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Release No: 531-96
September 13, 1996

Remarks as Delivered Secretary of Defense William J. Perry - American Institute of Aeronautics and Astronautics

Washington, D.C.

Wednesday, September 11, 1996 - noon

I spent most of my career as an executive in the defense industry during the Cold War. And as I look out at this audience, I recognize colleagues with whom I worked during those years. You and I were all cold warriors during this critical period in our nation's history. And during that period, I spoke many times at the AIAA meetings. In 1979, when I was at DDR&E, I spoke about the actions that we were taking to deter the Warsaw Pact from launching a bold strike into Western Europe. I described the offset strategy, applying our technology to offset the numerical superiority of the Soviet Union. I talked about a new generation of weapons that were being developed -- precision- guided missiles, AMRAAM, satellites, F-18s. Of course, we were developing the F-117. Nobody then talked about that.

In 1980, I spoke again to the AIAA. And I spoke about the actions necessary to maintain our nuclear deterrent against the Soviet Union. I described the major programs that were underway to develop a Trident submarine, the Trident missile, the ALCM, the GLCM, the Pershing, the MX -- all of them designed to close what we perceived to be a window of vulnerability. How long ago all that seems. And how the world has changed.

Today, the challenges we face are very different: The challenge that you face in the defense industry, the challenge that you face if you are in a university today, and the challenge that we face in the Defense Department. Now, we are almost 10 years into the post-Cold War era. And the shape of the future is becoming clearer. The threat of nuclear holocaust has receded. But now we face a growing danger of proliferation of weapons of mass destruction. The threat that was created in Europe is gone. But now we face a growing danger of regional conflicts and civil wars.

And through all this, the defense budget has dropped about 40 percent in real terms. But I expect this has probably leveled off now and will continue at this level on into the next century. But how do we collectively -- we in the Defense Department, you in industry -- confront these challenges? How do we deal, for example, with the threat of the proliferation of weapons of mass destruction?

We have helped Russia dismantle thousands, literally thousands, of nuclear warheads in the last few years. We have helped them destroy literally hundreds of missiles, and bombers, and silos. We have a vigorous program to prevent rogue states -- North Korea, Iraq, Iran, Libya -- from gaining nuclear weapons. And we are leading an effort to get the Chemical Weapon Convention Treaty approved. In fact, this will come to a vote in the Senate, probably later this week.

I urge you to support that treaty. One of the things it does is destroy 40,000 tons of poison gas which is in Russia today. That has to be in our national security interest to see that happen. It will also restrict sales of prohibited chemicals to the rogue nations that don't join, making it harder -- not impossible, but harder -- for them to develop the chemical capability

How are we dealing with the other problems? How are we dealing with the problems we face everyday? The danger of more regional conflicts? And doing that in the face of a 40 percent reduction in budget?

The last two times we cut the defense budget that much -- after the Second World War it was cut even larger and after the Vietnam war it was cut about the same -- we had a disaster on our hands of trying to restructure, adjust our forces. Particularly after Vietnam, we tried to maintain the force structure and we ended up with a large hollow force. This time we are doing it right. We are downsizing the force, at the same time maintaining varied high levels of readiness.

This adjustment started with Dick Cheney, Colin Powell and a Base Force which they specified more than five years ago. That call for a 25 percent reduction in the military forces was continued with Les Aspin's Bottom-Up Review, which basically sustained the cuts -- the reductions being made in the base force -- and carried them on for three years longer, for a total of a 33 percent reduction in the force. And at the same time to strengthen the commitment to higher readiness.

Today, today, this draw-down is essentially over. We have gone from over 2.1 million in the armed forces to just under 1.5 million. And in my judgment, it has been successful. The readiness of our forces is as high as it has ever been. I see this many ways. I see it, for example, in the bill we get for O&M. Today we are spending more O&M dollars per military personnel than at anytime in history. I see it in the statistics, the monthly readiness reports, which are submitted in voluminous detail. I see it with my own eyes every time I go to bases, go to our deployed forces. But most importantly, I see it in the performance of our forces when we deploy them; when we deployed them to Haiti, when we deployed them to Bosnia, when we deployed them to Southwest Asia.

I also see the quality and morale of our forces as being high. I see this in the recruiting statistics. We are still bringing in historically high levels of high school graduates and high qualification test scores. We still have historically high records of retention rates. And again, I see this quality and morale with my own eyes every time I visit a base. That's the good news. But we have paid the price for this high readiness level. That is, we had to drive the modernization funding down to new lows to achieve that.

Now, when you do that, when you squeeze down the modernization funding, ordinarily you would expect that to lead to obsolescence of equipment and, therefore, to a readiness problem because the equipment isn't functioning properly. That has not happened to this point. The reason it has not happened is pretty obvious if you stop to think about it. Because we are bringing down the modernization budget at the same time we are constricting the force, we are taking equipment out of the forces. Obviously, we took the old equipment out. And so as a consequence, the average age of our equipment is still at good levels. But as I told you, the draw-down is now over. And therefore, if we do not get the modernization back up, it would be a year older every year with many of our systems.

