Defense Writers Group

Transcription

1 TRANSCRIPT Defense Writers Group A Project of the Center for Media & Security New York and Washington, D.C. Hon. Edward C. "Pete" Aldridge Under Secretary of Defense for Acquisition, Technology, and Logistics August 8, 2002 THIS IS A RUSH TRANSCRIPT AND MAY CONTAIN ERRORS. USERS ARE ADVISED TO CONSULT THEIR OWN TAPES OR NOTES OF THE SESSION IF ABSOLUTE VERIFICATION OF WORDING IS NEEDED. Q: You've all had a chance to meet Pete Aldridge. He's the Under Secretary of Defense. Welcome. A: Thank you. Q: First time, I think, since you were Air Force Secretary, which was a long time ago. A: Twenty years. Q: Welcome back. We were talking downstairs about how you might want to get you this. I'll give you a couple of minutes here at the top to talk about the things you wanted to talk about and then we'll talk a little bit about F-22 and other things. So the floor is yours. A: I thought I'd kind of give an introductory three or four minutes and then we'll open it up to questions and use most of the time for Q&A. I came on board in this job in May of 2001 and I set myself five goals, how I wanted to be measured when I departed this job. The five goals were to improve the efficiency and effectiveness and the credibility of the acquisition process. The second goal was to improve the morale, revitalize the morale of the acquisition workforce. The third was to improve the health of the defense industrial base. The fourth was to rationalize the weapon systems and infrastructure that we have in the Department of Defense with the strategy that was being updated by Secretary Rumsfeld. The fifth was to improve the, or to initiate those high tech, high leverage technologies that provide the war-winning capabilities for the future. So those five goals were established. 1

2 We've been working on all those five goals. We established metrics and we've been working them all. I thought I'd just go through what we've done to try to accomplish those. What I would look at as of 18 months into this Administration, a little over a year, maybe three months of my tenure, what we've done to, what I would say I'm most proud of in accomplishing those goals. We've actually reorganized the AT&L office to reflect acquisition technology and logistics because it was not well organized when I took office roughly 15 months ago. We've also elevated the job of the Assistant to the Secretary of Defense for Nuclear, Chemical and Biological Weapon Systems. That job was unfilled for three years during the Clinton Administration. Based upon the current threat we filled it and he's now reporting directly to me. We revitalized the Defense Acquisition Board which is the decision making authority for the acquisition systems to include now the service secretaries are members of the board as opposed to the assistant secretaries for acquisition. That is working very, very well. When the military departments come to the DAB for a decision, knowing that their service secretary sits on that board we find the decision-making process gets improved very rapidly. In fact it's so well in many cases we don't even have to have a meeting. We can get the issues resolved in what we call a paper DAB. So the decision process and the timeline has been shortened as a result of that happening. We mandated spiral or evolutionary development in our weapon systems. What that means is we don't go for the 100 percent solution on the first system. We go for something at 60 to 80 percent and then we can be watching the adaptive technology as it evolves. We are enforcing properly pricing programs. That is probably, the combination of spiral development and making sure the programs are properly priced up front probably has more to do with stability and credibility in the acquisition process than anything we can do. The services don't like this, by the way, because they can't start as many programs. I am enforcing that, in both cases, that the Cost Analysis Improvement Group's, the CAIG's, cost estimates are the ones that I will select as the cost estimate and we will not initiate a program unless the services have costed to the CAIG estimate and budgeted for those estimates. We've done that in several programs and I think the result is going to be, over the long term, much better. We've implemented interoperability. In decision-making when we go through these major milestones, interoperability among the services and among our allies must be part of the acquisition system, and they must show that they have in fact provided interoperability within the weapon systems once they get started. 2

3 Another thing we've done is as we've looked over this year, say 20 years ago the cost of buying equipment was maybe like 80 percent of the acquisition budget and the cost of buying servicebased maintenance and things of that nature has grown maybe 20 percent. That has now changed to the point where the buying of equipment and the buying of services is about equal. Yet we have no acquisition system for deciding how we're going to buy services. So we've now put together a system by which we will review the acquisition of services just like we review the acquisition of buying equipment. I think that's going to be really important for the future. We've started a thing called Technology Readiness Assessments. That means when a weapon system gets ready to reach a milestone like going into the System Development and Demonstration phase, SDD Milestone B, it used to be called Engineering and Manufacturing Development. We will do an assessment of the technology readiness to enter that phase. That's done by the DDR&E. We've also elevated the role of Science and Technology in the Department of Defense. We've set ourselves a goal to get to three percent of the DoD budget for science and technology. S&T has been a bill-payer in the past accounts. We've also pushed forward Advanced Concept Technology Demonstration. These are things which can demonstrate capabilities to the left of the warfighter. I've really been pushing the health of the industrial base by profit policy, by -- Tony's already written on this topic before -- cost savings, sharing of cost savings. Not demanding that our contractors pay our R&D shortfalls, things of that nature. Also the profit policy and increasing our progress payments which help with the cash flow. These are some of the things we're doing. We're doing some work on trying to improve the workforce by having an Acquisition Workforce Demonstration Project where we pay for performance as opposed to just having standard annual pay raises and things of that nature. We're looking at logistics. We're doing some things at the Defense Acquisition University to expand learning processes. We've pushed DARPA back out on the leading edge of technology as opposed to where it has been in past years. We've done some things on missile defense. And we're also trying to do some work on getting rid of over-aged contracts, closeout of contracts that have been sitting around for years. There are about 30 or 40 things we've been doing, and those are some of the things I've been pushing and I think are important that we get done. With that, I'm going to stop. Q: When the Secretary of the Air Force, Jim Roche, was over in Farnborough recently, he 3

