Participating in this briefing were Dr. Paul Kaminski, Under Secretary of Defense for Acquisition and Technology, and Clark Fiester, Assistant Secretary Air Force for Acquisition.
Subject: Heavy Bomber Study
Secretary Kaminski: I'm here to talk today about heavy bombers and some decisions we've made and am prepared to announce that deal with three pieces of our heavy bomber activity.
We were requested in 1995 authorization and appropriation language to conduct a heavy bomber force study looking at the need to procure additional B-2 bombers. As you may recall, our current production program is coming to an end with the procurement of 20 B-2 bombers, and the question is should we proceed further with additional procurement.
Secondly, while we conduct this study, we were requested to maintain a B-2 production base for the period of a year while we undertook these activities. Third, we have some decisions to announce with respect to the depot support of the current force of 20 B-2 bombers. What I want to do is talk to you about each of these three in a little more detail.
First, the bomber study activity itself. This will be undertaken in three parts. The first piece comes back to look at the fundamental requirements. Is there a need for additional bombers? I'll talk just a little bit more about the content of that. The outcome of that will be a yes/no decision. If we don't need to procure any additional B-2s, the question was asked of us. "What do we need to do with our industrial base to be able to preserve a base to build additional bombers some time in the future?" So a parallel effort is being undertaken to look at our industrial base needs for the longterm.
If the answer is yes, that we have a shortfall in requirements. Then we would, on a contingent basis, undertake this part three effort in which the outcome would be a decision to procure more B-2s, or, in fact, to look at a different type of next generation bomber, or the possibility might arise if there are other conventional strike assets that are better suited to our needs. If that is the outcome of part three, then we will not be producing any additional bombers and we're back down to looking at the results of this industrial base study to see what it is we ought to do in this base.
Let me talk now about each of the three blocks in a little more detail. As we look at part one, the fundamental requirements and cost effectiveness study, this activity is being conducted by the Institute for Defense Analysis, or IDA, who has done several of these bomber studies for the Department of Defense over the past several years. They will be looking at realistic bomber forces in the context of a two major regional conflict scenario -- [a] Southwest Asia and a Korean scenario. And they will be looking independently at the cost effectiveness and the requirements of the bomber programs.
There are three base forces that we'll be looking at, plus there are some additional excursions. The first row is the program that's in the President's budget. It includes the 20 B-2s that we will have procured, the 95 B-1Bs, and then 66
B-52Hs. That force stays constant over this period out to the year 2014.
The next notional force to be looked at looks at doubling the size of the B-2 base -- going eventually to a force of 40 -- and, as a means to pay for a portion of this, retiring immediately the entire B-1B force. So going to a force that has B-2s and B-52s.
The third alternative being looked at is the most robust and therefore the most expensive of the forces. That doubles the B-2 force and keeps in place the programmed B-1B force and the B-52 force. As I said, this would require some additional resources.
There are numerous excursions being looked at to add even more force and to look at various associated conditions such as warning times, weather conditions, availability of munitions, and in fact impact of munitions as we look across this whole spectrum of activity.
Part Two -- this box down here --which in this case we don't have time to wait for the results of Part 1. That's due to be completed in April of this year. We are proceeding now with Part 2, since there won't be time to complete it if we wait until April. This is being conducted by The Analytical Sciences Corporation, TASC, and the purpose of this industrial base study is to look at the underlying essential capabilities and the related technology that we must have to design, develop, and produce future bomber aircraft. The issue here is, "What do we need beyond that which we would get with our wide body commercial production base and our fighter aircraft production base that isn't complete in order to build future bombers?" This needs to be done not only at the prime contractor level, but at the underlying major suppliers -- first tier and, in fact in some cases, second tier suppliers.
The output is to develop and look at alternative options to include options such as a smart shutdown of the entire base, keeping perhaps a few key pieces up, and then the ability to wake it up and bring back to bear at some point in the future.
