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Media Roundtable with Under Secretary Aldridge

Presenters: E. C. "Pete" Aldridge, USD (AT&L)
August 16, 2001

Wednesday, August 15, 2001 - 4:31 p.m. EDT

(Media roundtable at the Pentagon.)

Quigley: Ladies and gentlemen, I think most of you have had an opportunity to at least say hello, but not all of you by any stretch, to the new under secretary for Acquisition, Technology and Logistics, Pete Aldridge. And he is in the thick of a lot of the issues that we'll be taking a hard look at here in the months to come. He has approximately an hour here today, and all his remarks are on the record and for direct attribution.

Mr. Secretary?

Aldridge: Okay, good afternoon. As Admiral Quigley said, I've been here at the job just over three months, but it seems like a lot longer than that -- (laughter) -- with the -- all the activities underway. And it seemed like we were working long hours during the week and many weekends. But lots of things going on.

I thought I'd just cover a couple of points, and than I'll open it for questions as long as the hour is -- exists.

About three months ago, when I did come to the office and I was sworn in, I established five goals for myself and the office which I was going to run. These goals center around several problems that we saw in the Department of Defense in how we worked things and how we accomplished our business.

The first goal was to establish the credibility and effectiveness of our acquisition and logistics support process. Weapon system development was taking far too long. We had far too many cost overruns. Congress did not believe we had the credibility to run acquisition programs very well, and therefore, instituted a lot of micromanagement over the Department of Defense.

I thought we needed to work on these issues to rebuild the confidence, and we're taking some actions to do that.

The second goal was to revitalize the morale and quality of the acquisition workforce. I think many of you have read about the fact that the acquisition workforce is getting older and about 50 percent are eligible to retire in the next five years. We needed to revitalize that workforce to bring in new people, perhaps with new skills. And we have an acquisition workforce strategic plan underway to try to accomplish that.

The third goal was to improve the health of the industrial base. If you talk to anybody on Wall Street, you'll find that the last place they want to invest their money is in the aerospace industry. And my view is that if we're going to have the finest weapon systems in the world to support our troops, we need also to have the finest industrial base in the world to provide those capabilities. And if our industrial base is healthy and attracts investment, investment attracts innovation, innovation makes our companies more competitive and they can attract higher-quality people. So we need to do a lot of work in that area to improve that health.

The fourth goal was to rationalize the weapon systems and infrastructure with our defense strategy that's ongoing. And of course, that's happening as part of the QDR and the defense guidance and the budgetary process.

And the last goal was to institute and initiate those high-leverage technologies for the future. And that required us to get our science and technology budget up to a more meaningful level for the Department of Defense. And we're working on that.

Also, when I entered, we heard a lot about acquisition reform, and I did not like the word "reform." It sounded like I've done something wrong I must repent. So I've changed the title and the theme from acquisition reform to acquisition excellence. In fact, in September we're starting an Acquisition and Logistics Excellence Week to emphasize the things that we're going to do to improve our processes.

Over the past several months, I've been working with the secretary and senior civilians and military in the department on the QDR and the defense guidance and the budgetary process, and it's been a pretty hectic process. Several weeks ago I announced the efficient facility initiatives for the department. [ Transcript ]

Yesterday we had a defense acquisition board on the F-22 program, and I'm very pleased to announce that we've made a decision to proceed with the low-rate initial production for the F-22.

We can get into the details of that in a few minutes.

And then we also -- yesterday we had a review of the V-22, the Osprey. There have been no decisions on that. We're reviewing the results of the blue ribbon panel we did several months ago, and there's been some updates of that in the past several weeks and months, and we just got the briefing on the status of that, and we're taking that under advisement. That'll be several weeks away before making a final decision.

On the F-22, let me just give you kind of a thumbnail summary of that. It is that we did have a Defense Acquisition Board. The Defense Acquisition Board has been streamlined now to include only 10 members rather than the 16 that existed before. All three service secretaries now sit on the Defense Acquisition Board, and two of the three were at that meeting yesterday.

It also includes the under secretary comptroller; the under secretary personnel and readiness; under secretary policy, the director of operational tests and evaluation -- program analysis and evaluation. I chair the DAB, and the vice chairman of the Joint Chiefs of Staff is the vice chair. We came to a unanimous decision to recommend to the secretary to proceed with the F-22 low-rate initial production, and also to revise the program plan based upon some costs -- some new cost estimates of the program. The program has met all of its exit criteria for entering into low-rate production and is performing to its design goals.

One of the issues that we had to address the difference between the cost estimate between the Air Force and the cost analysis improvement group [CAIG], our independent group which does costing as to comparing the services' input. We have now narrowed those cost differences substantially from what it was several months ago. Basically, we have reached agreement on the engineering and manufacturing development cost, and we've reached agreement on the low-rate initial production, which is (inaudible) -- fiscal year '02 through fiscal year '05. Those cost differences are now zero.

There is a difference, however, between the production cost, and that is the cost of the F-22 after fiscal -- starting in fiscal year '06, which is the high-rate production, through fiscal year '12, which would be the end of the production. And the basic differences are that the CAIG estimate is that the Air Force cost-savings initiatives are going to be less productive than the Air Force estimates.

And for example, the Air Force will put some funding in to improve the manufacturing technology, expecting a seven, eight, 10 times return on that investment. The CAIG does not believe that return will be quite that optimistic and will be estimating it maybe four to five times. And those are basically the differences.

So what we have done to resolve that problem is that in the fiscal year '06 and beyond, we've accepted the Air Force estimate of cost, but we have allowed the production rate to be what the CAIG estimates that they can do within the unit costs that the CAIG estimates.

So the total number of aircraft in the program plan -- and it's just a plan at this point -- is 331 aircraft in the Air Force estimate. But with this new revised estimate, it's 295. So the CAIG -- we've taken what the CAIG believes they can build at the Air Force estimate of cost.