4 delivered an opinion that, I believe it's a direct quote, "We see the F-22 as a clear replacement for all of the F-15Cs as well as Es and for the F-117." He also mentioned the bomber variant concept. Take a few minutes if you would and talk to us about that topic. First of all, do you agree with Roche that the F-22 should be the replacement for those aircraft, or if we should do something else. Secondly if you do agree, what impact will that have on the program generally. A: F-22 is a terrific airplane. My focus is getting it delivered now, not what it's going to do ten years from today. We've got a test program that's falling behind schedule and we need to get that back on track. Getting the airplane to come in within its cost estimates is also very important. I don't look at the F-22 as the only thing we have in our inventory. We have the F-22, we have the Joint Strike Fighter, we have F-18Es and Fs. We use the F-15Es as strike aircraft, we'll use the Joint Strike Fighter for that in the future. But the F-22 is a terrific airplane. It's got tremendous technology in it. And it will absolutely dominate the air, over the air of any adversary. It's going to be a replacement of the F-15Cs and Ds, and it could in fact replace some of the F-15Es in the future and certainly the F-117. But my focus today is really to get the airplane delivered. I'm concerned about its rate of testing and making sure that we're going to get it built on schedule, getting a test program completed. I think our focus today shouldn't be on what's going to happen ten years from today but should we have what we're going to do in the next couple of years to get the plane delivered on schedule, on cost, and with the proper performance that we expect from it. There are a lot of opportunities for the airplane for the future. It's got tremendous capabilities. Q: At this moment in August 2002, what is that trend line? You expressed concern about the test program and bringing it in on cost. Is the trend line positive or negative or -- A: I would say a month ago it was negative because we were running at -- We have a test plan that has a certain number of what we call test points. We have to draw down and get all those, the envelope of the airplane completed. We are running at about half the rate we should have been to make the airplane, to complete the test program on schedule. The Air Force has responded to that problem and has implemented a get-well plan that looks like we can get those test points completed at a much higher rate and that's now being worked. I haven't seen the results of that recently but I understand that they are in fact flying more times and getting more airplanes delivered to get that test program back on schedule. Of course Congress has responded to that problem. The appropriations committees have said we have 23 airplanes in the budget. They've said you can only build 16 until you prove you get these test points completed. I think that's what we're responding to. We're trying to get that done. Otherwise, the plan, the program in terms of its performance expectations, looks very good and we have no indications that we'll be in any type of problem with the F-22. Q: Can I just do a follow-up on the F-22? You guys came up with an agreement with the Air Force on the cost -- 4

5 A: Yeah. Q: Take the money and build how many you can get for that money. But that agreement [inaudible] off the table [inaudible] this study that's being done, that's going to drive the number of planes down even further. Can you give us some insight on exactly how those two developments are at will or not? A: Sure. The Secretary of Defense has a responsibility to the taxpayers. The Secretary of Defense and the Defense Planning Guidance said how many airplanes should we be buying? He has a responsibility to ask that question. So the study is okay, how many airplanes are the right number? It may be more. We're looking at less, but the study also is looking at how many should be the right number. That's an issue that he should address because the number at one time was over 700. It was going to be a one-to-one replacement for the F-15. That number got dropped in 1997 during the QDR of 1997 to the number we have today. We essentially made an agreement with the Air Force based upon the number that was agreed to before, and that was a disagreement between the CAIG estimate and the Air Force estimate, and that was the production rate. So what we did is we made an agreement with the Air Force with that number, with the CAIG estimates, we would go ahead and put in the out-years that plan. But the Secretary still has the responsibility to ask the question, what is the right number. So that's what the study is -- Q: What do you think is the right number? You've been around town awhile. A: Well, I don't know what the right number is. The Air Force has a concept called the Air Expeditionary Force of ten Air Expeditionary Force units, so to speak. In order to fill those AEFs you have to determine how many F-22s are the right number for that. Or what is the mix of F- 22s/F-15s, F-22s/Joint Strike Fighters, and part of the process that we'll go through this summer and this fall will try to establish what that right number is. And quite honestly, at this point I don't know what the right number is. We've started with a program that said okay, the decision has been based on 339 airplanes and that's what we will produce in the out years, not what we do today. But we'll determine it. Q: Is there a point where you would say that the airplane has just become unaffordable due to the cost if you're driving the number down too low? Essentially you have a B-2 in the fighter world, and you can say look, this is silly, let's not buy it then. A: I don't think that's going to be the case. It's not a matter of if we're going to buy the F-22. It's how many do we want to buy and how many is the right number. The F-22 in my view is the air dominance capability for the future. We don't want to have any of our forces ever again be subject to attack from the air. If we're going to go into any conflict anywhere in the world we want to have complete air dominance and the F-22 is the key to that. 5