The third portion, Box Three here, as I indicated, is a contingency effort. If we conclude we have no need for additional force, we won't do this activity. If we conclude that we do have additional need, then there really are three outcomes. One is buy additional B-2s. To do this, we will expect to find offsets from our current force structure and investment. That is, we'll be looking for bill payers -- things that are less important to the Department than additional B-2s -- so we are doing this on what I described as a zero sum or a zero net change to the base budget bases.
Another outcome may be the need to define a whole different bomber concept in which case we would be starting the formulation and conceptual studies to find just what that system would be to be able to support future conventional conflict oriented activities and at a lower cost at some time in the future.
Or we would also allow for yet a different outcome in which our major need is some strike asset that is different than a bomber -- providing increased conventional support.
As we do this work, we will be doing it all on what I described as a full funding policy. This is the policy the Department used today to pay up front for a procurement of new systems as opposed to doing this on an incrementally funded basis. We will do everything on a full-funded basis so that we have an apples to apples kind of comparison as we proceed.
What I've described thus far is the base of studies that we'll be conducting. The second piece of the Congressional language required, that, while we were undertaking these studies, we preserve the B-2 production base for the next year. In 1995, $125 million was authorized and appropriated to protect this option for a one year timeframe. But there were restrictions on the funds. We cannot initiate any long lead or advanced procurement for additional B-2s, so we are honoring those restrictions.
The decision at this point is the following. I will be soon releasing $94.7 million of '95 funding. That was the $100 million appropriated, less the about $4.5 million which is required to conduct the studies that I just described. There is an additional $25 million which is being held which we must come back to the Congress to request if the decision is to proceed to buy additional B-2s. This would not be needed for this purpose if our decision is not to proceed with additional B-2s. So in sum, we will be committing the first $100 million and then reserve a decision on going back for the next $25 which is frozen by the Congress until such time as we announce an attempt to proceed.
This $94.7 million to be released will be used to reestablish critical industrial base capabilities either that have been shut down or are in the process of being shut down as the beat moves down the line and to establish sources or a capability for critical, unavailable parts. In some cases, parts now are going out of production which we would need to reestablish sources for. And restoring facilities, work stations -- work sites, for example, that are being shut down.
The application of this funding does one more thing as well. The Air Force has received a fixed price contract proposal from the Northrop/Grumman team. That proposal will be good for one year, with a combination of receipts of this funding base plus the additional $25 million that I described later. So those two sources are adequate in 1995 to preserve and keep valid that fixed price production contract.
The third and final component of this decision has to do with the provision for the depot support of the B-2 weapon system. That's broken up into the following components. First has to do with maintenance of the airframe itself. This is a complex airframe with unusual surface characteristics that go with the low observable features, and at this point our best capability is to have that maintained at Palmdale by the Northrop/Grumman contractor team, so that will be done in California at the Palmdale assembly facility.
Software support. This is being done in a mixed fashion. The software for the system is also not yet mature, so we don't have a sufficient organic capability within the government depot to do the software maintenance work. However, at some time in the future we might like to have that capability, and I would like to see competitive forces brought to bear here to give us the option to do some mix and match. So what we will be doing is having the software support done by the contractor, by the Grumman/Northrop team -- but that team -- which is being moved in current plans from the Pico Rivera facility... That team will be moved to Oklahoma City at our logistics center where the software work will be done in place. That will give us the option in the future to be able to provide some of that work within the depot when and if that begins to make more sense as the software matures.
The avionics repair. We have capability to do that organically, and many of the avionics have common elements with existing systems, so that will be done organically at the Oklahoma City depot. It's also helpful to have the avionics and the software done at the same physical location.
This engine has about 60 percent commonality with three other engines in the inventory, and we'll provide this engine to the depot which services those.
In the components, there's a mix here. Nineteen of the major sub-assemblies overlap with current organic base, so those will be done in the Oklahoma depot. Three that are unique to the B-2 will be done on a contractor basis. Finally, the training equipment for the system will all be done on a contractor basis.
So in summary, I've described three major arrangements today. Our plans for heavy bomber studies -- to look at the need for additional B-2s, the first piece of which will be completed in April of this year. Secondly, our activities to preserve the B-2 production base for a year period as we undertake to wrap up these force structure and force composition studies. And thirdly, the B-2 depot support plan which includes a mix of public and private facilities best equipped to deal with maintaining the system in the future.