Now what this does, of course, it incentivizes the Air Force to achieve the cost savings that they've provided. And if the Air Force can in fact get the cost estimate of the unit cost at their level, they can buy more airplanes.

So we basically have limited the cost of the program to that which would be projected in the budget, and the number of airplanes will be a variable. And so I think that's the right thing to do.

The decision memoranda are in fact being prepared as we speak. There is a requirement for the secretary of Defense to submit to the Congress a new estimate of cost as part of the criteria for proceeding, and that's being done.

And at that point, I'll stop and answer questions. Yeah?

Q: Can you put some numbers on that as to what those cost estimates are for -- (off mike)?

Aldridge: Well, let's see. You need like unit costs or things like that?

Q: Right.

Aldridge: Well, the unit cost will be -- I don't have the precise number, but in the few -- in the early years, when you're in low-rate production, the unit costs are several hundred million a copy. But as you go over the period of -- when you get down toward the end, the unit cost is around 100 million a copy. And that depends on what year dollars you're putting in and so forth -- but that the order of magnitude.

Q: The total program cost is 43 billion?

Aldridge: It's about $45 billion.

Q: Forty-five --

Aldridge: Yes.

Q: (Off mike) -- precision, the Air Force has agreed to pony up -- is it 5.4 billion in production and another 600 million in R&D in the out years?

Aldridge: Yes. They have -- the Air Force -- at one time the estimate between the CAIG and Air Force was about $7 billion. That's now been reduced to about 3.4 billion, about -- close to 4 billion. Excuse me.

Q: Is that cost --

Aldridge: Yes. And they've agreed to increase those costs, so that now the low-rate production and the EMD costs are the same between the CAIG and the Air Force.

Q: And the production -- the units we're talking about -- the production acquisition unit cost is about 83 million, the Air Force is claiming --

Aldridge: It depends on what year you're talking about. I'd -- I can't -- I'd have to go -- it's year by year. [In the LRIP portion of the program the average procurement unit cost (APUC) was previously $81.2M in FY '90 dollars (the base year for the program) The revised program number is $104M in FY '90 dollars.] When you look at the production rate, what rate they have, and what rate they can actually achieve with these new numbers -- so that will cause the cost to vary as well.

Q: The point is, they've added $6 billion to a $45 billion program, and the quantities of airplanes have gone down.

Aldridge: Correct. Unit cost is going to go up.

Q: What does that say about the program's stability? This is the fourth or fifth reduction.

Aldridge: Well, we have -- you take these program decisions one point at a time. What we know today is that the criteria, the exit criteria to enter low-rate initial production has been met. We had the criteria laid out, it was agreed to between the OSD and the Air Force. They met the criteria. And we are proceeding with the program under that plan.

Anything can happen next year. It depends on what happens to the budget, what happens to the production, what happens in the remaining part of EMD, what happens in the operational test and evaluation. We address these programs every year. But we have to lay out a plan, and right now this is our plan.

Yes?

Q: Mr. Secretary, just to go back a little bit -- I can't even balance my checkbook, so I'm confused by this number. But the low- rate initial production, for how many aircraft do you see that as being? And the second part of the question is, we know that Secretary Rumsfeld has to chop on this memo. Do you know for a fact that it's a go, that he will chop on it?

Aldridge: I spoke with him this morning, with the facts of the DAB decision. This press conference had been scheduled for this afternoon. I thought it would be an opportunity for me to announce -- since everybody in the world knew that there was DAB yesterday, I didn't want to sit up here in front of you and tell you, "I can't tell you anything" because when I know the answer -- I asked him this morning, both he and the deputy secretary. He agreed to proceed with announcement of this -- at this point in time, and so I'm assuming he's going to support the memo.

Of course the memo has to be coordinated. And as you know, anybody at a meeting, everybody will have a slightly different interpretation of what was said at the meeting, but I'm giving you kind of the overall summary, which I believe will proceed.

Q: Just going back to the numbers ago on the low initial rate. What are we talking about --

Aldridge: Well, the first year, fiscal year '02, will be 13 aircraft. There is additional aircraft in the low-rate initial production through lots -- through '02, which would be the 13, and I don't remember the exact rate, but it goes through fiscal year '05, and I think the '05 number was around 30 airplanes. So the low-rate initial production plan will be about 90 aircraft, plus or minus. [Clarification: The earlier approved program was FY '02 - 16, FY '03 - 24, FY '04 - 36, FY '05 - 36, for a total of 112. The program approved at the DAB is FY '02 - 13, FY '03 - 21, FY '04 - 25, FY '05 - 35, for a total of 93. These numbers are always subject to review and change. In FY '01 for both the number is 10. The difference is 19 between the earlier program and the new one.]

Obviously, again, we're going to review that every year as these budgets come about and the progress of the program proceeds. And so those numbers could change, you know, unit cost.

Q: So what is the meaning of the 295 aircraft number? It's not a limit.

Aldridge: It's a plan. Okay? It's a plan. The plan was 331. And, you know, we have to put together a five-year plan for the Department of Defense. The Air Force has to have something to plan their program by.

And what we've done is we've laid out a plan which we think we can achieve. The airplane is doing well in its performance. And if that -- if everything stays as we predict for the future, that's where we're going to go. But as you know, we're still going through the QDR. We still don't know exactly what the budget will be for the Department of Defense. We don't know what the QDR four years from now will look like that might modify those numbers. But we're on a plan and we believe that plan is right. And we can cost the program, we can plan the program with that in mind.

Q: Is 295 in addition to the eight that are already --

Aldridge: Yeah. There was 331 and there were eight aircraft which changed definition which were going to be part of low-rate production, and so it was going to be 339. So this is 295 plus those eight.

Q: Sir, for the first --

Aldridge: Let's go back here. Somebody else was asking questions. Yes? You.

