RichardAboulafia.com 

:: March 2009 Letter ::

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Dear Fellow Program Overrun Observers,

Scientology. Religion? Cult? Practical joke gone wrong? Whatever you believe, the defense industry can learn a lot from the belief system inspired by L. Ron Hubbard’s pulp novels. There’s a key Scientology character named Lord Xenu who once blew up a few million people using DC-8s as bombers. As defense programs come under heavy pressure and as politicians use the defense industry as a whipping boy, we should pay attention to Lord Xenu. Mounting bombs on DC-8 wings and gouging weapons bays in a pressurized DC-8 hull takes work. He clearly knows a few things about defense program management, and about adapting off-the-shelf (OTS) platforms for new missions. Given the budget situation we need to learn, fast.

Most current defense programs are in one form of trouble or another, but the VH-71 presidential helicopter looks particularly bad. Like Xenu’s DC-8s, the VH-71 uses an OTS platform, a theoretically lower cost approach that has produced several recent disasters: the Army’s Advanced Reconnaissance Helicopter and the Army/Navy Aerial Common Sensor. The VH-71 triggered a Nunn-McCurdy breach. That term has lost most of the power it once had, but VH-71 is now a $13.6 billion program to build 28 helicopters, a concept that’s quite powerful by itself.

How did the VH-71, with its simple approach of modifying an existing helicopter (AgustaWestland’s EH 101) come to encapsulate all that is wrong with defense procurement? It’s simple. Requirements were padded on, with very little regard for costs. The range requirement almost doubled while the payload grew too, mandating a basically new propulsion system. Increment 2 (23 of the 28 VH-71s) is effectively a completely new aircraft, albeit one that looks externally a lot like the 101. Creating an all new helicopter might have cost less. HASC Chairman John Murtha said the Secret Service was “out of control” with VH-71 requirements, although other agencies drove design changes as well.

Then there’s the contractor. Lockheed Martin isn’t in business to say no to customers, even when they demand the impossible. LM also has no incentive to transition from low-margin R&D work to higher margin production work when the production contract covers just twentysomething helicopters. A nice, safe, cost-plus development contract is enticing, particularly for a company with a strong engineering culture. Except for the F-16, LM isn’t known for a cost-sensitive company philosophy. But this is not a case of a contractor creating a $400 million helicopter due to incompetence or greed.

Yet you might have gotten the impression that it was. In February, President Obama joined John McCain in criticizing the VH-71, citing it as “an example of the procurement process gone amok.” In March, he criticized an implicitly broad range of programs “designed to make a defense contractor rich.” Defense companies are now on the list of public anger catchers, along with business jet users, AIG bonus recipients and anyone with an intact 401K. There are three reasons why this is bad:

First, blaming industry for troubled defense programs is false and self-serving. Decrying “waste, fraud, and abuse” is an easy public rationale for defense cuts, which are inevitable when you’re bailing out every loser industry in the nation. Also, many Democrats conflate “reform” with buying weapons that are only good for “Post-Cold War” needs (Obama recently vowed to “reform our defense budget so that we’re not paying for Cold War era weapons systems we don’t use”). This means cutting anything that costs money, like ships or fighter planes, and instead buying counterinsurgency equipment, which is much cheaper. Therefore, many Democrats offer a strange message: “We think Iraq was a really bad idea. We’re going to transform our military to deal with more Iraqs.” MRAP lawn ornament, anyone?

The Second reason is that the problem lies elsewhere. DoD’s weapons acquisition workforce was gutted in the 1990s, but it didn’t grow as procurement spending almost tripled after 2001. DoD simply doesn’t have enough people for program management, a problem DoD officials have repeatedly highlighted (see Aviation Week, March 16, page 29, for a very useful chart). Yet key “reformers,” particularly Republicans, can’t quite part with Reagan’s “downsize government” philosophy and admit that more government workers are needed. Few pro-defense reform politicians are honest enough to say “we need to reform weapons acquisition by hiring lots more government acquisition professionals.” It’s much easier to keep bowing to the god of small government and look for solutions elsewhere.

The Third reason is that unless you understand the problem, you can make things worse. No politician actually defines the word “reform.” In his Senate confirmation questionnaire, chief DoD weapons buyer nominee Ashton Carter said he would favor reform by using more fixed-price development contracts, the history of which is unblemished by success. In saner times, the examiners would reach for the giant APPLICANT REJECTED rubber stamp they reserve for special occasions. But today, to paraphrase Ovid, terrible ideas doth not prosper; if they prospered, none would dare call them terrible ideas.

Program problems aren’t just the result of requirements people working in a vacuum. The requirements people respond to the broader environment, to the weapons acquisition philosophy created by each administration. In the Clinton era, we had CAIV (Cost As an Independent Variable). After the high science of the Reagan days (Star Wars, etc.), CAIV was a response to limited budgets, establishing price as a key guideline for new systems development. The F-35 was conceived of in the CAIV era, partly as a reaction to the quintessentially pre-CAIV F-22.

Yet since 2001 it’s been a very different story. CAIV has been forgotten, replaced by words and phrases like “skipping a generation,” “Transformation,” and “Revolution in Military Affairs.” These terms imply that new programs should focus on technology and push the capabilities envelope. Cost concerns were forgotten, easily done when procurement went from $54 billion (FY01) to $145 billion (FY09). The VH-71 was very much a product of that time. Today, however, the pendulum is swinging back to something cost-driven. Blaming industry won’t make the transition easier.

WWXD (What Would Xenu Do) with the VH-71? He’d probably build 20 or so Increment 1 machines for half the cost of the current Increment1/2 program (Murtha has proposed this idea too). But more importantly he’d use this program to make it clear that these are different times and that everyone needs to change the way they develop weapons. He’d turn his attention to NGLRS (if it survives). “Look people,” Lord Xenu might implore, “we’ve selected the DC-8 as the platform for our next generation long-range strike plane. Don’t focus on individual systems and capabilities until we allocate a limited budget. Don’t add additional systems and capabilities until we fully ascertain the true direct and indirect costs associated with them. I don’t want any nuclear-powered onboard fax machines, I don’t want a faster-than-light speed requirement added at the last minute. We’re talking ‘art of the possible' here, okay?” But the travails of VH-71 and myriad other programs show we’re a long way from this sensible kind of approach.

Don’t even get Xenu started on the tanker thing. And speaking of that, for March we’ve updated all the Airbus reports including the A400M (we are not forecasting cancellation, but watch this space). A new report covers Alenia’s M-346, and other updates include the Gulfstreams, Hawker’s 400, the Dauphin, Bell 206/407/429, and China’s K-8. Have a great month.

Yours, Until Xenu Gets Appointed SecDef,
Richard Aboulafia

 

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