I'll be happy to take any questions.
Q: Can you tell us why none of your options call for zeroing out the B-52? That's the oldest aircraft. Why not zero that out and retain the B-1 which are younger?
A: We need the B-52 in the inventory for our strategic retaliatory capability. The B-52 is still quite capable in the H version. As you know, we have retired the earlier versions, but the B-52H is a capable system.
Q: The B-1 could not be made capable of carrying...
A: It could be made capable of carrying ACMs, but there's a substantial cost involved in doing that. The B-52H is capable today.
Q: And it's cheaper to do that than it would be to convert the B-1s?
A: Yes, at this point it is.
Q: What can you do to maintain the B-2 base? If you can't buy long lead material, what are you going to buy, or do, that you keep the suppliers on line and keep the production capabilities warm? Are you going to build things and destroy them, just for busy work?
A: No. It amounts to, in some cases, creating plans for future production. In some cases it requires maintaining an engineering capability in place. In some cases it requires developing a new source. So there's a difference between buying long lead and qualifying a part.
Let me explain the difference. Long-lead procurement involves buying something to be put in the inventory. Developing and qualifying a component allows you to build an engineering unit which you would run through tests and qualify its suitability for use, but it isn't intended to be used in an operational system.
Q: Haven't you already done that?
A: We have done that, but there are parts that are no longer being produced by a current supplier: they're out of production. So one needs a new part to perform the same function.
Q: Can't you (inaudible) the old parts and (inaudible)?
A: In some cases the old supplier is gone. We finished buying some of the parts for the B-2, in some cases, two or three years ago. There's...
Q: Isn't it busy work, though?
A: The issue is, if we wanted to turn this line on to begin to produce new B-2s, our requirement from the Congress was to have a base in place to be able to produce the airplane. So what we're doing is complying exactly with that requirement so that if the decision is to build additional B-2s, we will be in a position to do just that.
Q: Hasn't the Pentagon made a judgment in the past that it doesn't need more than 20 B-2s? And how is this study going to... How are you going to reexamine that judgment? What factors could change that judgment?
A: The Pentagon has made a decision in our 1995 budget not to include any additional B-2s. Both in 1995 and in 1996, there's no B-2 production in our 1996 budget, either. The issue ahead here is, with the line closing down, to take a broad look at our requirements to do a specific, quantitative analysis in this two MRC scenario, to see is there a shortfall, or on the extremes of the conditions, do we have a shortfall in need? And to take a look not only this year, but out through the year 2014. So it's a fundamental reexamination that we have been requested by the Congress to do.
Q: But what factors might you discover in the study that would lead you to change the decision that had already been made in terms of buying more B-2s? Secretary Perry is on the record as saying that the B-2 is a fine plane, but 20 was all he needed. You're under direction from Congress to reexamine the question. What factors could come up, things you hadn't accounted for that might have changed since that decision?
A: I don't think Secretary Perry is on the record saying we would never need more B-2s. I think he's on the record saying with current funding, 20 B-2s is where he would stop. So the issue here is were there more funding, does it make sense to build additional platforms off this line.
Q: Can you give us an example of some of the parts that we're in danger of losing the capability of producing, that we need this money for? And also, can you tell us, do you have any rough numbers for how much the airframe maintenance is going to be worth to Northrop out at Palmdale?
A: Yes, I do have some numbers on the airframe maintenance, but I need to get those. We have the 25-year costs computed, so if you want to do it on an annual basis, divide by 25. We can supply that.
Your first question... Let me introduce Clark Fiester, Assistant Secretary of the Air Force, the Air Force Acquisition Executive. Your question was to look for a couple of examples of parts that might be out of production or to be restored. Clark, would you like to address that?
