2020 defense spending outlook: ¯\_(ツ)_/¯; Don't forget the budget caps; F-35 combat tests start; and more...
The talk of the town is the Pentagon’s fiscal 2020 budget request, due to the Hill in just two months. To review: Just a few weeks back, everything seemed to be pointing toward the planned $733 billion request. Then the White House instructed the Pentagon to cut that request to $700 billion as part of a larger federal spending cut of 5 percent. And last week, after meeting Pentagon and congressional leaders, President Trump has reportedly told the Pentagon to up the ask to $750 billion.
Here’s the problem: defense spending is capped at $576 billion in 2020. We’ll add $73 billion in Overseas Contingency Operations funding (OCO is exempt from the caps), bringing the rough total to $650 billion — about $100 billion less than Trump’s new number.
“While floating the $750b is clearly a positive since it indicates that the defense hawks are once again winning over the deficit hawks, all of these numbers are part of a negotiation,” writes Citi’s Jon Raviv.
“We urge caution,” writes Cowen’s Roman Schweizer. “While the higher number is a positive indicator, it is only an opening bid. Defense spending won't be final until Republicans and Democrats strike a spending deal next year.”
And here’s an odd thing about the topline negotiations, two months out from pencils down: the public usually doesn’t hear about them. Not this far out. It’s the first time in my memory that negotiations are playing out in public between the White House and Pentagon.
Gordon Adams, who ran defense budgeting during the Clinton administration, puts it this way: “At this stage in the process, none of these numbers are real.”
Have no fear, we’ll keep covering the latest twists and turns that play out over the next two months.
Welcome
You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Have you finished your holiday shopping? Send your tips, feedback or Christmas lists to mweisgerber@defenseone.com or @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!
From Defense One
Test Validates New US Interceptor for European, Japanese Missile Shields // Marcus Weisgerber
In a first, an SM-3 shot down an intermediate-range ballistic target.
The F-35 Is About to Get A Lot Smarter // Patrick Tucker
A California company is looking to accelerate the Defense Department's embrace of artificial intelligence, starting with some of its most important aircraft.
'I Am Proud to Shut Down the Government,' Trump Says During Fight with Democrats // Eric Katz
The president made his position clear, saying he will "take the blame" if some federal agencies close.
Talkin’ Budget With Todd Harrison
The defense establishment in This Town listens to Todd Harrison, director of defense budget analysis at the Center for Strategic and International Studies. So I was delighted that he joined me this week for a taping of our Defense One Radio podcast. Here are some excerpts from our discussion:
Q. What's going on here? Is anything real anymore?
A: This is really awkward. Here we are in December. The budget request is going to come out in February. Normally at this point in the game the White House and the Pentagon are pretty tight-lipped about the budget. It is highly unusual to have a public negotiation going on like this within the administration and within the president's own party over the defense top line. And we're looking at a range here between $700 billion and $750 billion. That's about a 7 percent spread, which is pretty significant if you're actually trying to put all the details into the budget to make it add up to that top-line figure. So this is just chaotic. This is really unprecedented. And I think it means that nothing is really decided yet.
Q. I’ve read some articles saying this is a classic Trump negotiating tactic. There’s about $100 billion between that cap level and what Trump will now reportedly ask for, Maybe you split the difference and get the $700 billion he was asking for just a few weeks ago?
A. The only concrete number we have is that $576 [billion] number because that's already enacted into law. OCO funding doesn't count towards that budget cap and the deadline for changing that $576 billion number is actually not until Jan. 15, 2020. That's when sequestration would go into enforcement. So for example, let's just say they couldn't reach any agreement this year...We start Oct. 1, 2019, the new fiscal year, on a continuing resolution at the current level of funding, which is $716 billion, minus OCO funding. If you then project that through to Jan. 15, 2020, let's say we're still on a C.R. at that time, it would trigger about a 10 or 11 percent sequester across all the applicable defense accounts.
Q. What’s the budget level that you think is needed to support the National Defense Strategy that was laid out earlier this year?
