nation’s refueling capability and threaten our ability to conduct operations around the globe.

Retiring the KC-10 fleet is contrary to the Air Force’s own long-term planning. The KC-10 modernization program, which is currently underway, recognizes a service life of at least 2045. Concurrently, the Air Force’s air refueling recapitalization plan would replace the entire KC-135 fleet over the next several decades before retiring and replacing the KC-10 fleet in the 2050-2060 timeframe. The KC-10 has much left to contribute over the next half century, and retiring the fleet would waste a tremendous amount of valuable air refueling capability and investment made by American taxpayers.

We appreciate your attention to this issue and look forward to working with you on a budget that promotes our nation’s fiscal well-being and preserves our national defense.


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Congressman Garamendi Supports Travis Air Force Base in Bipartisan Letter on KC-10 Aircraft — Press Release

WASHINGTON, DC – With more sequestration budget cuts looming, the Air Force is considering elimination of the entire fleet of KC-10 aircraft, which is key to the military’s aerial refueling mission. Today, Congressman John Garamendi (D-03, CA) and Congressman Jon Runyan (R-03, NJ) sent a bipartisan letter urging the Department of Defense to “take off the table this option that would be so detrimental to the strategic capabilities of our military around the world.” A copy of their letter is included at bottom and linked here.

Garamendi, whose district is home to Travis Air Force Base in Fairfield, and Runyan, whose district is home to Joint Base McGuire-Dix-Lakehurst, are both Members of the House Armed Services Committee and the Congressional Mobility Air Forces Caucus.

The KC-10, which entered service in 1981, is the largest refueling aircraft currently in the military’s inventory and has made a significant impact to combat operations and overall mission effectiveness. With almost twice the capacity of the much older KC-135, this airframe is key because it combines the operations of aerial refueling, long range cargo transport, and aerial medical transport in a single aircraft. It can also be refueled itself in flight increasing its delivery range.

Congressman Garamendi said, “The ability to rapidly transport goods and people around the world is essential for our national defense. The KC-10 air refueling fleet serves as the lynchpin for this capability. As there is currently no adequate substitute, this multi-role aircraft must continue to be operated at Travis Air Force Base.”

In an Armed Services Committee hearing and in private conversations with the Air Force last month, Garamendi spoke with Air Force leaders about the importance of the KC-10. Congressman Runyan has also addressed this issue on several occasions with Air Force leadership in recent House Armed Services Committee hearings and conference calls, expressing his strong concerns that the KC-10 not be retired prematurely.

Congressman Runyan said, “The fact that the Air Force is considering eliminating its entire KC-10 fleet is an unnecessary and drastic move that would decrease our military readiness and lead to unacceptable mission risk. The KC-10 is a vital bridge as the new KC-46 tanker comes online. Although I understand the current fiscal constraints, it is especially critical that in this tight budget environment, common sense decisions are made, rather than the drastic “vertical cuts” the Air Force is proposing.”

Text of the bipartisan letter is included here:

October 29, 2013

The Honorable Chuck Hagel
Secretary of Defense
1000 Defense Pentagon
Washington, DC 20301

Dear Secretary Hagel:

We are troubled by recent news that the Air Force is weighing whether to eliminate its entire KC-10 fleet. We urge you to take off the table this option that would be so detrimental to the strategic capabilities of our military around the world.

We respect that difficult decisions must be made to maintain mission capability within the current fiscal constraints. However, we strongly oppose the divestiture of the KC-10 to meet budget targets. Our nation’s aerial refueling capability is too strategically important to risk.

If the KC-10 were to be retired, the Air Force would be left with only the aging KC-135 to conduct refueling missions until the delivery of the KC-46. Under that scenario, any structural or mechanical problem discovered on a KC-135 could ground the entire refueling fleet leaving our military and the nation quite vulnerable.

The KC-10 is an aircraft with decades of service life remaining and an ongoing integral role to play in our national defense interests. We look forward to productive conversations with you and your staff as you complete budget process and plans for FY 2015 and beyond.


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U.S. Vehicle Modernization Programs Should Continue Despite Budget Pressures

8408212129_6e55470d16The U.S. military is facing a struggle with its budget over the next 5 year based on current plans. It is winding down its commitment in Afghanistan and facing the effects of debt ceiling limitations and sequestration. At the same time it needs to reset itself after 12 years of commitment in South West Asia and the Middle East. This means force structures will be changed and equipment repaired and rebuilt. There will also need to be investment in certain new programs and capability to continue technical improvement to the forces overall.

Sequestration was implemented for 2013 but had minimal affect on the actual execution of the budge and mission. People were furloughed; some programs didn’t do all their planned development but generally plans were accomplished. The Congress has yet to pass a 2014 budget but the versions that passed the whole House and voted out of Senate Committee assume there will be no sequestration in 2014 and fully fund the President’s request. That assumes some deal being made where either sequestration is cancelled or cuts are made to other parts of the budget.

The recent talk of fighting in Syria by U.S. Navy and Air Forces only has reinforced the view of many in Congress that the defense budget cannot be cut.Vehicle down

There are several core modernization programs in the U.S. that should continue. These include the biggest of them all, the F-35 Joint Strike Fighter, the Navy’s Littoral Combat Ship (LCS) and for the Army, the Ground Combat Vehicle (GCV) and the Joint Light Tactical Vehicle (JLTV).

The GCV will replace the M2 Infantry Fighting Vehicle and the JLTV the ubiquitous HUMVEE. Both programs are following similar paths where they will pay to develop prototypes from vendors to test and then choose one or more for production and entry into service. This was the successful concept used to buy the Mine Resistant Ambush Protected (MRAP)-ATV used in Afghanistan. That concept was won by Oshkosh (OSK) with their MRAP-AT vehicle.