6 Q: Can you talk a little bit about the Osprey and specifically this notion of whether there are perhaps inherent design flaws [inaudible] week or so [inaudible]? A: I'm probably the most skeptical person in the Department of Defense at this time on the V-22. But I think that's my job. I have looked at this airplane probably more thoroughly than anybody in the acquisition business. I've gone through all the reports, the NASA reports and the Blue Ribbon reports and I've got some real problems with the airplane, and the only way to prove or disprove my concern is to put it through a very thorough flight test program. The airplane does have some problems. It is a compromise between a helicopter which wants very big blades and an airplane which wants relatively small blades, and it's compromising right in the middle of all of those. It wants to fly like an airplane and land like a helicopter and take off like a helicopter. Then it has this 20-foot moment-arm, out where the blades are located, and there are some problems with -- In fact all helicopters have this problem with the vortex ring state which is one case, and blade stalling in certain kind of conditions. The problem is when that happens on this airplane you lose control. There's not enough control authority once one of the blades stall, once it starts to roll you can't correct it. So we have to find out if we operate the airplane to avoid those conditions, which we can. We can fly the airplane to avoid those conditions. Is it operationally useful in that event? That's what the flight test program has to prove. Because the blades are smaller than would be required for a helicopter you have to load the blades up with, in terms of the pounds per square inch that you have on the blades to hover, that you don't have much control authority. You don't have much margin left. Then does the airplane have the ability to get itself out of trouble if it goes into a landing zone and it finds the landing zone is hot and it has to get out, does it have enough control authority to maneuver without getting itself into these vortex ring states or blade stall. It lands on a ship, it has a huge downwash. So the suitability of landing on a ship and the interference it has when one of the blades is out over the ocean and one blade is over the deck, does it have control. All these things are problems in my mind of reliability, safety, and operational utility, operational utility. Those are three things this airplane has to prove in its flight test program before we're going to proceed. The Marines know that and they're going through a very thorough test program. I'm going to go down and visit with them on September 6th to take a look at where the airplane stands and where it's going through its flight test. There are some design changes that have to be made. It was not well designed in the beginning, so they've made these changes. I am skeptical but I cannot say that these problems cannot be solved or be disprove in the test flight program. That's where we are. In the mean time we're producing the airplanes at a very minimum sustaining rate. Q: The Air Force is still planning to hold off on replacing its bomber fleet in 2016 at the earliest. In this Administration [inaudible] do something sooner. Given what we now know about the performance of the fleet and the aging of the aircraft, new requirements along [inaudible]. In terms of [inaudible] 2016, or can we wait until then? 6

7 A: No, I don't think there's a need for an interim step. What we're focusing on is rather than the bomber platform is the munitions that the bombers carry. That's the important factor. How do you hit the target? The JDAMs and the small diameter bomb, the precision munition is the focus that we have for standoff capability. The JASSM program. What we're focusing is not the platforms to get the munitions to the area, but it's what do we put on the target. What we have in both the B-2 which is quite capable of carrying the JDAMs and other things. The B-1s, and then the B-52s which have become the trucks, are quite adequate to do the job that we see for ourselves over the near term. We are in fact thinking about what is the timeframe, what is the platform of that time, because B-52s aren't going to last forever. They're 50 years old right now. And we have some studies underway looking at the future of long-range strike capability. It could be unmanned, it could be supersonic, it could be subsonic, it could be FB- 22s, it could be other types of technologies, and it could even come from space. We are not eliminating any possibility for the future. So there are activities underway within the Air Force at Wright-Patterson Air Force Base looking at these alternatives. But for right now we're focusing not on the platform but on the munitions that the platforms deliver, and that's the most important area. Q: What has the most promise from your view? A: The most promise in terms of platform or munitions? The JDAM is just absolutely magnificent. Its accuracy is something that is better than we expected, and the next generation is going to be the small diameter bomb, the 250-pound bomb that can be delivered, in fact numerous bombs per aircraft in this case which has tremendous lethality because it's so accurate. That's probably the next generation. The other one is the JASSM -- Joint Air Strike Missile. You can't believe how many acronyms are in the acquisition business. I can't remember them all. But that's another one that is doing very well. Q: I was thinking about the [inaudible] instead of the near term. In the 2015 timeframe. A: If you look out in that timeframe, what are the characteristics that you want? There are certain characteristics that exist within the F-22, for example, like supercruise. While the bomber is over the target it probably would be very advantageous to have a supersonic capability because it keeps it out of the target area for a given period of time. It's probably not as good as the B-2 because if you go to the small diameter bombs, a B-2 could carry hundreds of these things but in order to deliver those bombs on the target you open the bomb bay and the stealth capability of the bomber goes away. If you have hundreds of bombs in the bomb bay, your bomb bay doors are open all the time. So the airplane is probably smaller than a B-2 and can deliver 20 or 10 or 16 or something like that. So if you think about the tradeoffs you have -- stealth high speed, probably a smaller airplane that's not quite as extensive as the B-2. Those are kind of the tradeoffs that have to be made. Where all that comes out I just don't know at this point in time. That's what the studies are all about. 7