A. You could completely fail to implement the National Defense Strategy. The truth is it's not about a top line. It's about how you spend it. It's about what you're putting the money towards. And you know that's going to be the interesting thing, to see in this budget request, is do they actually shift investments? Do they shift force structure to better align with the national defense strategy, because the NDS clearly prioritizes great power competition. China and Russia, the threats that we face from those countries. And if you're going to prioritize those things, that means you have to de-prioritize other parts of your force structure and other types of weapons systems that aren't relevant to great power competition. So that's what we should be looking for in the budget request. Regardless of what top line they actually come in at.
Stuff Pentagon People Say
Here’s a list of more than 100 words, phrases and acronyms used — oftentimes excessively — by people who work in “the building.” This list is comprehensive, yet as we found out on Twitter this morning, far from complete. After all, the whiteboard is only so big. Where did it come from? Joy Shanaberger, an aide to Frank Kendall, former undersecretary for acquisition, technology and logistics, put it together during her time in the Pentagon. It’s a few years old, but some things in the Pentagon never change.
F-35 Begins Operational Testing
The F-35 Joint Strike Fighter is beginning operational testing, even though U.S. jets have already been deployed and the Marine Corps and Israelis have already dropped bombs on enemy forces (the former, in Afghanistan; the latter, in Syria). The planes “will be field tested, under realistic combat conditions, for the purposes of determining the weapons systems’ operational effectiveness and operational suitability for combat,” the F-35 program office said in a statement. The test will “measure the effectiveness, suitability, lethality, survivability and overall mission capability of the F-35.” Data from the tests will be used by Pentagon officials to decide whether the plane is ready to enter full-rate production.
Contracts of Note
Northrop Grumman received a $450 million deal on Dec. 6 for Joint Threat Emitter equipment, training gear that simulates surface-to-air missile batteries and other types of weapons that could be dangerous to planes. The deal is for U.S. and foreign militaries, which were not identified in a contract announcement. Saudi Arabia ordered the system back in February.
Boeing received a $159 million order (also on Dec. 6) from Japan for a second KC-46 aerial refueling tanker, a follow-up order to the initial one in December 2017. Japan is the first foreign country to buy the KC-46, which is based on the commercial Boeing 767. It also has four older Boeing 767-variant tankers that it bought last decade.
Sierra Nevada received a $329 million deal on Nov. 28 for 12 A-29 Super Tucanos for the Nigerian Air Force. The planes will be built in Jacksonville, Florida, where Sierra Nevada and Embraer built Super Tucanos for the Afghan Air Force. The State Department approved the Nigeria A-29 sale in August 2017.
Reporter-turned-Boeing Exec to Receive Aerospace Award
John Morrocco, journalist with Aviation Week & Space Technology turned Boeing PR man has been posthumously awarded the 2018 Lauren “Deac” Lyman award for outstanding achievement in aerospace communications. Morrocco died unexpectedly in July. He was honored at an AIA event on Wednesday evening.
Making Moves
Lt. Gen. Arnold Bunch, the Air Force’s top uniformed acquisition official at the Pentagon, has been nominated for his fourth star and to lead Air Force Materiel Command, which has been without a leader since Gen. Ellen Pawlikowski retired in September.
Maj. Gen. Duke Richardson has been nominated to become the Air Force’s military deputy for acquisition, Bunch’s current job. That position comes with a third star. Richardson is currently in charge buying new Air Force One aircraft. ICYMI: Here’s the Air Force’s explanation about how plans to save $1.4 billion on the two new planes.
Bruce Tanner, Lockheed Martin CFO, will retire next year. Kenneth Possenriede will replace Tanner on Feb. 11. Possenriede is vice president of finance and program management at Lockheed’s Aeronautics business.
Lisa Hershman, the Pentagon’s deputy chief management officer, is now the Pentagon’s acting chief management officer, following John Gibson’s departure.
Alberto Gutiérrez has been appointed head of military aircraft within Airbus Defence and Space, effective Jan. 1. He will also serve as head of Airbus Spain. He will replace Fernando Alonso who is retiring about 40 years in the aerospace industry.
Michael Mullen, former Chief of Naval Operations, has been named advisory board chairman of TechMet Limited, a private industrial company that is building controlling or significant minority positions in world-class projects across the technology metal supply chain.