The JLTV is reaching a point where the 3 teams vying for the contract have sent in their prototypes for testing. These are Lockheed Martin (LMT), AM General and Oshkosh. The GCV is still earlier in the program and is working to reach that stage with 2 competitors, General Dynamics (GD) and BAE Systems (BAE), one are working to meet their solutions. Both programs have substantial budgets supporting these development efforts in FY13 and planned for 2014.

The two programs biggest struggle, like many Americans, is with weight. To meet the protection requirements demanded of fending off mines and IED’s while facing a variety of direct and indirect fire threats lead to all discussed designs being very heavy. Both the JLTV and GCV had programs before them that had to be ended and reevaluated due to the total weight of the proposed solutions. The initial JLTV concepts were weighing 18-20 tons and the GCV over 80, or in the class of Main Battle Tanks (MBT).

The solution discussed for both programs are to use add on armor depending on the level of threat. This means in most situations not all of it would be carried improving weight and performance. In high threat areas more would be bolted on with affects on capabilities. In all situations the maximum armament would still be carried while protection would vary. This does though increase the overall cost of the vehicle and the programs at a time when budget dollars are going to be scrutinized and spread very thin.

In the past when the Pentagon faced a similar budget crunch programs in development would see delays as their annual budgets will be decreased. Production quantities will be reduced and spread over more years shifting cost to the “out year” budget and delaying full entry into service. In extreme cases outright cancellation of the project has occurred.

These two systems are critical to the overall upgrade of the U.S. military ground forces. The HUMVEE and M2 are both originally 30 year designs. They have received constant upgrades especially in the last 10 years due to the changed threat in Iraq and Afghanistan. The HUMVEE, especially, has seen more and more armor added and improved weapon and tactical communication systems added.

Their fates are also tied to the removal of the MRAP from service. The MRAP’s were a quick reaction to a specific threat and public outcry over casualties from the IED and mines. They were never meant to be battlefield vehicles and the armor protection requirements for these programs show why. The U.S. is resetting their MRAP force of several different designs and models and trying to fit them into their standard organization and doctrine. Most likely they will be eliminated from these and used only in extreme depending on the threat.

These programs are expected to continue with the possibility of seeing delays and lengthening of schedules. They are critical to the continuing U.S. armored vehicle capability as there are few other systems coming. The Army has proposed shutting down their M1 production facility for several years due to overcapacity and demand. Congress has fought that and will most likely not allow it but it indicates the budgetary situation. If the JLTV and GCV are cancelled or extremely delayed the U.S. could lose industrial base and capability that would affect future modernization efforts down the road.

Photos of the M2 and HUMVEES courtesy of DVIDSHUB flickr photostream.

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Congressman Garamendi Votes to Fund Military — Press Release

Defense Appropriations Bill Offers Progress on Sexual Assaults, Disappointment on
Privacy Rights & Wasteful Missile Shield, Mixed Bag on Afghanistan


WASHINGTON, DC – Congressman John Garamendi (D-Fairfield, CA), a Member of the House Armed Services Committee, today voted to fund the U.S. military at the Department of Defense by voting for H.R. 2397, the FY 2014 Department of Defense Appropriations Bill (HAC-D). The bill passed by a 305-109 vote.

Garamendi represents Northern California’s 3rd Congressional District, which includes Beale and Travis Air Force bases.

“Today I voted for legislation that makes sure our men and women in uniform can do their jobs,” said Congressman Garamendi. “This version of HAC-D is imperfect legislation, but it is also essential legislation that I fought hard to improve. I look forward to continuing to build the bipartisan coalition necessary to reduce waste in our military and to protect the privacy rights of all Americans.”

Pay Raise for the Troops

The appropriations bill includes provisions to provide for our troops and their families, including supporting a pay raise of 1.8 percent for the troops and strengthening health care services for troops and their families. HAC-D provides $33.6 billion – $519 million above the President’s request – for Defense health care programs for members of the military, their families, and retirees.

“Above all else, the Defense appropriations bill must do right by the troops and their families. This bill offers a needed pay raise and provides good health coverage for the troops and their families,” said Congressman Garamendi.

Defense Appropriations Bill a Mixed Bag on the Longest War in U.S. History

Congressman Garamendi has been a leading voice against waste, fraud, and abuse in Afghanistan and a strong advocate of ending the war and bringing our troops home to their families. There were some major legislative victories on Afghanistan during the amendment process and at least one major setback.

The Republican-led Appropriations Committee allocated $85.8 billion for war funding in the original bill, exceeding the President’s budget request by more than $5.1 billion. Rep. Garamendi supported a successful bipartisan amendment that reduced this war funding by $3.55 billion, which passed by a narrow margin of 215-206. Garamendi also supported an amendment that would have required Congressional approval to extend U.S. military involvement in Afghanistan beyond 2014, which failed 177-246 as well as an amendment that would have terminated the current Authorization for the Use of Military Force (AUMF), which has provided the legal basis for the continuation of U.S. troops in Afghanistan on December 13, 2014. This amendment failed 185-236.

Congressman Garamendi was the cosponsor of two successful amendments that restricted funding for the Afghan National Security Forces (ANSF), helping to ensure that further taxpayer dollars are not wasted on equipment that the ANSF is currently incapable of operating and maintaining in a country that is among the most corrupt in the world. Both amendments restrict funds for the purchase of Mi-17 helicopters for the ANSF from the Russian arms company Rosoboronexport, which has also been supplying arms to the Syrian regime. The first amendment on Mi-17s cut $553.8 million from the bill, the amount that the Department of Defense has currently allocated for the contract with Rosoboronexport, despite Congressional prohibitions on such a deal included in the FY2013 National Defense Authorization Act (NDAA). The amendment puts these funds toward deficit reduction and passed by a large bipartisan majority (346-79). The second amendment prohibited funds from being used to train the Afghan Special Mission Wing (SMW) to operate the Mi-17s, and it passed by a 333-93 vote.