Q: Oh, sorry. I have a question. The Air Force has consistently said that one of the reasons why the unit costs of the F- 22 have gone up was when the 1997 QDR reduced the number of aircraft to be produced. Just in terms of economy of scale, if you reduce that number again, as you're doing now, won't that drive the per-unit costs up? And have you accounted for that in the figure you gave us?

Aldridge: Yes. Those unit costs are accounted for in those figures. And that's kind of what the incentive is for the Air Force. They believe they can build 331 aircraft at their dollars. We're giving them the challenge to go prove it. But in the meantime, we're going to make the assumption they cannot. And if they cannot, they will build 295. And of course, if they can't even make those units, the costs will go down.

The airplane is valuable even at those numbers. It's a very effective aircraft for what we want to do. And so it's not a matter that this is going to cause the program to slip out of favor. The program is proceeding under the assumption it is going to perform as we are predicting. And it has performed as we predicted and better in the engineering and EMD period.

Yeah, right here?

Q: What questions are still on your mind concerning the V-22 program?

Aldridge: Oh, that is a very tough problem. As you know, it's a very complicated airplane. It has a lot of flying characteristics which are yet unknown. The program is not flying now. The plan, assuming we proceed, it is going to resume flying sometime early next year. There are lots of uncertainties regarding the flying qualities. There's still some uncertainties regarding reliability improvements. There's uncertainty regarding how long we actually will have to keep it in flight test before we continue back on production. It's just a very difficult problem to decide upon, and we are not going to decide quickly.

We had a two-hour-plus meeting yesterday with a review from a technical group from Ames Research out of NASA. We did an independent review of the aerodynamic characteristics. There was a review of the reliability improvements redesign in the cells. We're trying to absorb all that into a direction that's, okay, how are we going to restructure this program to meet the new demands. And it's hard. It really is.

Yeah.

Q: One of the concerns of the blue ribbon panel is that the program had been consistently underfunded. Have you made any type of commitment to make sure that the redesign and the restart will be fully funded?

Aldridge: Absolutely. That's part of the plan that making sure that the flight test program is really going to answer all the questions that have now been raised by the Lieberman panel and the investigation of the crashes that occurred. We're not going to short-change the flight test program at this point in time. We're going to do it right, and we will not start production at a high-rate -- we're continuing production in the near term to keep the production base there so we can start in the future, but it is going to be at least a couple of years before that production rate increases again.

Yeah.

Q: Mr. Secretary, you seem to be way over on the initial timetable you had given for your consideration of the proposed acquisition of Newport News Shipbuilding. I'm wondering what's taking so much longer than the initial plan and where matters now stand?

Aldridge: Well, in many cases -- well, in fact, it's true. The case -- the time scale is not under the control of the Department of Defense or the Department of Justice. It's under control of the proposed mergerees. They decide when they have completed providing the information necessary for us to proceed, and there's certain rules and regulations regarding the time. Once the contractors say, "I have given you all I'm going to give you," the clock starts then, and we have 10 days to respond. They have not reached that point yet. So we're doing the analysis with all the information, and we are going to continue to ask for more information to make sure we've done this merger process extremely well.

It is the Department of Justice's final decision, obviously, but with our input into that process.

It is hard to predict exactly when all of that's going to be completed, because it is somewhat outside of our control. We're moving as quickly as we can because I know it's in the interest of the contractors to know and the interest of the government to get this behind us. But I've still -- it is still uncertain as to when all that will occur. It could be weeks away; it could be months away. But we will move as fast as we can.

Yeah.

Q: Where do we stand on the Joint Strike Fighter?

Aldridge: The Joint Strike Fighter has finished its flight test program. Both contractors have stopped flying and are submitting their data to the Joint Strike Fighter Project Office. We are pressing toward a downselect of the program by the late-October period. I don't think there's a date specific at this point, but late October is the plan, the last I checked with the program office.

The program has performed magnificently. All the information we have seen from the flight tests are very valid in meeting the performance expectations. I went down to Pax River, oh, three weeks ago, to take a look at the aircraft and the flight test program. It will impress you to the point we have taken a set of requirements for the airplane that are very diverse. Air Force missions, Navy missions flying across the deck and a vertical take-off and landing aircraft, and two teams took an approach to meeting those requirements and they both are meeting them exactly with two radically different designs. So it's kind of interesting to see how two engineering teams will take the same set of requirements and come up with aircraft which are so fundamentally different in character, yet perform exactly the same way.

Q: And a follow-up, if I may. Obviously, a choice is going to be made, if the decision is made to proceed with the Joint Strike Fighter program. Whichever one is chosen, what happens to the loser? Will that become a sub-contractor?

Aldridge: Yet to be determined. You cannot prejudge that because the contractor teams have put together a team, both teams, with Lockheed Martin and their sub-contractors, and Boeing with their subcontractors, under the assumption that they are going to win. And so they've allocated their research and development and production under those assumptions. It's very difficult to try to force a decision on one team that said, "Okay, you won, but we still want you to use this losing team," when their team, they've already divided up how they want to win and they've put the money in and their expertise to win. It is very difficult to do that. Quite honestly, we're looking at is making sure that's the right answer. But you cannot do that at this point in time. It's very difficult to break up the team.

Yeah?

Q: The question of the health of the industrial base depends on defining it. Dr. Perry wanted to define the industrial base for defense as broader, you know, just the national industrial base, so you can tap -- particularly in IT and so forth.

Aldridge: Right.

Q: Dr. Hamre said you've got to think in terms of a global industrial base because, you know, you don't know where the widgets are made.

As a general proposition, do you have thoughts on either of those issues, the uniqueness -- to what extent it continues to make -- (inaudible) -- unique defense base and a unique U.S. defense base?

