SECRETARY OF DEFENSE ASH CARTER: Well, good afternoon, and thank you for joining us today for the announcement of the long-range strike bomber contract. I've not been involved in the selection process, but I know the history of this project, and certainly its strategic importance to the nation and the world. The aging of our bomber fleet and the increasingly complex threat environment we face requires new thinking and new capabilities, both to preserve our strategic deterrent and to extend our ability to reach any target around the world. The long-range strike bomber will support America's defense strategy by forming the backbone of the Air Force's future strike and deterrent capabilities.
The path to this announcement began in 2011 when, as undersecretary for acquisition, technology and logistics I lead a collaborative team from across the services which looked at the future of our long-range strike capabilities. We determined that a new and innovative design for a long-range strike bomber, accompanied with investments in ISR, electronic warfare and advanced weapons was the best choice for our strategic requirements. This decision was based on the agility reusability, affordability and deterrence that such an aircraft can provide if properly designed and procured. And it represents the type of technological leap that we must continue to pursue in order to retain our edge.
Over the past century no nation has used airpower to accomplish its global reach to compress time and space like the United States. Today it's vital to innovate and reinvest in the people, strategies and technologies that will allow America's military to be dominant in the second era space century.
I've made such innovation a hallmark of my commitment to the future of America's military.
Building this bomber is a strategic investment in the next 50 years. It demonstrates our commitment to our allies, and our determination to potential adversaries, making it crystal clear that the United States will continue to retain the ability to project power throughout the globe long into the future.
Today the Air Force leadership will announce the successful bidder, taking another step toward fielding an aircraft that will deliver capabilities across the full range of military operations against the most technologically advanced opponents.
And I'd like to stay longer myself but I'm hosting the Israeli defense minister this evening and I'm -- and therefore I'd like to turn things over to General Welsh and Secretary James to say more about this important project.
Thank you all for coming this afternoon.
GENERAL MARK A. WELSH III: Thanks, Secretary Carter, and thank you, ladies and gentleman for joining us, taking time from your day this afternoon. It's a pretty exciting day for us. Not long after I became chief of staff I signed off on the program requirements for the long-range strike bomber and those requirements remain unchanged. That stability allowed the program office and our industry partners to aggressively move out on the design of this aircraft, achieving what I believe is a remarkable level of fidelity for this point in a new aircraft program.
The LRS-B will provide flexibility as a dual-capable bomber, carrying both conventional and nuclear weapons, as well as the strategic agility our nation needs to respond to emerging threats and our uncertain future. We're designing the platform to be adaptable, and by maintaining margins for growth within the program and using an open missions system architecture.
This open architecture will help ensure competition throughout the life cycle of the program, and make it easier to modify the platform as technology advances and the threats evolve.
No service chief ever wants to be a in a situation where they must caution a combatant commander or the secretary of defense, or the president, against addressing a threat to the United States, either because we lack the appropriate capability or because we would incur unacceptable levels of risk in doing so.
This bomber will minimize the possibility that my successors are ever put in that position. The capabilities of the LRS-B will ensure the United States is able to hold any target on the globe at risk, while providing our combatant commanders critical operational flexibility across the full range of military operations. Its range, survivability and payload flexibility will ensure that we can execute our global power mission and provide our joint force commanders a critical asset to employ against the advanced air defenses of our adversaries, while also assuring our allies and partners of our commitment to nuclear deterrence.
Secretary James will now make the formal contract announcement.
SECRETARY OF THE AIR FORCE DEBORAH LEE JAMES: Thank you.
Thank you, chief, and thank you also to Secretary Carter for joining us today to mark what I believe is a very significant milestone in our journey toward the next century of American air power.
One glance at the news and it's very, very clear the United States is facing threats that are more sophisticated and more diverse in each of our war fighting domains -- air, space and cyberspace. Therefore it is imperative that our Air Force be strategically agile and that we invest in the right people, technology, capability and training to defend the nation and our interests, always with affordability and tight budgets in mind.
The world has observed our application of air power over the last 25 years and witnessed our ability to precisely strike targets and create desired effects.