Congressman Garamendi also sponsored a fiscally responsible amendment that would have eliminated the $2.6 billion increase in funding for the Afghan National Security Forces (ANSF), holding funding at last FY2013 levels. From last year to this, funding for the ANSF jumped from $5.1 billion to $7.7 billion, with additional funds slotted for buying aircraft, air support systems, vehicles and other equipment – much of which the Special Inspector General for Afghanistan (SIGAR) has warned the ANSF will not be capable of independently operating and maintaining for more than a decade. Of the more than $52 billion we have appropriated to date for the ANSF, only $40 billion has actually been dispersed. This amendment failed by a 150-276 vote. (Videos of Garamendi speaking on these amendments will be up shortly)

“The Karzai government is corrupt to the bone and cannot be trusted. We are already wasting too much money in Afghanistan on projects that aren’t being built and equipment that is going to languish,” Congressman Garamendi said. “Our taxpayer dollars are being squandered in Afghanistan. They don’t need more money; they need more accountability and oversight.”

Congress Punts on Protecting Privacy Rights

Congressman Garamendi is deeply disappointed that the House of Representatives failed to rein in the NSA’s stated authority to collect the metadata of effectively every American’s phone records. The bipartisan amendment by Rep. Justin Amash (R-MI), Judiciary Committee Ranking Member John Conyers (D-MI), and Rep. Jared Polis (D-CO) would clarify that the “any tangible thing” language in Section 215 of the PATRIOT Act only applies to people being investigated for terrorism. The amendment would have shut down the bulk, suspicionless collection of Americans’ telephone records by requiring the FISA court to limit the collection of telephone records to records that pertain to people actually under investigation and not ordinary Americans who have no reasonable connection to a Patriot Act investigation. This commonsense amendment to protect our privacy rights failed by a 205-217 vote.

“The NSA says it has the authority to collect the phone records of everyone in the United States. That this ‘metadata’ doesn’t directly include names is of little comfort to me, since it is easy for people in the intelligence community to piece together a person’s identity based on these records or to use these records to target a person for any number of motivations,” said Congressman Garamendi. “If everyone’s phone records are a ‘tangible thing’ for the purposes of a terrorism investigation, then our government sees everyone as a potential suspect. That’s nowhere in the Constitution I swore an oath to defend.”

Garamendi added, “I see no legal justification for this program in statute, and I have a hard time understanding how this broad collection of everyone’s data is consistent with our Fourth Amendment right to due process. The NSA misled Congress about the extent of this program, and it misled the American people on the extent Congress was informed about this program. We’ve seen too many abuses in the past to shrug our shoulders and move on. Enough is enough. It’s time to restore checks and balances and protect our right to privacy.”

Progress on Preventing Sexual Assaults in the Military

HAC-D makes some progress combating the epidemic of sexual assaults in the military, including fully funding Sexual Assault Prevention and Response programs at $157 million and adding $25 million above the request to implement a Sexual Assault Special Victims Program.  The bill also reaffirms numerous provisions on sexual assault in the FY2014 National Defense Authorization Act, including those increasing penalties for sexual assault, requiring trial by court-martial for such offenses, and limiting convening authority discretion regarding court-martial findings and sentencing.

Amendments by Rep. Jackie Speier (D-CA) passed by voice vote or en bloc provide $10 million in additional funds to increase training for investigators of sexual assaults, prohibit convicted rapists and sexual assailants from enlisting in the armed services, and provide funds to help identify people who were separated from the military because of a disorder subsequent to reporting a sexual assault, and if appropriate, correcting their record.

“We’ve got a long way to go to combat sexual assaults in the military, but HAC-D makes progress on this blemish to our nation,” said Congressman Garamendi. “The military has enough external enemies; no one in uniform should have to fear their peers. I’m glad Rep. Speier continues to be a moral voice of reason on this issue, and she will have my continued support as we work to make sure the military lives up to the best of its ideals.”

East Coast Missile Boondoggle Remains in HAC-D

Congressman Garamendi is among the leading voices on the House Armed Services Committee against a wasteful East CoastMissile Defense Site that relies on expensive and unproven technology and that the military has said is not needed. Garamendi joined Rep. Jerry Nadler (D-NY) and Rep. Jared Polis (D-CO) in co-sponsoring an amendment to HAC-D that would remove $70.2 million that is set aside for the missile boondoggle.

In a June 10 letter to Senate Armed Services Committee Chairman Carl Levin (D-MI), Vice Admiral James Syring, Director of the Missile Defense Agency, and Lt. Gen. Richard Formica, Commander, Joint Functional Command for Integrated Missile Defense, unequivocally stated that “there is no validated military requirement to deploy an East Coast missile defense site.” In response to a question from Rep. Garamendi in a recent House Armed Services Committee Hearing, Vice Admiral Syring also affirmed that the additional $250 million in funding for the East Coast Missile Defense Site that Congressional Republicans allocated this year would not even be useful to the Department, as they have all of the money they need to carry out an original assessment of any potential site.

According to the Congressional Budget Office, expanding the ground based midcourse defense system to the East Coast would cost approximately $3.5 billion over the next five years. In their letter to Sen. Levin, Admiral Syring and General Formica stated that there currently are more cost effective and less expensive alternatives to improving the defense of the U.S. homeland than an East Coast site.

Despite the overwhelming evidence that the East Coast Missile program proposed in HAC-D is a waste of taxpayer dollars, Garamendi’s amendment failed by a 173-249 vote.

“At every town hall I host, at every public meeting I attend, there’s always at least one person telling me to cut the waste and abuse in the federal government. Here is a clear example of $3.5 billion being flushed down the toilet for a program that won’t make us any safer,” said Congressman Garamendi. “The Pentagon doesn’t want this technology; independent experts agree it probably won’t work; and more cost effective technologies are available to us. Why the House insists on funding this wasteful missile boondoggle makes no sense to me, and I’ll continue fighting for a better deal for American taxpayers.”