8 Q: I just wanted to follow up quickly on the V-22. In terms of alternatives if the test program does not prove it out, what in your mind are the best alternatives? And then -- A: LVS (inaudible). Part of the activities in the Defense Planning Guidance, studies that have been asked for, that is the question that we are trying to answer ourselves. If, for example, the flight test program fails, I don't want to be sitting around here waiting for another couple of years to decide what is the alternative we want to pursue. The DPG studies will provide us that if the V-22 fails or if we decide not to buy it for whatever reason, what is the alternative? The alternatives are some other helicopter. There's the EH-101, there's the S-92, Sikorsky model, there's a CH-53X which is an upgrade of the 53. We are looking at those alternatives right now. I don't think there is an alternative to the V-22 in terms of other technologies that are around. DARPA has a very interesting project underway called the Canard Roto Wing. It's going to fly this summer. It's a concept where a jet engine powers the prop to get it vertical takeoff, and then as it starts to move forward that prop stops and becomes a lifting body. So it has jet speed and vertical takeoff. That's still years away. And the question is whether or not that's scaleable to replace a V-22 type payload capacity. That's the question. But I think if the V-22 fails, I think the only answer is some other existing helicopter that we would produce that would make up for the difference. Q: On the Comanche, especially the upcoming Defense Acquisition Board, I believe this month. A: September. Q: Could you just outline what you think are the major issues that you want to see resolved [inaudible]? A: There are a lot of issues. The airplane is now the oldest acquisition program, it's been in process longer than the F-22 and we still don't have it. It started in 1983 as a matter of fact. We've gone through several cycles of restructuring, and there have been budget cuts, and it's gone through probably the most turmoil of any program now in the Department of Defense. The problem I see with the program is that weight's going up, there are some problems with the integration of a lot of the mission equipment on the airplane. Cost is certainly a concern. The Army is going through a restructuring exercise at this point to look at how we can do this airplane and force it into spiral acquisition -- not do everything up front. Those are the issues that are being addressed. General Larry Welch just completed, I guess you'd call it a gray beard or gray hair review of the Comanche, independent review of the program for the Army and it made some recommendations to add some things to the program, especially in the test program and also the spiral development activity. We will introduce those things at the Defense Acquisition Board. But I think my biggest concern, or two biggest concerns, is weight growth and mission electronics integration. Those are the two hardest things we have to do. Somebody told me the 8

9 other day there's 37 different antennas on this airplane, the Comanche, and the integration of those antennas coupled with the stealth technology and having that system interface with all the other network-centric activities of the Army is going to be difficult. That's what we have to resolve and put together a program that we can ensure that we can do that effectively within the cost and scheduling. Q: Back in June you had a study [inaudible] on the object of EA-6B. Apparently you were not very happy with what they gave you, they presented to you. Can you talk about why you did not like the [inaudible] review and what you think they should do in the short term? A: The briefing was actually done by a group looking at the replacement of electronic warfare aircraft, both the Navy and the Air Force. It was given by General Newton, is that right? Leaf. His nickname is Fig. It's Fig Newton and Fig Leaf. I wouldn't say I was unhappy, I would say that it was not convincing as to the plan. It included both the replacement of the EA-6B which is having a lot of troubles both in the engine as well as structure, and it's just getting old; as well as some plans for some electronic warfare within the Air Force. I would say I was not convinced that that was the right plan. And we have as also part of the Defense Planning Guidance this summer, we have an electronic warfare study underway to see if that, if what was proposed was the right answer. There are some other alternatives being considered. So it's not that I was unhappy, I think I was just, I need to be convinced. Q: What was not convincing in the proposal? A: It seemed to me that the plan that had come forth by this group was here's an Air Force solution and here is a Navy solution, rather than here is a U.S. Department of Defense solution. And it seemed like the Air Force had their direction and the Navy had theirs. Q: What would be a [inaudible]? A: Probably the most interesting part of it would be an electronic pod system that would do the job that could be carried on any type of aircraft, either Navy or Air Force. And I think what we have to focus on is what is the problem we're trying to solve rather than what is the platform we need to solve that problem with. So I think if we could find a way to come to a common solution, because we're going after the same threat. Why do we have to worry about if it goes on this airplane or this airplane? Why don't we say that's what we're going after, let's build a capability to go after that threat and we can put it on any aircraft. Either our Air Force or the Navy. It may be that they have the right solution. It was just unconvincing at the time that I heard it, and that's what we're trying to resolve this summer. Q: Make sure we cover all your big programs. JSF. 9