Aldridge: Absolutely. You have to take every case on a case-by-case basis. Lockheed Martin Joint Strike Fighter includes the BAE, British Aerospace, as one of its partners. We've got the United Kingdom with a $2 billion investment into the Joint Strike Fighter, and you know they're going to want some pieces to built other places. I'm not sure how we're going to accommodate all that. The Dutch are lined up to join. The Italians are lined up to join. And there will probably be more people who will be lined up to join, once we get a firm commitment to the program. And that -- we're kind of going through the process with the QDR and the budget review to make sure this is the right direction.

Once that all occurs, we expect there will be many more people involved, and they may want a part in some activity of the program. We can't do -- exactly define that at this point, because if Lockheed wins, there would be a different set of criteria or activities by the non-U.S. firms, and if Boeing wins, there may be a different set. So all of these have to be worked out according to the design, what pieces of the work could be delegated outward beyond U.S. And we don't know that question at this point in time. That's going to have to follow during the down-select, and then of course during EMD we can define those in better sense.

Yeah? Way in the back. Right here. Yeah, here.

Q: A broader industrial-based question. You fairly soon after you took office prohibited the co-sharing of R&D, and you indicated you were taking a look at progress payment rates. What other kinds of things are on the agenda in terms of specific actions, regardless of how the base --

Aldridge: Okay. Progress payments should go into effect the 1st of October, increasing the rate from 75 percent to 80 percent. The letter did -- the policy did go out on the not co-sharing -- or actually bailing out the Department of Defense in overruns in our R&D program. That's received quite favorable response, even on Wall Street.

We have a policy we're working on to cost share and incentivize contractors to get rid of excess capacity. As you know, once we -- a contractor gets rid of excess capacity, we renegotiate the overhead rate and take all the savings for the department. We're going to make it such that we will share those savings the first year and allow it to decrease over time, so that the overhead rate gets established, say, the fifth year, rather than in the first year.

Profit policy is another one where we -- one of the ways the contractors can make more money is to have more facilities, whether or not they're useful or not, whether or not they're useful. And we are revising the profit policy to take that part of the equation out of the case.

We're also looking at making contracts more commercial-friendly. Many commercial firms do not want to do business with the Department of Defense because the profit rates are so low. And yet the technologies they have are quite attractive to the department, and so we'd like to make it more friendly to commercial companies to do business with us.

Those are the ones that come to mind right off the top, and I think those are -- will help our industrial base.

Yes? Right there.

Q: What are some of the things you think can help make the commercial -- to have more commercial-friendly contracts?

Aldridge: We have some very burdensome rules and regulations. There's an issue of an intellectual property if they sell to the Department of Defense; does it become a property of the Department of Defense or does it stay a property of the commercial sector?

I think we can -- we can relax some of those rules that would make a company -- like Hewlett-Packard, as an example, will not do business with the Department of Defense because of all these rules and regulations. It's a shame that we cannot take their technology or use their technology in such a way. And we want to make sure we give the opportunity, reduce the barriers, I guess that's the best way to describe. There are barriers to commercial companies doing business with us for lots of reasons.

Now, the profit rates that we offer in our equations are such that a commercial company can earn a much higher profit doing commercial business coming to the Department of Defense. I'm not saying we're going to get the profit all the way up to what commercial standards were, but we can make it better, that we can pay for performance as long as performance is good.

Q: Mr. Secretary, could I take you back to the F-22 and ask you first for a clarification? Which service secretary was not there yesterday?

Aldridge: The Army. But the Army was represented. He just couldn't make the meeting.

Q: Was it a nine-person vote? You said it was unanimous.

Aldridge: Well, the Army was represented there, and so everybody --

Q: (Off mike.)

Aldridge: Yeah. It was the Army acquisition executive.

Q: Given the fact that politically, the F-22 has been in hot water over the past couple of years and the critics have been complaining about the price of the aircraft, what is the logic of adopting a figure, that some people say is meaningless, of 295 planes, which then raises the official unit cost? I mean, aren't you making it a bigger political target?

Aldridge: What I'm trying to do with that is incentivize the Air Force to come in with more aircraft so we can lower the unit cost. And we've laid out a program that allows the Air Force to do that. They have tremendous incentive now to a achieve the cost savings that they think they can achieve. We're a little more skeptical about whether or not those can be achieved, but we've now set a program level such that they can go do it and they can build more airplanes if they can achieve those savings.

Q: Okay. And you're not concerned about the program's political vulnerability?

Aldridge: The program politically is doing -- no, I'm not worried about it. I think the performance of the aircraft is absolutely what we asked it to do. It is going to be the most superior air-to-air airplane that has ever been built and will be built for 20 years into the future or more. It's going to be -- it's a tremendously performing airplane. It's going to provide air dominance, is exactly what we want to do.

We want to have air-to-air dominance. We do not want any fair fights in the air. We don't want any of our troops in harm's way on the ground from air. We've never had that happen since the Korean War, and we're not -- hopefully not going to let it happen in any future war. And we need an air-to-air capability like the F-22 to get us there.

Yeah, on the end.

Q: Can I make sure I understand on the F-22 production costs, it's at $45 billion now. Does it have to be cleared with Congress to raise --

Aldridge: Yes. Yes. We -- the Congress established a cap, and -- give me the numbers -- about 38-, 37-, $38 billion, and they set a cap at about 19 billion for the engineering and manufacturing development. Both of those caps we cannot meet. We've extended the testing program, so the EMD program went up in cost. And the last thing you want to do is to cut the EMD program by testing. And so we are going to -- and we're just going to tell the Congress this is what we're going to do. This is the plan. Of course, they have the choice of not accepting it, but this is -- they've asked us to, through the secretary of Defense, and the secretary of Defense will send a letter over revising the program baseline with revising the program cost.

We have clearly passed all of the EMD criteria for exit to low- rate initial production. All that has been laid out, and we've done it in spades. So we've made every -- passed every test the Congress asked us to do.

Yeah.

Q: You mentioned that you resolved your disagreements on the EMD cost difference. How much are you breaking that cap by?