# # #

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JAGM to Follow JCM in Obama’s Latest Budget

The Joint Air-to-Ground Missile (JAGM) program is an Army run one to develop a replacement for the air launched Hellfire and Maverick missiles. The Hellfire is fired from helicopters and started life as a laser guided anti-tank missile. It now has a variety of warhead options and has seen heavy use in Iraq and Afghanistan from AH-64 and AH-1W attack helicopters. The Maverick is fired from fixed wing aircraft primarily by the U.S. Air Force and too was initially an anti-tank system.

Several years ago there was a similar program in development called the Joint Common Missile (JCM). This was cancelled around 2005. The JAGM program began a few years later. Originally it was planned to have two teams compete for designs and then take one into production. Raytheon (RTN) and Boeing (BA) formed a team and Lockheed Martin (LMT), who had been the prime contractor for the JCM, also competed. One of the requirements for JAGM is the use of a 3 mode seeker utilizing radar, infrared and laser guidance.

In 2012 the Army rather then continuing the contest decided to delay final development and production of the system. Rather the two teams would be given contracts to continue their work and this could then support a later production decision if it was decided to finish out the program. Both contenders were given about $60 million contracts for this work.

Now in the latest budget submitted by the Obama administration last week it looks like a final decision has been made to cancel JAGM. Only the costs of the current development plan are considered which would save a little over $200 million in the 5 years the budget plan covers. It is of course up to Congress to decide whether to remove the funding and end this program.

The Hellfire has a successful history but the JAGM, and JCM, would have offered improvements in size, range and guidance capability. If sequestration continues then the U.S. military will be faced with more choices of deferring new development, using existing equipment or investing in new capabilities for them. The current budget without considering those mandatory cuts already is starting to make those kind of decisions.

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Fiscal Year 2014 Defense Budget Snapshot

The Presidential Administrations are required by law to submit their budget to Congress for consideration for the next Fiscal Year on the first Tuesday of February. Yesterday, about 2 months late, the Obama Administration submitted their budget for Fiscal Year 2014 (FY14). One major part that will be poured over is the defense budget.

Setting up a quick and early fight with Congress the about $600 billion request does not include the mandated $50 billion odd sequestration cuts. This means that Obama is assuming some grand deal to eliminate that requirement. Based on this year’s efforts that may be difficult as it would require major compromise by both the Democratic Senate and the Republican House. Of the request $88 billion will fund Afghanistan and the remaining $615 the rest of the defense services and should also cover the Department of Energy’s nuclear weapon related costs.

overall the defense budget without sequestration goes down slightly from his previous one but with those cuts included it would be close to a 14% reduction.

Lockheed Martin (LMT) sees the continuation of the controversial F-35 at planned production rates and overall investment which may cause tension with legislators. This huge program is over $8 billion in total funding requirements and will include 29 more of the advanced aircraft for the U.S. military and allied nations. The request also pays for continued development of the oft delayed system and reportedly put it on the path for production rates of 100 a year by the end of this decade.

In another area that will cause heartburn with both sides of Congress the defense budget includes another round of Base Realignment and Closure (BRAC). This was something that Obama said would not happen in the foreseeable future during his campaign last year. BRAC leads to base closings and movement of people and jobs out of Congressional districts which in some case leads to major effects on local economies. There have been multiple BRAC rounds since 1991 with the most recent in the 2005-2006 time frame. Getting BRAC through Congress may be difficult.

At this point and based on recent history it is hard to say how much of this budget will become final law. There has not been a proper budget for several years. There could be a repeat of this year with a Continuing Resolution funding all of 2014. Parts of Obama’s proposals will not be accepted but the majority of funding decisions will. Some programs will be cut, realigned or eliminated and some will get more funding. Right now it is hard to predict especially with sequestration what the final end product will be.

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LAS Controversies Continue

In this time of Continuing Resolution the U.S. Air Force’s Light Air Support (LAS) contract is one of the few major new programs to begin in FY13. The second attempt to conduct the contest led to same result as the first. Sierra Nevada (SNC) using a airframe from Brazil’s Embraer was selected and Beechcraft’s T-6 based proposal was rejected. As with the first attempt Beechcraft has filed a GAO protest.

The Air Force has announced that using available policy they will override the stop work that normally happens for 100 days while the GAO works out the protest. This has been done in the “best interests of the United States or unusual and compelling circumstances.” Due to the first protest and the do over on the contest it is already a year behind schedule. This new one could also cause several months delay.

The protest and the award remained tied up in politics and concerns about loss of work to a U.S. company. Sierra Nevada had originally planned to have a facility in Florida to do some of the work finishing the aircraft but they would be assembled in Brazil. The company is now looking at ways to increase the amount of jobs created by the contract through “in-sourcing” the work.

The loss of the contract to the U.S. company has been a further blow to the Kansas military aviation industry. Boeing (BA) has moved their work from the Wichita facility to Washington for the new KC-46A tanker. Beechcraft had planned to build their AT-6 in the state. As such it is attracting the interest of Kansas’ Congressional delegation.

With so few major programs and contracts predicted for the near future fights like this over awards will continue. Each company has a lot to gain by winning the work and as the defense budget declines there will be less contracts available.

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Ground Combat Vehicle Decision to be Delayed

3286900481_fe603c77a6_mIt is being reported that the Army has decided to delay the Ground Combat Vehicle (GCV) six months. This is being done most likely in response to the current budgetary situation with the potential sequestration cuts.

The Defense Department has done a good job awarding current contract options this past few months to get things on contract to limit the effects of sequestration on existing work. Unfortunately new contracts will be affected as there may not be as much money available to award later this year. GCV may be in that situation. Delaying it several months should get you into Fiscal Year 2014 with a better handle on what money you have and allow the budget to prioritize funding.

Sequestration may force across the board cuts in all defense appropriations and limit the ability of new, large contracts to be awarded for the remainder of this Fiscal Year.