10 The Navy and Marine Corps are looking at, trying to find something to integrate their air component which is starting to require the Marines to put fighter squadrons on each of the carriers, and the big question comes, the impact on the Joint Strike Fighter. The Marine Corps wants to buy all the VSTOL version operating off the small ships and that sort of thing. If they're going to go on the carriers it becomes a question of whether they have to buy a carrier version Joint Strike Fighter. And if the two services integrate, would they buy less? What does that do to your overall program, cost, and other things? A: It's not a radical study, it's quite reasonable. What they've done is they've taken a look at the Navy/Marine tactical air, looked at the capability of the Joint Strike Fighter which has higher reliability and more sortie rates, and determined how many airplanes they need to buy given the new conditions, and that number is less than what they currently have so it's not a radical approach, it's quite reasonable. What the mix is between carrier versions and the STOVL version is yet to be done. That's also part of the summer activities in the DPG. The cost of the Joint Strike Fighter was based upon the procurement of 3,000 airplanes. U.S. and U.K. only. The Navy says they can get by with about 400 less airplanes, which brings the number down to 2,600. That increases the unit price of the Joint Strike Fighter by about five percent. Until you sell some beyond the Navy and U.K. We now have seven partners signed up for the Joint Strike Fighter development phase and an eighth which will come on board soon. That will be Australia. If we sell 400 more airplanes internationally, the unit price goes back to where we thought it was going to be in the beginning, and I have no doubt that's what we're going to do. In fact I have very high confidence we will sell 1,000, 2,000 airplanes outside of these. Because if you just look at the number of U.S. aircraft that have been bought by our allies and you say they will buy the Joint Strike Fighter as a replacement for the F-18, the F-16, then it could be 2,000, 3,000 airplanes in addition. So my view is that the number, the unit price of the airplane is going to actually be below what we currently project which for the conventional version in FY02 dollars is $37 million. Q: Where do you come in on the part of this Navy/Marine Corps plan? Basically is it a Navy/Marine decision and you just work out what it does to the acquisition program? A: My view of it, it's not just Navy/Marine. It's Navy, Marine and Air Force. I'm looking at it from a Department of Defense point of view. Their plan looks perfectly fine in terms of its concept. What the mix of airplanes is between STOVL and carrier-based is still subject to negotiation and I also have to throw in the industrial base because how many F-18s do we continue to buy versus Joint Strike Fighters, and put in F-22s as well from the point of view of tactical air? So from the point of view of what the Navy has done in terms of its integration of Navy/Marine, I think that's a great idea. Now how many airplanes they need to carry it out is a different story. Q: The STOVL, they're going to buy the STOVL version doesn't it run up the cost on the Brits' 10

11 aircraft if the Marines buy less? A: We haven't decided how many STOVLs are actually going to be bought at this point. The Marines, the U.K. plans to buy 150. They haven't decided which ones they want to buy either, because they're still designing their carrier for the future. Q: Merger acquisition issues. What's the status of the TRW and Northrop review? Is that an end game? Are you planning to ask for a second request of information? A: Justice asked for a second request. Right. Q: Is there a presumption at this point you will approve this transaction albeit with legal restrictions since you've had a lot of time to review this, even before it came over, or are there major antitrust issues that still leave the decision in balance right now? A: I don't want to get into predicting how it's going to turn out because there could be surprises as some of this data comes in. We have a process underway, I would say an improved process. We learned a lot from the Northrop/Newport News, GD/Newport News thing that we didn't have a process that allowed us to systematically go through all the decisions and get all the equities of everybody involved. So we now have set up, we call it OIPT, Overarching Integrated Product Team. But Susanne Patrick leads the team with general counsel, and we bring in all the people who have an equity in this and we go through periodically all the data that we have and try to make the decision and see who has an interest in these things. There are some things in the National Reconnaissance Office has issues, both TRW and Northrop/Grumman. The Air Force, the Army, the Navy, everybody has concerns. We have a process in which we work through these things. We're not signing these showstoppers, let's put it that way. There's nothing that says absolutely no way. But there are lots of concerns and we are getting input from other contractors who are concerned about whether or not they have access to some of the technology that, and one in particular that's been very open about it is Lockheed Martin who says well, if Northrop and Grumman merge will I have access to the payload capacity for my spacecraft? Q: TRW. A: Sorry, TRW. And that's a concern and we have to address the concern. We have a concern as well. We want to make sure that the process takes these into account and we have proper solutions that people can know. Q: What about [inaudible] earlier, too. A: Yes, that's another thing that I'll give credit to Susanne Patrick who as a result of the GE/Honeywell thing. We should have been talking to them way earlier to find out what the concerns were so we could address those things. And so we are in fact talking to them now 11