Aldridge: The cap is about -- I'm going to say about 600 million. I don't have the figure sitting in front of me, but it's about $600 million. The Air Force actually had increased the EMD costs by about $600 million, I believe. I'll have to get that number, but it's in that order of magnitude. [About $600 million is correct.]

Yeah, right here.

Q: Can you say what ideas you have for carrying out the administration's missile defense programs, which General Kadish has told Congress is going to be done on a, quote, "nontraditional acquisition," end quote?

Aldridge: General Kadish is preparing a new management scheme for operating the program. He's got a very difficult challenge under his -- behind him, in front of him, to bring in the program. We are looking at establishing for the ballistic missile defense a board of directors that would give him oversight as to the direction to go. That board of directors will be the secretary's Senior Executive Council [SEC], consist of the secretary, the deputy secretary, myself and the three service secretaries. He is briefing that management plan to the SEC tomorrow, and we'll lay out -- he's going to lay out his management proposal, and if that's accepted, we will be on a slightly different approach to ballistic missile defense than traditional programs.

The problem, he's got so many different programs that he has to operate his program in an integrated way with multiple approaches to terminal defense, multiple approaches to mid-course defense, and multiple approaches to space-based, the boost phase intercept, as well as the command and control system that makes it all work in both the local area and the theater area and the national area. So it's a very integrated type of program. You cannot operate that program in the normal defense acquisition process.

And the best analogy I can draw to it is he's going to have to run his program much like the National Reconnaissance Office runs its program, where it's a much more streamlined decision process. He must be able to make decisions quickly across these programs. He cannot afford all the oversight and scrutiny of every one of his programs every day, multiply times the number of programs he has. So he has proposed a streamlined approach, still having the proper level of oversight by the Department of Defense, but having the Senior Executive Council be the board of directors that provide him with the steering vectors at any point in time as he narrows down the technologies, to say, "This one is going to work and we are ready to deploy," when in fact, at that point it goes to the service to implement, and at that point, then that program becomes a normal defense acquisition process. But up until the time of making the decision to deploy, he's going to operate in a much more streamlined manner.

That's the concept. There's a lot of details of how that's working that he needs to develop, but that's generally the approach.

Q: Will you continue to see DAB oversight for all these programs, or will it be taken on a program-by-program basis; some of the may need it, some may not need it -- (inaudible) -- streamline?

Aldridge: The ballistic missile defense will report to me, in my acquisition responsibility, and we will have an oversight activity going on to oversee all the programs. But the milestone decision authority has to rest within the Ballistic Missile Defense Office. It cannot come to a DAB until it is ready for deployment, and then it will go into its normal process. But up until the time it's ready for deployment, it has to be operated in a different way than the way we do business.

Yeah?

Q: Mr. Secretary, I just wanted to again go back to F-22. When the QDR comes out, given that they're now -- the plan is 295, does this sort of ordain that the QDR is going to come out with that number? Or what can OSD possibly say, if you've already said this is budget driven, this is 295, I mean, can OSD conceivably come up with a different number?

Aldridge: They could.

There could be different numbers in the future, based upon the QDR. There could be different numbers in the future, based upon what we think the budget's going to look like. There could be different numbers, based upon the performance of the airplane as we start into this initial production and what the unit costs will be. These things are plans. They're changeable at any point in time.

I've gone through the program. I think I know roughly where I think is the right number. We're about there. I have an input into the QDR, as everybody else in the Department of Defense has. I have an input into the costs of the program and what I think is the right way to -- the acquisition strategy to carry the program out. But I could be overruled by any number of people, starting with the president. (Laughs.) Okay.

Q: So you think that number is the right number or the number that you're doing now? I mean, you're incentivizing --

Aldridge: It is -- it is -- it is very hard to come up with a precise number. You know, I will tell you the number is not a thousand. I can tell you the number is not a hundred. Whether it's 200, 300, those seem to be in the right ballpark for the type of performance we want of the airplane and what we want to do with it. It doesn't take thousands of airplanes to do this job in my personal view. Someone would argue that they want a thousand for different reasons, but for what we have in the program and what we've laid out as the plan with an agreement by the DAB, with and agreement by the Air Force, who has the ultimate responsibility for the program, they are comfortable that this is the right -- roughly the right number. And again, they have incentive: If they can meet the cost and achieve the cost savings, they can buy more airplanes.

Yeah, right here.

Q: Mr. Secretary, you mentioned the Senior Executive Council. It's obviously met since it was announced. What are some of the issues that have been before it? And what sort of decisions have you reached?

Aldridge: The biggest ones had been the QDR and the budget. Ballistic missile defense will be one of the biggest ones it will have. We've also talked about management initiatives, what we're doing in the department to improve efficiency. We've talked about legislative initiatives that we can -- we should be working with to improve our ability to manage the department. There has been a series of breakfast meetings informally that we have had with the service secretaries to talk about their own internal activities, such as the Department of Army looking at organizational changes to themselves; the Air Force looking at what they can do to improve their efficiencies and so forth. So there's lots of topics.

Yeah.

Q: Mr. Secretary, can you tell us -- give us the status of the shipbuilding review that's underway as well as the tacair's review that's underway? And how does the -- your decision yesterday on the F-22 impact the tacair review?

Aldridge: Well, the -- let's talk about shipbuilding first. We did have -- the study has continued to be underway. It is being used as an input into the QDR, which ultimately will determine the size -- essentially the force structure for the Department of Defense. We have got several options we're studying in terms of its -- of the size of the Navy and the construct of the Navy within that various sizes. And all of that's being worked and folded into the QDR. But we hope to have separate, independent study of -- report of the Navy shipbuilding study in, I would say -- about the time the QDR is finished. But all that up until now is being folded in.

There's also a tacair study looking at air-to-air and air-to-ground capabilities, as well as long-range strike. The decision on the F-22 all fits with all of those analyses.