Two teams of contractors were awarded development contracts by the Army for the M2 Bradley replacement in 2011. One of those designs will be selected to go into Engineering, Manufacturing & Development (EMD) and ultimately into full production. This may still be several years into the future. These were to General Dynamics (GD) and to a team of BAE Systems and Northrop Grumman (NOC). The bid by the 2 prime contractors on the cancelled Future Combat System (FCS) the last attempt to build a Bradley replacement, Boeing (BA) and SAIC (SAIC), was not accepted.

Photo from UNC -CFC-USFK’s flickr photostream.

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Annual Production Options Continue to be Executed as V-22 Buy Goes Through

Despite the “Fiscal Cliff” and sequestration facing the U.S. Federal budget the U.S. military has continued to execute their FY13 buys for hardware. The vote last night in the house delayed sequestration issues and also extended some of the Bush tax cuts. The options on existing contracts are able to be awarded under Continuing Resolution Authority so they are not tied to any new budget or legislation.

One of the most recent was the production buy for the V-22 from Boeing-Bell (BA). The Marine Corps and Air Force will purchase a further 22 V-22 for just over $1.4 billion. These will be delivered in 2014-2015.

This follows the current production contract for 21 aircraft being delivered at this time.

This is the second multi-year production contract for the versatile tilt rotor aircraft that has seen use in Iraq and Afghanistan.

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Final Conference Defense Spending Bill from Congress Kills MEADS

Despite threats of a veto from the Obama White House the current conference version of the 2013 Defense Authorization Bill will end the MEADS program. The final version of the law cuts the last planned $400 million expenditure on the new, joint air defense system.

The Medium Extended Air Defense System (MEADS) was being developed by the U.S., Italy and Germany as a replacement for the PATRIOT system made by Raytheon (RTN). Lockheed Martin (LMT) is the lead contractor for the MEADS system. The Administration and Congress have already agreed that newer versions of the PATRIOT will suffice and work on MEADS would end. The dispute is that Congress decided that there was no reason for funding in FY13 rather then completing that year of work.

Italy and Germany had wanted to continue the program having provided several hundred million dollars of funding over its life stretching back to the Nineties. Not only will there be fall out internationally from this decision it is estimated that paying out contract termination fees and close out costs would probably be close to the planned $400 million in funding.

The program had been in its test phase and had recently had some successes.

Unfortunately in the potential fiscal situation new programs that are yet to enter service are the ones that face the biggest cuts as it is possible to utilize some of the things developed but by avoiding production and deployment large amounts of funding are saved. While the Administration wanted that last year of funding it seems clear that Congress intends to not provide it in the FY13 bill.

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HASC Members, Air Force Trying ‘End Run’ on Air Guard Budget Talks — Press Release

WASHINGTON, Dec. 13, 2012 /PRNewswire-USNewswire/ — The National Guard Association of the United States today released the following statement by retired Maj. Gen. Gus L. Hargett Jr., the NGAUS president:

“Fueled by misinformation from some Air Force officers, it appears a handful of House Armed Services Committee members are willing to circumvent the legislative process to force a budget on the Air National Guard that the governors, the adjutants general and most in Congress oppose.

“This is the kind of mischief that can occur during conference, when a handful from the House and Senate can go behind closed doors and literally change legislation in the name of forging compromise between the two chambers.

“The House and Senate both rejected the Air Force’s fiscal 2013 budget request, which would take disproportionate cuts from the Air National Guard. Both chambers told Air Force officials to go back and work with the governors and the adjutants general on a new proposal that addressed state concerns.

“Unfortunately, Air Force officials have since ignored the governors and the adjutants general. Neither group has been able to provide meaningful input to a new budget plan. Nevertheless, Air Force officers have told members of Congress that they have a compromise plan in hand.

“For the record, the nation’s governors and adjutants general favor a freeze on Air Guard manpower and force structure and the establishment of a National Commission on the Structure of the Air Force. Neither organization has agreed to any Air Force proposal. Both remain concerned that the cuts to the Air Guard would adversely affect domestic response.

“In addition, to our knowledge, the chief of the National Guard Bureau has not endorsed any compromise plan for the Air National Guard in the fiscal 2013 Air Force budget.

“Commissions are certainly not the ideal way to craft budget decisions. They are a last resort. But at this point, a commission independent from the Air Force is our only remaining hope for a transparent process that includes real input from the governors and Guard leaders.”

About NGAUS: The association includes nearly 45,000 current or former Guard officers. It was created in 1878 to provide unified National Guard representation in Washington. In their first productive meeting after Reconstruction, militia officers from the North and South formed the association with the goal of obtaining better equipment and training by petitioning Congress for more resources. Today, 134 years later, NGAUS has the same mission.

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Discussion of Sequestration Effects Heats Up

As part of the Budget Control Act last year that emerged after a failed consensus between President Obama and Congress to deal with the U.S. government’s budget issues a plan was put in place for automatic cuts to spending. This sequestration of funds requires about $1 Trillion in cuts over the next 10 years. In FY13 this would amount to just under $100 billion with half coming out of the defense budget.

The way the Pentagon is approaching this is to apply the cuts evenly across all appropriations and spending which amounts to a 9.4% reduction in spending. This may be adjusted as they get closer to the actual implementation to fully fund some critical items such as personnel and medical costs which would mean some investment programs may see bigger cuts.

For some programs a 9.4% reduction would not be that significant. You buy less of an item, you maybe drive, fly or sail it less, you don’t have as much training supplies as in the past. For others it might be much worse. A 10% cut in R&D for a program could cause multi-year delays in completing development or testing meaning the system wouldn’t get into service as soon. It may be that a program would be cancelled as it wouldn’t be executable without that level of funding.

There are concerns with some of the big acquisition programs that utilize multi-year production contracts. These rely on a 5 year deal with the OEM providing for a specific number of items to be delivered each year. If the 9.4% cut happens and this number is reduced below the minimum the contract may have to be renegotiated leading to cost increases. The KC-46A tanker contract also faces some issues as it is a Firm Fixed Price (FFP) contract and the cut may reduce its funding below what was negotiated with Boeing (BA) when the contract was awarded which also could lead to a need to renegotiate.