So it is crucial that we get this modernization program back on track. The question is how do we do it? The first key to this is that we have to pour more money into it. We do not have magic wands, we do not have smoke and mirrors. We have to put more money in our modernization. The five-year budget of both the Administration and the Congress do just that. The President's budget, for example, calls for a 40 percent increase in real terms in the modernization budget over the five-year program. Congressional budget proposals call for about the same. This is the good news there. A qualification on that good news is both the Administration and the Congress have a strong commitment to achieving a balanced budget. And as the years go on, it will become more and more clear if these two goals are in conflict. So that is a problem ahead of us. But at least the baseline that we will be starting from is that the modernization budget is scheduled in our budgets for about a 40 percent increase.

In order to achieve this, we have to divert major resources from infrastructure expenses to modernization. A big part of our management in the Defense Department in the last few years, and certainly on into the future, is going to be effecting that transfer of funds of infrastructure to modernization. The leading edge on this has to do with the savings from base closing. The last few years the savings from base closing have all been negative savings. That is, it costs us money. There is a front-end investment associated with closing the bases. Two years ago that was $4 billion. This is not small change. Now we are going, within a two or three years, to a $6 billion savings in base closing. So we are swinging about $10 billion from a cost of $4 billion to a savings of $6 billion just to the bases that we have closed. And by the end of the decade, during the tail-end of this five-year program ahead of us, we will have another $10 billion to put into modernization as a result of those sets of actions.

The Defense Science Board in its summer study this year recommended other major actions we can take to swing resources from infrastructure to modernization. The most promising of those, I thought, was the savings that can be achieved by undertaking a vast and a comprehensive program in inventory reduction. These are not new and untested ideas. Industry has been doing this for years and the savings which we think can be generated there are on the same order of magnitude of the savings that we are going to make from the base closings.

But a third part of our strategy, however successful we are in these other elements of our strategy, is to make major savings in acquisition reform. This has been a primary goal of mine ever since I came back to the Pentagon three-and-a-half years ago. It has been the goal of other secretaries of defense, and so far in history, it has been notable as a goal which has been noticeable by lack of achievement. This time we are going to achieve it.

Now, the first year I was in the Pentagon, I concentrated on getting new legislation put together and putting an acquisition team in place. The Congress has been very supportive, very cooperative. They gave us the legislation that we asked for. The acquisition team that I put in place, in particular the acquisition executives, were selected because, first of all, they had to be experienced. They had to be able to hit the deck running. We could not do on-the-job training for the time we had to work this problem. They had to be dedicated to the same goal that I was dedicated to: of really converting our acquisition system over to one which uses commercial practices and bought commercial components, wherever feasible. And they had to be managers. They had to be able to drive this system, not be driven by it. The team of acquisition executives we have in place -- Paul Kaminski, Gil Decker, Art Money, John Douglas -- all meet those tests.

The second year of this program, we have been implementing the new laws that we have gotten into regulations. I see Colleen Preston in the audience here. She played a major role in making that happen. And educating the acquisition team as to how we are going to be doing business in the new way. And with all of that together, then, we had to start the pilot programs -- a half- dozen pilot programs in which we intended to demonstrate that you really could save money and get high quality products this way. There was considerable skepticism on that basic point.

The third year we started to get the results from the pilot programs. And the results were stunning. You heard about that already some this morning and I will not repeat that in detail. In the fourth year, now our task is scaling up -- going beyond the pilot program to hundreds of programs and applying the techniques. Not just to the new programs being started but back retroactively to the programs that are already underway in the Defense Department.

All of our pilot programs have showed great promise and have led the way to the future. The most dramatic results probably came from the JDAM program, the Joint Direct Attack Munitions. I don't know the extent that it has been discussed or that you are familiar with it. Let me just tell you that program converts dumb bombs into smart bombs. It is a program that is worthy in and of itself, quite aside from the acquisition reform aspect of it. But under the old acquisition system, these conversion kits were scheduled to cost $42,000 a pop. And now we have the fixed price bids in and we are building and delivering those systems. And they are coming in at $14,000. Now, this is not a 5 percent or a 10 percent reduction. It is a cost of one-third of what the original estimated cost of that program was.

We are buying tens of thousands of these munitions. So you put that all together, that one program alone is going to save us $3 billion -- $3 billion dollars which we will be able to apply to other modernization programs, more force modernization. I am absolutely convinced from the data that I have seen on those pilot programs that we are talking about many billions of dollars a year savings, which means we will be able to buy many more quantities of equipment with the same resources.

But acquisition reform does more than improve the quantity of weapons systems we have. It also improves the quality. We do not have to make a trade-off on quality for doing this. Indeed, the quality that we have incorporated in the new systems stem from the new generation of computers, communication systems, semi- conductors, and software. In all of these cases, the technology is developing at a breathtaking pace. But it is developing at that pace in the commercial computer, communication and software sectors. And in the past, our defense acquisition system, by creating barriers, had simply limited our access to this technology in a timely way. And the new acquisition system eliminates those barriers and speeds up by at least a generation our access to modern communications and software technology. And we are counting on this new technology to give our military forces the ability to dominate the battlefields of the future.