12 during this process, a more systematic process. Q: You mentioned cryptically, we have concerns, too. Is that on a merchant/supplier issue? TRW has been seen by industry as someone that sells to everybody. A: Northrop/Grumman's the same way. Their capabilities for some of their radar capability at Baltimore is very good. So the concern is will these other primes have access if Northrop/Grumman and TRW merge, they can deny that capability to these other people that we would like to see them have if they're going to have a fair competition. So those are concerns. They're not insurmountable, but they're concerns we have to address. Q: Is there a time line here? A: The time line is dictated by the contractors. When Northrop/Grumman, when the Justice Department asks for information and Northrop/Grumman provides it, they can then say that's it, we've supplied it, we have 30 days. That's up to them, not to us. We're trying to do it as quickly as we can. Q: Mr. Secretary. Last January when Secretary Rumsfeld issues his memo on missile defense reorganization. He asked for a plan, I think from the Comptroller, on how missile defense [inaudible] budget process [inaudible] for the missile defense program. Has that work been finished? And can you give us an idea of what your thoughts are on how [inaudible] -- A: PBS. Q: How that needs to be tailored for the missile defense program. A: Yeah. There's an agreement, I'm not sure there's a report out on that but there's an agreement between missile defense and the Comptroller which is the one that has to get the budget on how that's received. First of all, the Missile Defense Agency is R&D only. There is no "procurement". If the Missile Defense Agency decides that the R&D is ready for development of procurement, the process is that would then shift to the normal acquisition system in which a service would be delegated the responsibility to deploy the thing and we'll go through a normal DAB process. So while it's in R&D only the process is very streamlined and the budgets will be just, it will come into the Comptroller, we have a Missile Defense Support Group which we designated that will look at the budgets, that would take the equities of all the other offices -- Joint Staff, Army, Navy, Air Force, OSD, Comptroller, PA&E, all the people who are involved. Thirteen different organizations make up the Missile Defense Support Group. A person who works for me chairs that support group. They review the budget and make recommendations both to the Missile Defense Agency head which is General Kadish, as well as to myself and an organization called the Senior Executive Council which is the deputy secretaries, the three service secretaries and 12

13 myself, who will be the decision authority of whether or not to deploy and to review that budget. That happens next week, as a matter of fact, going through the budget plan. So the process I believe is in place to make that happen. It is streamlined and it is different than other organizations because of the complexity of the missile defense, the mission it's tasked to perform. Q: Are CAIG estimates on the missile defense program? A: They're just R&D at this point. It's R&D only. When it gets to the point of deploying and the process -- We're going to deploy this capability you've just developed, then the CAIG estimate will apply, but not during the current estimate at this point. Q: Mr. Secretary, I wanted to ask you a more broad question. People in the Pentagon talk about this '04 budget as so important because it's the last chance for your team in the first term to put your stamp on Pentagon reform. I'm wondering how much you really think this '04 budget will reflect fundamental changes that Secretary Rumsfeld promised to the Pentagon and how confident is he that if President Bush runs for reelection you guys can say -- the Pentagon? A: I think the '03 budget had a lot of transformation. We had 17 percent of the budget, was in fact transformation, for new ideas. So I think the step started in FY03. But I think FY04 is going to be equally dramatic, if not more so. A lot of decisions haven't been made yet because they're being made during the summer process, but if you look at some of the things we did in transformation in '03, I think those ought to be equally dramatic in '04. One that I guess I'm probably the most proud of is not only the UAV acceleration we funded, but we started something which is the backbone of the future and that is increasing the bandwidth capacity of our ability to pass information around. We started with what's called the Transformational Communication System, TCS. It's basically putting fiberoptic bandwidth in space as well as the ground. Once you do that you're opening up bandwidth capacity to move information and information is really the foundation of transformation. The ability to pass it around in essentially unlimited bandwidth is a major feature of the future and we started that in FY03. We'll continue it in FY04. Q: And the second part about coming forth with what you guys have done in four years in the Pentagon, you're [inaudible], you can say you've delivered on the campaign pledge, a fundamental change in how the Pentagon operates? A: I didn't campaign. But I will tell you -- Q: You're next. A: The Secretary the other day sat back, and we have a Senior Level Review Group, SLRG. We 13