As expected pretty much every one is against sequestration and have lately spoken up about dealing with it. Primarily by transferring the spending reductions from the Pentagon to other parts of the Federal government. This includes legislators, Pentagon officials, industry, local governments and employees. All would expect to see some hardship as the spending cuts are implemented.

The media is full of articles such as this, Sequestration threatens Portsmouth Naval Shipyard jobs, workload, from Seacoastonline.com.

Congressman Connelly (D-VA), who has a lot of defense contractors and civil servants in his district, wants Congress to stop campaigning and stay in DC to work out a resolution.

Studies are being done to calculate how many jobs will be lost due to the budget cuts and what industries will be affected the most.

There is also discussion of the effect beyond defense as the rest of the government would lose $50 billion in funding which would cause programs to be cut, eliminated and people laid off.

Overall the issue will continue to be there through the November elections. Most likely no attempt will be made to deal with this until after that when the lame duck Congress will have to also deal with the expiration of the Bush tax cuts and other budget issues. There probably will be a big omnibus bill that addresses all of this.

Will sequestration actually happen for defense? It is hard to say right now. Everyone should be planning for it and calculating how to implement it. This includes the Services, acquisition program managers, and contractors. The U.s. should be expecting reduced defense spending as the fighting in Afghanistan and Iraq winds down and wartime requirements are eliminated. It would be better if it was done in a more planned fashion.

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Army Continues to Invest in M2 Bradley Fighting Vehicles

The U.S. Army has not developed a new heavy armored vehicle since the 1980’s. They have continued to rely on the M1 Abrams tank and M2 Bradley Fighting Vehicle family for that mission. They did start a new system, Future Combat System (FCS), that would have used speedy, wheeled vehicles to ultimately replace the two venerable tracked systems but that was cancelled due to cost and schedule issues. The current systems have had to “make do” throughout the fighting in Iraq and Afghanistan.

That does not mean they haven’t spent billions on upgrading and refurbishing the systems. The current versions have received significant changes in armor, mobility and electronics. These has kept them capable of carrying out modern missions.

The Army just announced yet another contract to upgrade M2 Bradley’s assigned to the U.S. National Guard. BAE Systems (BAE:LSE), which through a series of mergers and acquisitions, now owns the rights to the Bradley originally designed and manufactured by FMC. That British company received a contract worth over $300 million to provide “enhanced survivability and interoperability” for vehicles belonging to a variety of states.

The company will see more contracts like this as the fighting winds down in Afghanistan and the Army resets their fleet of Bradleys to a common standard.

There is a new Ground Combat Vehicle (GCV) in development that will ultimately supplement or replace the M2. The Army is waiting to received prototype vehicles from different bidders to begin testing. BAE is one of several companies participating in that contest.

BAE like all of the other large defense contractors is facing challenging times as the U.S. and its Western European allies move to reduce their defense spending. Recent earnings were down compared to last year with a 10 percent drop in sales. Keeping existing programs like the Bradley active will only help it in the near future. If the U.S. does go ahead with the GCV and slowly replace the M2 BAE could lose several hundred million in revenue a year.

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House Supports Status Quo for FY13 Defense Spending

The House of Representatives passed their version of the FY13 defense appropriations act last night. In a surprise to leadership of both sides a group of Republican and Democratic members joined to pass a bill that kept funding at 2012 levels.  This means the Pentagon will receive just over $608 billion.  Now the House must wait for the Senate to pass their bill and a Conference Committee will come up with the final version.

It wouldn’t be Congress without some specific marks and disagreements with the proposed plans of the Obama Administration.  These include language preventing the Air Force from retiring their C-23, C-27 and Global Hawk aircraft.  It also reduced spending on biofuels and provided for no pay raise for civilian workers.  It also keeps shipbuilding plans at a higher rate then requested.

The defense budget like all of Federal spending is facing the possibility of large cuts due to the failure of a budget deal last year leading to planned sequestration of funding.  This could see upwards of $50 billion or more automatically cut from the defense budget.  Industry, some in Congress and others are fighting those plans.  If the defense budget is not cut this way then other parts of the budget would have to be to make up for it.

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TRICARE West Contract Finally Settled in UnitedHealth’s Favor

In 2009 the Department of Defense attempted to award new contracts to administer their primary healthcare program, TRICARE. These are regional contracts with the country divided up in groups of states as well as a contract to provide overseas services. The Western and Southern regions due to the density of military bases were the two largest and amount to several billion a year. As to be expected competition was fierce for these by different health insurance companies. It is just now, over three years later, that the government is finally resolving these contracts due to the amount of protests and reviews required.

The Western Region contract is worth about $21 billion over its predicted five year life. After a final round of awards and protests the Government Accountability Office (GAO) has upheld the award earlier this year to UnitedHealth (UNH). The GAO ruled in a protest by the incumbent, TriWest to the award in 2012.

TriWest has had the contract since 2003 and won the original re-compete in 2009. This decision was protested by UnitedHealth. In the last three years there have been new competitions, awards and protests. This final decision should stand and UnitedHealth will become the provider.

This is unfortunate for TriWest as their primary business is the TRICARE contract and the company may have to fold without it. There is a good chance that many of their employees could be absorbed by UnitedHealth as is often the case when a new company takes over an existing contract but that is not guaranteed.

The Defense Department faces growing pressure on their health spending which has increased dramatically over the last ten years due to the fighting in Iraq and Afghanistan. Not only has the size of the military grown with more dependents there are also more retirees and severely injured that require health care. TRICARE is the primary mechanism for this.

The Obama Administration has proposed raising the co-pays and annual payments that the military and retirees make but that was struck out of the 2013 defense budget by Congress loathe to pass those costs onto the military. Obama has threatened to veto the bill as it stands due to that provision but many times once the bill is complete it will be signed.