Yeah?

Q: Your first two goals -- making the acquisition process more credible with the Hill to get rid of the micromanagement, and the morale and revitalizing the workforces -- flesh out some of your ideas in those two areas. You know, a little more concrete examples.

Aldridge: Cycle time in decisions to -- the time it takes from the time we make a decision on a weapon system to the time we get it in the field. And a lot of people point to the F-22 as a good example. I was the source selection authority on the F-22 downselect to the two prototypes in 1986. (Laughter.) And we still don't have an airplane on the ramp yet. So that's a little -- but the things we're doing, like we have mandated in the acquisition regulation a thing called spiral development, or evolutionary development we've talked about. And that is, let's not try to design the ultimate airplane or the ultimate configuration of something right off the bat. Let's think about the fact that we're going to have -- we want to get something in the field sooner. It doesn't have to be the ultimate configuration.

We can accept the fact we're going to have a block A, a block B, a block C, block D, but if we decide that the all-up configuration is not necessary in the first deployment, we can get it sooner. The cost risk is less uncertain and the technology risk is also less uncertain. And then we can also get rid of the older stuff that we have in the field faster that's costing us more and more to maintain. So spiral development is one way to get the cycle time down.

The other one is stability in the programs. We do not properly price the programs when we go to Congress. There is a natural tendency within the program management to be overly optimistic of what a program is going to cost and how soon it's going to be available. And we typically are wrong. So we are forcing the services, when they come to a program decision like the DAB, that we will realistically price the program. That was one of the causes of the difference between the CAIG and the Air Force, is we are forcing the Air Force to realistically price the program. And the result is, they finally came around to accept our solution.

And those are the kind of things we need to do. Program stability. Multi-year contracting if we can. We've got interoperability has to be one of the up-front decisions. We typically think about interoperability after we've deployed a program, and it costs us a bundle of money to reconfigure the airplane to be interoperable. Let's put it in first. Those are the kind of things we're working on.

Q: The argument for relatively rigid thresholds is -- you know, talking about natural tendencies in the bureaucracy, the natural tendency is, "Well, you know, it doesn't work yet, but trust us." You know, "Let's buy it and get it on the ramp and we'll fix it later."

And, you know, we've wound up making some pretty poor acquisitions over time with that --

Aldridge: Very expensive.

Q: Yeah, and well-meaning people. It's just a natural tendency. So the threshold, you know, the rigid threshold is to guard against that type of thing. What do you erect as a safeguard against that if you, you know, sort of flatten -- level out the --

Aldridge: Well, I think you have to do several things. You have to get it into the requirements process first. When the JROC, the Joint Requirements Operation Committee meets, they have to accept that Block A is not going to meet all the requirements they would like. And they've accepted that. So the requirements are down below sort of the thresholds of which you said we'll accept. Then we'll lay in a program that says, okay, we accept that we're going to build a program that is not quite the full configuration. And we can do so, I think, quicker and with less risk than we could with the ultimate.

And then the testing process has to agree: We're not testing to the full-up configuration. We're willing to test and achieve test results which are the low configuration.

So it's -- spiral requirement, spiral acquisition, and spiral testing have to be all integrated into one plan. I think we can do things a lot faster. We're doing that for the Joint Strike Fighter. We did not do that for the F-22 and that's why it's taken so long.

Yeah?

Q: On the F-22, on this decision. In the short term, what practical impact will this have on Lockheed or the Air Force in the '02 through '05 lots? It doesn't sound like you've deferred any planes in those lots, but beyond the FYDP [Future Years Defense Plan] is the problem.

Aldridge: Well, we've slowed down the production from what was originally planned in the low-rate production. I think we were talking about 16 airplanes at one time in '02, and now we're down to 13. And I don't recall, the numbers are changing.

The high-rate production which -- the plan was about 38 aircraft a year -- really starts in about '06, '07 time frame, and that was steady-state-out till the end of the program, which is '11, fiscal year '11.

Q: So the short-term impact on Lockheed -- this is an industrial base question because a lot of people are watching this from the company's health. I mean, what do you say to those watching Lockheed's health and the program?

Aldridge: I'm not going to get into advising Wall Street on where to invest their money.

(Laughter.)

Q: Well, this is for Lockheed in the short term, that's all I'm -- in terms of --

Aldridge: I think Lockheed today is probably just elated that they finally got a decision to start low-rate production, which they did not have before. So I would think that they're probably a pretty happy group of people.

They've got another problem coming up called Joint Strike Fighter, and they've also got a lot of C-130Js sitting on the ramp in Georgia, too. So there's lots of things going on.

Yeah, right here.

Q: Yes, on your technology priority, you said that you wanted to increase the number of ACTDs [Advanced Concept Technology Demonstration] and reorient DARPA [Defense Advanced Research Projects Agency] towards higher-leverage technologies. I'm wondering if you've begun to do either one of those things, and how exactly you're going to do them?

Aldridge: Yes, we did. We got the secretary of Defense to agree that the steady-state S&T budget for the Department of Defense should be about 3 percent of the total DoD top line. The only issue is how fast do we ramp-up to get there and what the budget can afford. So that's underway.

It so happened the secretary and the vice president and I visited DARPA about two weeks ago. And we -- and the DARPA director, Dr. Tony Tether, has laid out a program that gets DARPA back out on the point of the spear, so to speak, in technology. He had admitted that since the S&T [Science & Technology] budget had been declining in the Department of Defense over the past, say, 10 years, roughly 10 years, DARPA had, in fact, backed up to fill in that void and was focused a little too much on the near term. And we've got them back out on the point. We've given them some more money in FY '02 to begin that process. And so I think we're on the right track to get that done.

Yeah, right here.

Q: Given the state of the defense industrial base, and as you go through the analysis of who should be allowed, if at all, to take over Newport News, what are the most important criteria in your mind as you go through that analysis?