The first element of this, and the one that is easiest to see, is air dominance. By dominating the air, our strike forces can devastate opposition ground and naval forces while at the same time protecting our own forces. And the key to this air dominance is stealth technology, and superior performance from our interceptors and our air-to-air missiles.

Therefore, we are committed to the development of the next generation of tactical fighters: the F-22, the F-18 E&F, the joint strike aircraft. These programs are expensive. If you didn't know that from personal experience, you can read about it in the newspapers because the critics are coming out everyday explaining just how expensive they are. And they have become, therefore, the favorite targets of budget cutters. And those who want to cut these programs out argue that we can maintain air superiority without them. Well, during the Cold War, air superiority was our goal. In DESERT STORM, however, we did not just have air superiority. We had air dominance. And that air dominance allowed our strike aircraft to devastate the enemy ground forces with virtually no losses to our own. And at the same time allowed our ground forces to operate without air interdiction.

Having once experienced air dominance, we liked it. And we are going to keep it. And we are going to keep it by tapping into the power of information technology and by investing what we have to invest to get it. It does not come cheap when you are buying it. But the effectiveness of it is without question.

The second key area in achieving this dominance of our military forces, is precision strike capabilities. These precision strike forces allow us to destroy enemy targets with one or two weapons. And the key to these, of course, is the PGMs -- the Precision Guided Munitions, which again proved themselves in DESERT STORM. Recently, there has been a report by the GAO that have questioned whether these and other smart weapons are worth the price. The analysis in that report made the profound observation that in DESERT STORM we dropped many more dumb bombs than smart bombs at a much lower cost per bomb. This analysis missed, however, that the cost measure is not how many bombs you drop, but how many targets you destroy. And by that measure, our PGMs performed brilliantly. The analysis also leaves out important details which are hard to quantify, such as the down side to collateral damage, and such as the increased risk to the crews that are flying the airplanes.

The one area that the critics are on safer ground is by suggesting that we could make our smart weapons smarter. And with that, I fully concur. And indeed, our entire R&D program in this area is directed to just that objective. The new generation of PGMs that we are designing now are designed to overcome the vulnerability to counter-measures which was evident in DESERT STORM, but never exploited by the other side, and the vulnerability to adverse weather. Indeed, the new generation will achieve true fire and forget capability and nearly all- weather capability.

The third key to force dominance is focused logistics. Not just the weapons systems we buy, but the logistics system is a huge part of our capabilities and here, too, information technology plays a vital role. With the systems that are now being introduced, the tracking of logistics is going to make a huge difference in our ability to manage the whole logistics better on the battlefield. And there is also a very great indirect benefit. Because with the Precision Guided Munitions, we know we can hit a target in one or two shots and that means dramatically fewer weapons to store, to transport, and to guard. So we see a transformation, a true revolution in logistics, stemming from the application of information technology, both in the management of logistics and in the development of improved weapons.

The fourth area I want to mention that is key to battlefield dominance is achieving situational awareness, meaning that the commanders will have complete, real time knowledge of the disposition of all enemy and friendly forces. We had that -- we demonstrated that for the first time in DESERT STORM. And at the same time, we succeeded in denying that knowledge to the opposing forces. DESERT STORM demonstrated that when the number of forces were roughly equal, the synergy of air dominance, precision strike, focused logistics and situational awareness give us the ability to dominate the battlefield. And there is little question that with the new generation of information technology, we can develop force dominance to an extent that we could have only dreamed about five years ago. And the key to our succeeding in doing this over the next 5 to 10 years is our success in acquisition reform.

Now, I have talked about a budget for doing all this work. And I have also said that both the Congress and the Administration are planning 40 percent additional funds in modernization over the next five years. They are giving you some clue that this is not something that anybody can put into their pocket at this stage because there is a political consensus in Washington to balance the budget during that same period. And the question, then, that I want to come back to, is how can we do both? That will be one of the big issues which we will address in our Quadrennial Defense Review coming up next year. This will be the 1997's equivalent to the Bottom Up Review.

The revolutionary changes that we are making in military technology and military warfare can be the tool which will help us square this circle. And the simplest example that I have in mind is the combination of smart weapons and smart logistics that I just mentioned to you. Because that combination can be a real manpower saver and a real cost saver. But, whatever we do, whatever we do in this modernization program, does require getting our acquisition system transformed. I sum up again, it is not only because the cost savings will allow us to buy the quantity of weapons we need, but require this acquisition reform to allow us to bring in the latest generation of information technology which is the key to the quality of our weapon systems.

I'd like to conclude with my favorite quote from Winston Churchill, who said, You can always count on the Americans to do the right thing after having first exhausted all other alternatives. We have, I believe, exhausted all other alternatives for defense acquisition. And we are finally doing the right thing. And with your help, and with the help of Congress and the dedicated team of acquisition executives we have now we'll do the right thing. And the benefit to that will be to our troops in the field who have the best and most effective weapons systems U.S. industry can supply for them.

Thank you very much.

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