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Despite Recent Progress Lockheed Martin Faces Some Challenges

Lockheed Martin (LMT) remains the largest defense contractor in the United States as well as globally. It is responsible for the biggest military acquisition program in the history of the world – the F-35 Joint Strike Fighter (JSF) as well as several other major aircraft and hardware systems. The company has consistently done well with its earnings and maintained a high dividend.

The Lockheed stock seems attractive right now. Price as of 29 June was $87.08. It has outperformed the market by 6 percent over the last year, its P/E is a little above 10 and it pays a dividend of $4.00 a year. The major defense contractors like LMT or Northrop Grumman (NOC), Raytheon (RTN) and General Dynamics (GD) have consistently increased their dividend over time. The companies have also focused on reducing their costs to boost profit margins as well as make them more competitive with the Pentagon when it comes to price meaning as long as defense spending remains fairly consistent there should be increases in earnings and profit as these trends continue.

Lockheed has moved to reduce its workforce especially those in the middle management or overhead positions. It has also when possible adjusted its pension plans and negotiated new contracts with its unionized workers to lower personnel costs when possible. It’s most recent quarter set it apart from its competitors as the company had both growth in earnings and revenue. Most others had seen earnings up but on a revenue drop as their efforts to reduce overhead and cost of providing their products helped.

As the Pentagon continues to execute its Fiscal Year (FY) 12 budget plans new contracts are competed and awarded with Lockheed winning their fair share of them. Yet the future of defense spending is clouded with uncertainty due to the plans for FY13 spending caused by sequestration. Sequestration is automatic budget cuts of up to $100 billion a year in defense spending due to the failure of the Obama Administration and Congress to reach a budget deal last year. All acknowledge that these cuts would have a severe effect on the military, its contractors and the U.S. economy in general yet without changing the current law they will occur.

Lockheed just finally settled a major strike by its Dallas-Fort Worth aircraft assembly workers. This lasted over two months and was driven by Lockheed’s request for them to cut their pension plans. These workers make the F-35 and the F-16 fighters which are a large portion of Lockheed’s portfolio. The key part of the new contract as stated in the press release is “The agreement compensates union members fairly while allowing Lockheed Martin Aeronautics to be competitive for new contracts and respond to customer demands for greater affordability in defense products.” The settlement of this action will allow Lockheed to focus on delivery of the aircraft.

Other then the potential budgetary issues facing the industry as a whole Lockheed does raise some concerns. It has a large debt and pension obligation due to a large workforce and a more traditional defined benefit plan. The Pentagon recently announced that due to concerns with Lockheed Earned Value Management System (EVMS), which tracks cost and schedule data, it will now withhold up to 5 percent of payments. This is the maximum penalty that may be applied. The EVMS for the F-35 is the major concern which is a program that faces scrutiny of its costs and schedule from Congress. If Lockheed cannot get its system into compliance then it faces a potential hit to its earnings and profits as the F-35 program is so large.

Congress has already made some moves to keep parts of the budget recommended for cuts by the Obama Administration. (http://seekingalpha.com/article/566861-defense-contractors-aided-by-congress-keeping-money-in-defense-budget) It may be expected that these will continue. Sequestration is designed to prevent Congress from doing this which is why all are focused on ways to prevent it or minimize the effect on defense spending. Too many jobs, and votes, are affected by it. That does not mean that there will be success in preventing the reduced spending. The U.S. deficits are recognized as too high and something must be done.

Lockheed stock due to its current price, dividend and their large contracts should probably continue outperform the market over the next few months. Until the full effects of sequestration or efforts by Congress to minimize cuts to defense spending are identified there should be no major movement of the price. If the worst case happens and the U.S. faces cuts to defense spending in the range of $50-100 billion a year Lockheed should at least see some short term pain. If the plan is changed and defense spending is protected then this stock along with the other defense industrial stocks should see some increase. This, though, won’t occur until 2013 and the stock like most of its competitors really remains a dividend buy only.

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Lockheed Martin (LMT) Wins GIG Contracts, SAIC (SAIC) Protests

The U.S. Department of Defense operates the Global Information Grid (GIG) as a way to link its various communications and sensor systems together to ensure that information is processed and distributed as necessary. Most of the different systems the Services buy interface with the GIG one way or another either through radios, data links or networks. The goal of the GIG is to get the right information to the right person in order to support decision making and actions.

The GIG is managed by DoD and relies on a large contract to carry out these functions. Recently Lockheed Martin (LMT) was awarded this contract. It has an initial value of about $1.9 billion but the potential to grow to $4.6 billion if all options are exercised over its seven year life. The contract is an Indefinite Delivery/Indefinite Quantity (ID/IQ) type which means that the government places orders for products as needed. Normally ID/IQ contracts do not necessarily guarantee any work will be done but it can be expected with the size and importance of this contract Lockheed will get a great deal of orders from it.

SAIC (SAIC) was the losing bidder and they have moved to protest the award to Lockheed. SAIC is the incumbent for the contract and the loss of a contract this size is an issue for the company especially considering the potential budgetary issues facing the Defense Department next year.

If budget cuts do materialize and companies see much less contracts protests based on history will only increase. The different defense contractors will be fighting over a smaller pool of work so competition will be even more contentious. Normally protests have to be resolved in 100 days and contracts are placed on hold while this is being done. This means that SAIC will keep their current contract until the protest is over. Potential results could be a new competition, a reaffirmation of Lockheed or on rare cases a decision to award the contract to the protester.

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Defense M&A — Seeking Alpha

Here is an article I wrote for Seeking Alpha on potential defense M&A activity.

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Congress Continues Push Back on Defense Spending Proposals

The House Armed Services Committee (HASC) continues their mark up of the 2013 defense budget proposed by the Obama administration and continues their push back on proposed cuts to programs. As part of a plan to reduce defense spending by almost $500 billion over the next 5 year defense plan certain programs were ended or reduced. Congress as it often is does not like some of these reductions and is adding them back into the budget.