Secretary Fiester: I don't believe I can give you a specific answer on that. We have some 45 suppliers who are going to be receiving support under this $125 million program in one form or another. Several of those have gone out of production on the parts that they were supplying to the B-2. For us to go back in and ask them to open up a line for that specific part would be very costly because we'd be the only customer, so we're looking to see if we can't achieve the same function that that part performed in an existing production line of some similar type of product as opposed to going back and opening up a specific line for that particular unit.
Secretary Kaminski: Some of these parts we're talking about were last bought two or three years ago.
Q: Can you provide a list of those suppliers?
Q: Can you refresh my memory, on the 20 that they've promised to build, how much did they promise to build those for, the fixed price contract?
A: The total value of the fixed price contract?
Q: The 20 additional...
A: We can give you an exact number for the fly-away cost. The rough cost in '95 in constant '95 dollars is about $15 billion.
Q: For the 20.
A: The Northrop unit fly-away cost was around $600 million a unit?
Secretary Fiester: Northrop's figure is at $570 million. The Air Force estimate is $630 million. The major difference between ourselves and Northrop relates to the sustaining engineering. We thought their sustaining engineering was understated in their bid that they gave to us. They had no dollars in there for engineering change proposals. We feel there will be a number of engineering change proposals. And third, they have yet to also fund for termination costing if that program is terminated at a point in time. So that explains the major difference between ourselves and Northrop's price.
Q: You're talking about not spending any extra money, so if 20 extra ones cost you $15 billion, what you're talking about here is trying to save $15 billion elsewhere by not maintaining B-1s. That's what you're talking about, not spending extra money out to get these 20.
Secretary Kaminski: Exactly. If we were to go ahead to procure an additional 20 B-2s, we would be looking to find offsets in the budget. That is, other things we would not do.
Q: Getting rid of the B-1s...
The question on the size of the depot activity, for a 20 year period, that was $415 million. So divide that... For a 26-year period that was $415 million.
Q: How far afield are you looking in the budget for the money to pay for this? Would you look into Navy deep strike budgets, or is it just the Air Force that you...
A: We will certainly look for options in each of the service mission areas. But I would point out, our sequence for doing this is to start with that first block that I talked about to see was there really an additional requirement before we went through the process of looking for offsets.
Q: Also in your analysis of the conventional strike assets, what are you looking at there? Just existing assets? Anything new?
A: We would be open to looking at new proposals as well, but as I said, the first block, the fundamental core of this activity is that part one. If the output of part one is that we can satisfy the requirement with the current force, that is back to your supposition that 20 B-2s is adequate, that's the end of the analysis activity.
Q: Why did you decide to award this $100 million now, rather than waiting until you find out the results of this?
A: Because our requirement was to keep an industrial base preserved for one year -- congressional direction.
Q: That's fine, but if this study's going to come out in April, why don't you just wait? If they come out and recommend option one, then you'll have spent $100 million which you probably don't need to spend, right?
A: Our requirement is to keep the base in place.
Q: Why don't you just wait until the study comes out to find out if you need to spend the money now or in some other way?
A: Because I need to comply with a congressional requirement to keep a base in place and...
Q: It's still in the same fiscal year. Why not wait a couple more months?
Q: Did they say regardless of what the study said you have to expend that $100 million?
A: What they said was that we needed to maintain an industrial base in place for a year.
Secretary Fiester: The info we have from Grumman is, for example, if we held off this industrial base program until May of this year, the cost, the fixed price offer they made to us last December for 20 more B-2s would go up by about $350 million. If we put this program in place a year from now it will go up by approximately
$700 million, because they are, if you go out to Northrop today, seven of the tooling stations are already shut down at Northrop. The B-2s are rapidly going out of production. So the longer we wait to keep this industrial base in place, the higher price we'll pay for more B-2s.
Q: Is that per aircraft or total price?
Secretary Fiester: Total price.
Q: How many B-2s have been built of the 20?
Kaminski: About 16 at this point.
Q: How much of that $100 million is Northrop actually getting? There are like 45 companies that are splitting it...
Secretary Fiester: I have those figures. I'll dig them out for you.