Aldridge: For industrial base competitiveness?

Q: Yes.

Aldridge: National security, and, of course, all of that is health, the health of the industrial base to make sure that we have enough of a production program for the winners of the competition to provide a quality product at a fair price.

Yeah?

Q: Mr. Secretary, some of the critics inside this building have been saying that unless the services find a way to increase cooperation among -- in their procurements, particularly amongst how the different pieces and parts fit together and each of the weapon systems work together more closely, unless there is a way found to get that cooperation better and that jointness increased, that you're going to continue to have problems finding enough money for procurement. Do you agree with that criticism? And if so, do you have any plans in place to help the services become more cooperative?

Aldridge: I don't find that is the problem. I think your point misses what the real problem is, and that is if you look at the tooth-to-tail ratio in the department, we have far more tail than we do tooth. The overhead structure is out of balance with the procurement structure and the force structure. And that the challenge within the departments is to go after those overhead activities that they would find to be marginal and to reallocate those resources back to procurement and the things they need for readiness.

It's not so much sharing among the individual services that is the problem. It's getting the services to get rid of the waste that exists within their own services to reallocate it back to the things they really need. And in fact, on another committee -- I hate committees, but we did one anyway. (Laughter.) It's called the BIC -- the Business Initiative Council. And that committee consists of myself and the three service secretaries, and we've taken on the challenge to go look into the services for things they can do to get rid of overhead and which they can reallocate back to their services. We've got an agreement with the secretary of Defense, and as long as I can keep the comptroller off -- out of this area -- (laughter) -- if the services identify waste, they can keep the money and reapply it to things they really need. And the BIC -- the Business Initiative Council -- is a line to go do exactly that. We've got a committee structure set up, a working group set up to go and to look into the various things the services can do, and the good ideas that -- the reason I'm there is because those good ideas can be shared across the services. If one -- if the Air Force finds a good idea, the Navy picks it up, then we can go do that so we can cross-fertilize the services to go make that happen.

I think that's the real problem, more than the jointness activity, but there are some things we can do jointly, maybe some joint test ranges and things like that. But that's on the margin compared to getting into the overhead structure.

Yeah.

Q: Can you comment on a press report saying that the QDR is going to be cutting out one carrier battle group?

Aldridge: I have been working the QDR now for so many months, and I don't -- there are lots of options being considered. No option has been decided upon. You know, I read that article and it was like somebody knows something I don't know. (Laughs.) Because I had not seen -- that type of thing says a decision has been made, and that is not true. No decision's been made.

Yeah.

Q: On the -- talking about (inaudible) future problems of the -- tail problems with the F-22, is that something that's going to have to be solved before you let them start the low-rate --

Aldridge: There is no crack in the F-22 tail, okay. And I guess I can't say that -- we looked at that very thoroughly. I heard this and I said, what is going on? There is some honeycomb structure inside the tail section that is used to basically fill a void. And there's a structural member that takes the load from the tail through the actuator arm, where it does the actuator. And there is some honeycomb that delaminated off that structure. It carries no load. It just delaminated. And in fact you could probably take all the honeycomb out of there, and it wouldn't make any difference. But people saw it in an X-ray, and they said, "Well, you know, let's go fix this." And they're going to go fix it. But it's not a problem. It's not a structural problem and it's not a crack. It's a delamination of an area, and it was not anything that said we had anything to worry about.

Yeah, right here.

Q: With the Business Initiatives Council, have you guys set any goals in terms of how much savings you'd like to find?

Aldridge: Some real wild ones, yeah. (Laughter.)

Q: Can you give us a sense of what they are?

Aldridge: I'll give you a sense, but don't hold me to the number. We set ourselves a goal. We said if the overhead structure of the Department of Defense, roughly all of the tooth-to-tail is half the Department of Defense, then we're spending over $150 billion a year on overhead.

If you're running a business, you should be able to take at least 10 percent out of that structure and not really change the functioning of the department. So we've set as a minimum goal, let's try to see if we can get $15 billion a year out of the overhead structure. Now, I haven't said how long that's going to take because some of that may require legislation and contracting out, things of that nature.

It is very clear the very first thing we've got to do is get rid of the infrastructure and facilities in excess of what we need to do our job. And that's part of the EFI problem, which we've talked about before. It is not appropriate for us to be operating a Department of Defense which we know has 20 to 25 percent more infrastructure capacity than we need to do the job hat we've laid out for the Department of Defense. We shouldn't have the taxpayer pay for it throughout the nation, and we should get rid of it as quickly as we possibly can. And I think we can become a lot more efficient. We've talked about steady-state savings of $7 billion a year just from that alone.

Yeah?

Q: To get back to the shipyard merger cases a minute, can you share any of your thinking at this point as to how credible the cost savings appear to be and to what extent the competition problem seems to be?

Aldridge: There is a very detailed analysis under way. I have not gotten into the details of that. I have a staff that's working that problem. We are getting close to being able to identify those things. But I can't comment on it at this point. I know that the analysis will be extremely thorough. It will be objective. It will be aimed toward what is in the best interest of the Department of Defense from a competitiveness point of view and industrial health point of view. And I just -- I know those will be the criteria that I will be looking at, but I can't comment on the details at this point.

Q: Could I take you back just for a second to the F-22? I'm afraid I'm a little confused about something pretty basic addressed earlier.

Aldridge: Okay.

Q: The decision go ahead with low-rate initial production, does that give the Air Force the go-ahead for 10 aircraft or for 13 or for both? Or how does that work?

Aldridge: It's a plan, again, for low-rate initial production. FY '01 is 10 aircraft; FY '02, once we start that budget, will be 13 aircraft.

Q: So the first thing is the 10 aircraft.

Aldridge: First thing is 10. That does. And we continue with that plan -- unless there's some major modification that affects FY '02, we're going to continue on that plan. But it will be reviewed every single year up until the point where we decide that there would be a change to it.