The HASC is just one of four different committees in both parts of Congress that can rewrite the budget. After the markups are complete the House and Senate vote their own versions of the bill and a Conference Committee irons out the final version that goes to the President. There is no guarantee that any changes made by any of the committees will stick but it is clear that there are a lot in Congress not willing to reduce spending the way that is being proposed.

Earlier we wrote of how they added back in a submarine the Navy had delayed until 2018. Now the committee is changing some proposals with other systems.

These include the retirement of several Northrop Grumman (NOC) Global Hawk strategic Unmanned Aerial Vehicles (UAV). The Air Force had proposed mothballing the Block 30 version of the system and continuing to use the manned U-2/TR-1 aircraft instead. They also would not buy more of that block. The bill the HASC is writing would prevent the retirement before 2014.

The committee has also reduced or eliminated some of the troop cuts and increased co-pays and fee for TRICARE, the military medical plan. Another area they are exploring is increasing funding for some of the Army’s vehicle programs which was cut.

These reductions and the troop cuts are based on the fact that the U.S. is withdrawing from Afghanistan and the Obama administration is predicting less deployments and action in the near future.

This is just the first round of mark ups and the ending bill will be some sort of compromise where some cuts are kept and others aren’t. It does show though that there are many in Congress not ready for large reductions in defense spending and investment.

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House Begins Markup of 2014 Budget with Add of Submarine

The House and Senate are in the process of considering the President’s 2014 budget request. As often different committees will review it and make changes sometimes based on their own priorities which means adding things or removing items from the original request. The budget has to go through two committees in each the House and Senate. Then it is voted on and a Conference Committee held. This means that often the final budget is not necessarily similar to what was submitted in February.

Not only do different companies lobby Congress for inclusion of their products and projects but sometimes the Services will indirectly. There exist lists of “unfunded priorities” and needs that Congress may address even though they are not part of the budget request.

The House Armed Services Committee as part of its review has reportedly increased the Navy’s buy of U.S.S. Virginia class attack submarines by 1 more then requested. The Navy had originally planned to buy two a year but in order to meet budget cut goals and reduce spending only 1 was asked for in 2014. The HASC has bumped that back up to 2.

Congress also wants the Navy to consider signing a multi-year contract for 10 submarines. Multi-year contracts are normally for five years and done for systems, especially aircraft, in steady state production. This allows efficiencies and better pricing due to stable quantities and funding. Virginia submarines are currently built by two companies – Huntington Ingalls Industries (HII) in Virgina and General Dynamics (GD) Electric Boat in Connecticut and Rhode Island.

One of the problems that the Pentagon will face as it tries to cut money required to meet budget goals is that Congress is loathe to reduce programs. There are 435 House members and 100 Senators who see defense spending as a way to bring money and jobs into their districts. The idea of keeping one more submarine in the current budget will do so. It will also require the Navy to cut less money or take it from other budget priorities.

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Air Force Will Attempt Second Contest for Light Air Support Aircraft

Following up on its decision to cancel the initial contract to Sierra Nevada and Brazil’s Embraer for the initial order of Light Air Support (LAS) aircraft for use by the Afghan military the U.S. Air Force now plans a new contest. The contract was protested by Hawker Beechcraft whose T-6 based proposal was removed from the competition. After the start of an investigation into the source selection which continues the service’s leadership decided to end the first attempt and begin again.

The Air Force investigation found that there was not sufficient justification for the decisions to remove Hawker and award the $300 million contract to Sierra Nevada. This company teamed with Embraer which would see their Tucano based system assembled in Florida.

Now it is expected that an amended Request for Proposals will be issued in the near future allowing the two companies to compete again.

If the program goes as planned it could be worth up to $1 billion in orders.

With the new proposal process it is hoped that a decision will be made next year.

Hawker is struggling and may face bankruptcy in the near future and the LAS win would be a major boon for the company. Brazil is looking at buying a new fighter and Boeing’s (BA) F/A-18 is one of the major contenders and a win for Embraer is believed to be helpful for that contest.

The Air Force has struggled over the last decade with awarding new contracts. There was the long running KC-X tanker program which took three attempts to award finally to Boeing. The new combat rescue helicopter, CSAR-X, went through two iterations but is now currently on hold. The cornerstone of the new Air Force, Lockheed’s (LMT) Joint Strike Fighter, is facing cost and schedule problems. The Light Air Support program seems to continue that trend.

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Joint Air to Ground Missile (JAGM) to Remain in Development

With the expected reductions in U.S. planned defense spending there have been different discussions and rumors of programs being cancelled or ended. One of these is the new Joint Air to Ground Missile (JAGM) which is a replacement for the Hellfire and Maverick missiles. These are launched from a variety of helicopters and fixed wing aircraft and had an original mission of destroying enemy armor. Over the last several years different warheads have been developed to attack personnel and buildings.

The JAGM itself was a new program that replaced the earlier Joint Common Missile (JCM) which was cancelled itself a few years ago. The JCM was being developed by Lockheed Martin (LMT). They and a team of Raytheon (RTN) and Boeing (BA) were competing for the JAGM contract.

The Army had demonstrations of the two competing design and last summer received bids for the next phase of the program which was to be Engineering, Manufacturing and Development (EMD). One of the two designs would have been selected to enter this phase and then move on into production. Those proposals were received in June.

The production contract would be worth several billion dollars due to the amount of missiles that needed to be procured.

Now it is being reported that rather then moving out with this phase or cancelling the program the Army will continue to pay for a small amount of continued development and risk reduction. Available R&D funds would be used for this program. This would allow further refinement of the concept and designs and allow a decision to enter the EMD phase at a later date.

Those contracts would be awarded at the end of this summer.

The U.S. is going to be facing a number of situations like this. If there need to be severe cuts to investment programs it makes sense to cancel whole ones before they enter production. This saves the most money. It also means that the technology developed is still available for use if needed. It also continues to support some of the industrial base that might go away if whole sale cuts were made.

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