As a result, the threat environment that we face today has evolved through the introduction of advanced air defense systems and the development of much more capable surface-to-air missile systems, which effectively push our older bombers, the B-52 and the B-1, with an age of 50-plus years and 27-plus years respectively, farther and farther away from the fight.
The LRS-B will allow the Air Force operate in tomorrow's high end threat environment, what we call anti-access aerial denial environment. It will also give us the flexibility and the capability to launch from the continental United States air strikes that would be able to strike any location in the world.
I know that you're all eager for me to cut the chase, but just give me one more moment to talk about two important components of the award. Number one, the contract award process and number two is the overall costs.
Award of this contract followed a deliberate and disciplined process. Our team of professionals carefully considered the offers, proposals in accordance with the source selection criteria. The entire process was carried out with a high level of transparency with our industry partners, and was scrutinized via DoD peer reviews. We believe that our decision represents the best value for our nation.
Now, just a little bit on the overall costs. The LRS-B estimates were developed by independent cost experts. Now let me reiterate that point. Experts outside of the program used historical data points to prepare independent cost estimates for the program. Dr. LaPlante will give you some more information on that in just a few moments, but I want to say right now that our goal in the Air Force will be to beat these independent cost estimates through the application of "should cost" initiatives, which we have successfully used on other programs as part of DoD's Better Buying Power 3.0 and our own Bending the Cost Curve initiatives.
Now we recognize that important work still lies ahead. This is a challenging job, but we believe that we have the right talent, strategy, stable requirements and partnerships to bring the LRS-B into the Air Force inventory.
And so with all of this said, I am pleased to announce that our United States Air Force has awarded the long-range strike bomber contract to the Northrop Grumman Corporation.
And with that I would like to yield the floor to Dr. Bill LaPlante, who will provide you with some additional detail and then answer your questions.
Thank you all for joining us this afternoon.
ASSISTANT SECRETARY OF THE AIR FORCE WILLIAM LAPLANTE: So thank you very much, Secretary Carter, the chief and madam secretary.
As the Air Force service acquisition executive, I am very proud of our Air Force team with our DoD colleagues and whose tremendous efforts have gotten the LRS-B to this major milestone today.
Before we take questions I'd like to say a few words about the contract awarded to Northrop Grumman today. The long-range strike bomber contract announced today is composed of two parts. The procurement portion is composed of options for the first five production lots, comprising 21 aircraft out of the total fleet of 100.
They are fixed-price options with incentives for cost. Those of you who have followed the program closely will recall that the average procurement unit cost, sometimes called APUC, per aircraft is required to be equal to or less than $550 million dollars per aircraft in 2010 dollars when procuring 100 LRS-B aircraft.
This was a key performance parameter established back then by then Secretary of Defense Robert Gates, a move specifically designed to ensure that we made the bomber affordable.
Secretary James just introduced to you the fact that we had independent cost estimates done on this program. I'm going to tell you right now that the average procurement unit cost from the independent cost estimates supporting today's award is $511 million per aircraft in 2010 dollars when procuring a 100 aircraft.
The other part of the contract is for the engineering and manufacturing development, or EMD phase. And this is cost reimbursable type contract with cost and performance incentives. The incentives minimize the contractor's profit if they do not control cost and schedule appropriately.
The independent cost estimate for this EMD phase announced today is $21.4 billion in 2010 dollars. We believe these estimates are reasonable and achievable, and as alluded to by the secretary, if we remain disciplined and keep program requirements stable, we believe we can beat these estimates in the future as part of "should cost" savings.
In addition, as the chief mentioned, our acquisition strategy also incorporates open mission system standards, OMS standards. They allow future competition of LRS-B components and subsystems. This enables us to more swiftly integrate new capabilities to address changes in technology, technology advances, changes to threat. Also open mission systems sustain competition throughout the life cycle of the aircraft, therefore keeping affordability in the long term throughout the life cycle.