Kaminski: One other issue on the expenditure of funds, we would project by the time we got through July to have gotten through all three blocks that I talked about, if it came to that, we would have obligated slightly more than 50 percent of this funding. So if we decided at some point not to proceed down that path, we wouldn't be obligating the rest of the funding. We need to release the whole amount for anti-deficiency related reasons.
Q: ...total cost of the 20 additional B-2s. Of the $630 million figure, is there an additional overhead figure tacked on for total DoD unit cost per B-2? And can you give us that figure that I understand was provided to IDA for their assumption?
A: Yes, there is some small amount there. There are termination costs that we've had to account for, and some warranty and other related provisions. We can get that number for you. The rough total for 20 ends up being about $15 billion in constant '95 dollars to DoD.
Q: There's a perception by many that this is a case of, this is a huge flying pork barrel here, that the Congress is directing the Pentagon to go back and look at purchasing an expensive weapon that the Pentagon has said it doesn't need, and if it had the money, could afford it, it would spend the money some place else. Could you just address that?
A: I think really the issue is for us to take a careful and quantitative look at the need for additional platforms, looking not just today, but trying to look out to a period, out to 2014. We're looking to do this by conducting a careful, quantitative assessment of a two major regional conflict scenario. I would say in the past, we have not done this kind of careful, precise investigation of this capability. I believe it is timely, because we are at the stage of closing down this line. So this is an apropos time to have a careful appraisal of that situation. You're correct, it has not made the cut in our past deliberations as we've gone up through the whole Bottom-Up Review. We have decided not to proceed with further. But we've been asked to undertake a careful, objective examination, and that's exactly what we're out to do.
Q: Would the Pentagon have done this if Congress hadn't told them to? This careful and quantitative look which hasn't been done in the past, but this would have been even considered if Congress hadn't put this in the bill?
A: We probably wouldn't be doing this to this degree.
Q: On the depot plan, I'm not sure I have my [shares] exactly right, but it seems like the Air Force proposal on the depot had them doing a little bit more of the work than you've got up here. Was that true, and what happened?
A: Yes. The Air Force proposal considered doing more of the software work, a 25 percent share to the Air Force, and 75 percent to the contractor. We have our options in the future to get down to that base, but at this point given the maturity of the software, my decision was to have that all supported initially, but to have it done at Oklahoma City so we could make that transition downstream.
Q: Was that the only change in the [tempo] proposal from the Air Force?
A: Yes, that certainly was the only principal one.
We had a question on flow of this funding to various people in the B-2 team. Of the $94.7 million, $24.6 goes to Northrop/Grumman, $42.7 to Boeing, $5.3 to Vaught, and then lumped together, various principal suppliers, $22.1.
Q: Could you address the Air Force's life cycle cost estimate of $30 billion in then-year dollars over 20 years, as the total cost of ownership (inaudible) that General Moore came up with. $30 billion divided by (inaudible) is [$1.5] billion a bomber. Isn't that the cost the taxpayer would incur?
A: Yes. There really are three different kinds of costs, at least three different kinds of costs we're talking about. The figure I gave was procurement for buying the airplanes, and it was in constant year dollars, in '95 dollars.
The next set of numbers, I could give you that same number for buying bombers using then-year dollars, that is inflated dollars, and adding all those up, and that would be a number closer to $20 billion. The third number that you were talking about was using inflated dollars, but then it was adding up all the support costs for the system in addition to the purchase cost, and that was a number like $30 billion.
Q: Uncle Sam would pay for it if you bought 20 more. Not...
A: It's what Uncle Sam would pay for it when you add up all the dollars, that is the inflated dollars in the out years, correct.
Q: Does that include maintenance and spare parts?
Q: Over the life?
Q: What was that figure again?
A: It was about $30 billion, just slightly above $30 billion.
Q: Could you elaborate a little bit on what some of the alternatives might be? A tier three aircraft maybe, or what would be some of the B-2 alternatives?
A: I don't think so. I think we'd more be strike oriented. There's a whole new future bomber design, or some major conventional strike, tactical platform, perhaps.
Q: When in April did you say the decision will be?
A: We're due to come back to the Congress mid-April. I think it's April 15th.
Press: Thank you.