14 meet periodically. We wrote down all the things we've accomplished in 18 months, not four years, and there are some pretty dramatic things we've done. In fact the Secretary said I had no idea until we wrote them all down that these are things we've accomplished. Not only in acquisition -- I don't call it acquisition reform, I call it acquisition excellence now. But things we've done in the acquisition business of the spiral development, properly pricing programs, are dramatic changes in the way we've done business in the past. And some of the other things we've done in UAVs with missile defense, the whole issue of missile defense is completely changed from what it was 18 months ago. A lot of it had to do with the elimination of the ABM Treaty and things of that nature, but UAVs and missile defense and communications capability, the Joint Strike Fighter is the largest defense program ever and we actually implemented it. What we did implement was the international application of the Joint Strike Fighter. We now have, in the Joint Strike Fighter, $4.5 billion of non-u.s. money contributed to the development of that program. That's unheard of. There's lots that we're proud of. Q: I wanted to ask you about naval facilities, the industrial base. Do you think it's strong enough now, and if not what do you think needs to be done? A: The shipbuilding rate is not strong enough. The shipbuilding industrial base is strong enough. In fact we're running it below capacity. If we continue to buy five ships a year we're not going to have a 300 ship Navy, we're going to have a 330 ship Navy so we have to get the shipbuilding rate up. The capacity of the industry is quite good, as a matter of fact. Two weeks ago I did a tour of the shipbuilding industries across the East Coast. I plan to go to the West Coast later. From Bath all the way through Newport News, down to Pascagoula, Duckport and Avondale. What's going on there is very impressive. They are bringing in aerospace manufacturing technology into the shipbuilding industry which is long past due. But what we have to do is we have to get the rate up. We're not buying enough submarines to keep the submarine fleet the size we need, we're not buying enough surface combatants. We just have to figure out a way to do that. I know Secretary England is trying desperately to figure out how in his budget he's going to get the rate up. We need to build about ten ships a year. That's the kind of rate that would sustain -- Ships last 30 years, and you want to build a 300 ship Navy, you need about 10 ships a year just to sustain it. The Navy's talking about increasing the number of ships to 375 or thereabouts, but those are based upon going to a Littoral Combat Ship, LCS, which are smaller and we could buy more of them. But we need to sustain those kinds of numbers to do the things we want the Navy to do. Q: Just to follow up, do you think the LCS is a solution in terms of keeping the ship rate, building rate up enough to keep the industrial base -- A: Uh -- Q: -- or do other steps need to be taken? 14

15 A: Other steps need to be taken. We need to get the number of submarines built to at least two per year. We're building one a year. We have to worry about what we're going to do with the future aircraft carriers. Now those things get built once every five years or something like that. But the number of surface combatants is not sufficient and the submarines aren't sufficient. I think what we probably have to do is not worry about how many ships we have, but what do we want the Navy to do. If you look at what we want the Navy to do and the demands we're placing on them and the worldwide commitment we have, and the Navy's got a new concept to try to get these carrier strike groups and expeditionary strike groups formed, if you determine what you want the Navy to do and it comes out that about 375 ships based upon both carriers, submarines, surface combatants, support ships, and littoral combat ships, that's kind of the number that gets [inaudible]. About 60 littoral combat ships is what we really need. Q: Mr. Secretary, I'm a little confused about the timetable on the V-22. If I understand correctly, the studies that were ordered under the Defense Planning Guidance were supposed to determine whether you buy the V-22 and if you don't, what you buy. And that's supposed to be done by sometime this fall. Is that right? A: The study is to determine what is the alternative to the V-22 if it does not pass its flight test program. Q: So that will not decide the fate of the aircraft. It's going to be the test program. A: That's the plan at this point in time. Although the Secretary has the authority if he says I don't care if it passes the test program, it's not affordable, he has that choice. What I'm doing in the study is saying if we do not have the V-22 what is the alternative we want to pursue, because let's say it doesn't pass the flight test program. Something happens and it doesn't work. I don't want to be sitting around for another year or two waiting to decide what is the alternative going to be. If it doesn't pass the flight test program, I want to be able to decide today what is the alternative we want to pursue. Q: But the study is not going to come up with a recommendation that says we think we should cancel -- A: No. The study will say if you do not want, Mr. Secretary, if either the V-22 is not workable or you believe it's unaffordable, this is the alternative you ought to pursue. Q: And just one quick clarification. Is it tilt rotor technology, the whole concept that you are skeptical of, is it just the V-22 aircraft which you said [inaudible]? A: It's hard to divorce those two things. 15

16 Q: Well, there are two other tilt rotor -- A: There is a quad rotor design, too. It's the idea of putting these blades out on a moment-arm that's 20 feet away from the center of gravity. All helicopters go through vortex ring state, all helicopters have these characteristics, but the blade is at the center of gravity. So when things happen there are features of helicopters that are self-correcting. Vortex ring state is when the velocity, you're going down at a certain sink rate, low speed forward, and high speed vertical, that the velocity of the downwash equals the velocity of the upflow and you create -- this is overly simplified, but it's a stall. When that happens in a normal helicopter the nose pitches down and you're immediately out of it. When it happens to a V-22 with the rotors on the end, and it happens randomly. It doesn't necessarily have to happen on one blade or the other simultaneously. If it happens, the airplane rolls and it's uncontrollable at that point. Q: [inaudible] forward? A: If you catch it in time. So you have to be warned that you're getting into that state. That's what the flight test program is all about. Can you keep the airplane from getting into that state by pilot correction? But the problem you create at the time, pilots tend to want to maneuver airplanes at its maximum performance and if you're in a combat zone you don't want to think about the fact well I can't move this airplane at that sink rate otherwise I'm going to stall, and I'm being shot at. All those features have to be brought in -- And if I can't, I don't want to take the airplane into that combat zone, and if I can't take the airplane into the combat zone why am I buying it? All those things have to be solved. I might as well take an airplane that I'm more confident in and I'll take an H-53 in there that I know I can handle, I know the vertical and all of it. So all those features have to be taken into account when making that decision. Q: Lean manufacturing. Early on in the JSF days the fight over how much it was going to cost, the argument was [inaudible], you've got a whole new way of building things, if Toyota can do it we can do it. We're a few years down the pike now. Can you look at that? And if we really are putting aerospace techniques into shipbuilding, is there enough out there -- A: You ought to do this because everywhere I went from Bath Ironworks to Newport News and Portsmouth Naval Shipyard, Pascagoula, Duckport, Avondale. Along the East Coast. Every one of those places talked about lean manufacturing. Q: You're answering a better question than I was going to ask. What do you see, and can you really do LPGs and F-35s like you do Toyota Corollas? And are there points where it's hard to believe - (end tape side A) 16