Q: So this decision -- and I'm sorry, it's sort of "F-22 LRIP for Idiots," but this decision from the DAB clears the way to spend money that's already been authorized for --

Aldridge: Absolutely.

Q: The 10 aircraft --

Aldridge: Okay. Now I see what your question is. Yeah. The secretary of Defense, he decided not to start LRIP, but he reprogrammed the money back into R&D [research & development]. This decision says you can now start the low-rate initial production and build those airplanes that you have been previously -- the money had been identified for, and you can proceed on.

Q: All right. So the $2.1 billion is already in their bank and they can now start spending it to produce these 10 aircraft.

Aldridge: I believe that's the right number [correct]. I don't have it right on the top of my head.

Q: And obviously, they're not going to be able to produce these 10 aircraft, you know, in the '01 time frame, and then the decision to go ahead and build --

Aldridge: The procurement is multi-year money, so they can carry that over.

Q: Okay. And then theoretically, if you go ahead and authorize the additional 13 airplanes for '02, that's '02 money, not necessarily '02 production, and so on.

Aldridge: Right. Right. Yes?

Q: Hi, sir. What is your outlook for DD21? And also, just to follow up on the Osprey, how confident are you that it can be made for safe for operational use?

Aldridge: Both of those are hard questions. I'm going to reserve judgment. I just got the briefing yesterday. I'm trying to absorb it. I need to talk to a lot of people, advisers, on their assessment of what we heard because there was a very detailed story given by Dr. McDonald at Ames Research about the aerodynamic performance, and he's got a lot of questions about -- and he really has recommended a very thorough, complete flight test program to understand a lot about it. I need to absorb that some more. I'm not ready -- I don't feel comfortable at this point saying yes or no, one way.

On DD21, we actually deferred the decision on the DD21 because of the QDR and the budget process. The Navy is now looking at their budget, their shipbuilding plan, based upon our study, to see how they're going to put all those pieces together. And I don't know how it's going to turn out yet because they have to look at their budget that they have, their fiscal guidance, what the QDR is going to say. And I'm waiting for the Navy to kind of just come back with, okay, how are they going to structure the program with all these constraints that they have underway, and we'll review it.

DD21 has a lot of very good research and development activities, looking at reduced manning, a new electric drive, a new gun system, an improved ship performance, and there's a lot of things in there look pretty good. Whether or not we can afford that and all the other things we need to do to build up our shipbuilding is yet to be defined and decided in the QDR.

Yeah, right in the back.

Q: I stepped out for a moment, so forgive me if somebody asked about this item on the armed service shopping list. I haven't heard about Crusader in a very long time. What's your thinking? What's the status? Where is it, sir?

Aldridge: The Army is very, as you know, quite emotional about this topic.

And again, that's one of those things that we're putting into the QDR and also is the same -- almost the same problem that the Navy has on DD-21, how does Crusader fit into their overall budget and their overall plan relative to what the QDR is going to say? They put a lot -- spent a lot of capital on the program. They have reduced their force structure in order to get it, to pay for it into their program. And again, they feel very strongly about it.

I'm kind of waiting to see what their recommendations are going to be, and then how that fits into the program. And I've seen the development program, and it's looking pretty good. It's a very impressive system. But it has to fit into the overall context of the transformation of the Army.

Yeah, right here. We've got a couple minutes.

Q: Workforce revitalization: A couple of examples.

Aldridge: Oh! Okay, good. The -- we've started a workforce acquisition strategic plan to decide what is the workforce that we want to achieve for the future. What is the skill mix. How we're going to recruit people to fill those demands. We're having a very difficult time getting scientists and engineers coming into many of our laboratories. We just received approval to allow the laboratory commanders, the directors to hire directly scientists and engineers rather than going through OPM, so it speeds up the process extremely well. We're looking at pay and compensation and also training. Part of our -- we have a Defense Acquisition University, which trains a lot of this stuff. We're trying to augment that by doing e-training, remote training to do that.

Q: (Inaudible) -- exchange.

Aldridge: I think we're going to have more emphasis on information technology. We have to have -- the newer people coming in have to have more knowledge about that both from the point of view of business systems, of how we can -- and also the understanding of software and things of that nature as well as the high-tech areas: space; command and control; those kind of things. I think our -- the older people have not grown up into that area, so it's a little different.

Yeah.

Quigley: Just one or two more, please, ladies and gentlemen.

Aldridge: Just two more. We'll do one here and one over there.

Q: Could you tell us, what was the feedback when you notified members of Congress following the F-22 DAB? And do you --

Aldridge: The members of Congress are all over the country at this point. They're on recess. But I did get hold of the senior staff members. I talked to all the ones in the Big 8 [Congressional committee with oversight of the Department]. They were pleased that I called, but really had no comment. They said they would make sure that the congressman or the senator got the message. But there was really very little feedback.

I think I -- maybe it's because I so logically laid out the decision -- (laughter) -- that they had no comment!

Yeah?

Q: Mr. Secretary, what would you say to those in industry that are concerned that this administration is not putting the same emphasis on transatlantic industrial cooperation and export reform that the last administration did?

Aldridge: I think that's wrong -- (chuckles) -- okay? From just my short period of time, I am spending a lot of time on international cooperation. I just had the defense attaché from Israel in. I'm a member of the National Armaments Directors. We have two meetings a year. I'm going to Canada at the end of this month for what they call a trilateral between Canada and Australia. We've got lots of stuff going on.

And we're pushing to get this export control process improved. We're meeting with the State Department, we're being proactive. We're looking at the list of things that we cannot export under the Missile Control Regime, try to narrow that down to something that's really what we need to protect, and quit worrying about all this other stuff. So we're doing a lot of things here. So the characterization, I think, is wrong.

Thank you.

Thank you, sir.

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