17 A: -- and how you build it. In the shipbuilding area for example, you can go into an area where they're building -- What they used to do with ships is they'd put the hulls on these lathes, they'd build the ship up from there. What they're now doing is they're building modules and they're stuffing the modules with all the piping and electronics, and then they're just welding the modules. They call it Leggo. Leggo kind of building a ship. Each of the modules they had, they talked to the manufacturing guys and they'd say what is the long pole in the tent that keeps us from building this module at a more rapid rate? They said well, if you've got the pipes right here as opposed to me going back to the shore and getting the pipes and bringing them to the module, I could cut five days off the manufacturing time. Those kinds of things are now being applied to shipbuilding. And they're not building ships on an incline, they're building them on level ground. On railroad cars, basically, and moving them into a drydock and then they take the drydock out and sink it. All of these things are being considered -- I think the airplane business really thought about this. Certainly the submarines did because they're building submarines and sticking them together and welding them together. Q: But [inaudible] Ohio class boats were all built by Bath, Litton Industries built the Engels Yard. A: Yes. Q: -- in modules. That was 30 years ago. So what's new and is it really saving money big time? A: Well, in shipbuilding history I'm not sure it's saving any money because the problem is the ships are costing more. I'm not sure it's a result of how they build them, I think it's, they're underestimating what it takes to build them from the beginning. I'm not sure how to answer your question. How it applies to the Joint Strike Fighter is that the affordability has been part of the equation on the Joint Strike Fighter from the very beginning, and cost is an independent variable, it's all been trading off. And we're doing the Joint Strike Fighter spiral. What that means is the technology that's being applied to Block 1 is the technology that is mature that we seem confident in. We're not trying to do everything to the Joint Strike Fighter on the first thing. We are 40 months from first flight. This is going to be unheard of in the fighter business and I'm insisting that we're going to make the first flight in 40 months -- actually it's 39 now. So Hudson is clearly under the authority to how he's going to proceed. I told him that the first guy that walks into your office to say well, we ought to change this, you tell him no. Put that in the drawer, that's Block 2. I think that's the kind of discipline we've got to put into this. Q: I was going to ask you about your experience in terminating Crusader -- A: I'm never going to do that again. 17

18 Q: What kind of lessons have you learned in terms of [inaudible]? Have you got some [inaudible]? And also would you say [inaudible]? A: Terrific questions. The first lesson I would learn is that unless it's a Nunn/McCurdy breach which by law we have to stop, we terminated the Navy Area System because of Nunn/McCurdy. That was really easy. It was hard on the contractor, hard on the Navy, but the fact was that it breached the cost and there was no way I could sign up to keep it under control. So from that point of view, the Congress passed the law that said you can't do that, you have to stop, so that was easy. The thing that I would learn from the Crusader is that if it's not a Nunn/McCurdy, do it when you send the next budget to the Hill, rather than in the middle of the process. That's what was the difficulty. They were right in the middle of doing the authorization bill when we sent the thing over there, and that was hard. It was necessary to do it, but if I was going to do it again I would have done it back in the beginning when the budget went over and it was not in the budget, rather than in the middle while they were doing all their negotiations. The contract was terminated -- I signed the letter directing the Army to terminate the program. The contract was actually terminated on Tuesday, just a couple of days ago, because we can't terminate the contract. The Army contracting office has to do that, and they moved the money and Congress agreed to the reprogramming. Q: [inaudible] A: Yeah, the A-12. We're not going to do that again either. So the Army actually terminated the Crusader contract and reprogrammed the money back to do the Future Combat System. So the Congress, we have letters from Congress agreeing to that reprogramming request which is necessary. The other part of your question was? Q: High cost of the alternatives. A: Because the money got moved from the Crusader back to a Future Combat Systems canon, the termination cost was very minimal because the contractor is using the money to go onto other things. He didn't have to lay people off, terminate things, stuff like that. So termination costs really [inaudible]. Q: The high cost of the alternative? A: Oh. The study that was done by the Army -- They looked at, they had four courses of action, COAs. One had Crusader in it and the others did not and they had other directions for the Future Combat System. I am skeptical about the analysis because the three courses of action that were laid out as alternatives to Crusader all had Future Combat System capabilities which you would have done anyway in course of action number one, but with not costing. 18