Now, we've said everything in 2010 dollars just to keep it as clear as possible for everybody. However, before you leave today we will provide you a one-page handout, that number one, brings those 2010 numbers I mentioned to 2016, because we're now in fiscal year 2016, and second, provides a comparison of this independent cost estimates to other bomber costs from previous programs, again, in same-year dollars.
It's my pleasure to have with me here General Robin Rand, commander of Air Force Global Strike Command. And Lieutenant General Arnie Bunch, my military deputy. They're here today, we're now ready to take your questions.
LT. GEN. ARNOLD BUNCH: Tony?
Q: One question. How close a competition was this? Did Northrop win by a large measure, or was it fairly close?
LT. GEN. BUNCH: Tony, the source selection criteria were applied by the source selection team in a fair, deliberate and impartial manner, and looking at both the proposals to come to the conclusion that the Northrop Grumman proposal was the best value for the war fighter and the taxpayer, and we're not going into any other details relative to what those source selection criteria were.
Q: All right, I've got to ask you, on the cost issue, for those who are not going to plow through your chart, the laypeople who are going to read the transcript, can you try once again, in 2016 dollars, what is average procurement unit cost?
LT. GEN. BUNCH: Tony the numbers are -- will be provided. It's very easy to see in the chart, and we'll hand that to you, and you'll be able to easily make it out.
DR. LAPLANTE: The 511 number in 2016 is $564 million.
Q: Five-hundred and sixty-four million.
And that doesn't have research?
LT. GEN. BUNCH: Next question, John.
(UNKNOWN): Thank you.
Q: Is there a power plant associated with this airplane? Have you selected that? Are you in the process of doing that? Will the contractor do that?
LT. GEN. BUNCH: The competition for all components of the aircraft were already done as part of the proposal. So it -- it's a full-up aircraft is what we have received. The firm-fixed-price is contract type for the procurement and for the EMD phase, so it's everything.
Q: So what is the engine?
LT. GEN. BUNCH: We won't go into any details relative to specific components or subcontractors due to classification and enhanced security.
Q: Lara Seligman of Defense News?
How much did the health of the industrial base -- how much did that concern play a role in the final decision?
DR. LAPLANTE: Well, we're always concerned about industrial base in general, but in this sourse selection, as we've said in the past, the specific industrial base was not at all a criteria in the source selection.
LT. GEN. BUNCH: Yes, sir?
Q: You talked about your fair and open-- sorry, Sydney Freedberg from Breaking Defense. You've talked your fair and open process. Assuming however that the loser protests, because the incentives on a large contract are usually to protest, regardless of grounds, how disruptive is that? Given the scale of this program can it easily absorb the delay for a GAO consideration, or is that -- would you actually prefer that not happen?
LT. GEN. BUNCH: Considerate is any companies or any offerer's right to file a protest if they so choose. And we will make ourselves available as early as Friday to debrief the offerer that was not selected.
We won't -- if they have a period of time that they can submit that protest, and then if it were to go to the GAO there's a 100-day timeframe for that, and we'll monitor and we won't stipulate or make any assumptions as to what the ramifications of that would be.
Q: Can you just walk through the IOC date for this program, the IOC date and when you're going to be using it, but also maybe, General Rand, if you could say a word or two. You've spoken a lot in the past about the increasing threat, and you know, there's a lot of tensions around the world. Russia is you know, your -- you're actually flying in competition with each other now over Syria. So just maybe put it in context for us what the significance is from your standpoint.
GENERAL ROBIN RAND: Well, I can't add to anything that Secretary Carter, Secretary James or the chief already said. I enthusiastically agree with their reasons on why we need an LRS-B, and we very much need that as the anti-access aerial denial threat continues to increase (inaudible) 2025.
And to answer your second part, anticipated IOC is 2025. Whoever will be the commander of Air Force Global Strike will determine when the full operational capability will be with that.
Q: What will the requirements to do that? I mean, how many aircraft?
LT. GEN. BUNCH: So the requirements for -- so mid 2020s is our estimate right now for initial operational capability. The specific criteria which will need to be established by the Air Force Global Strike Command for initial operational capability and full operational capability have not been set at this time, and they will be set at a later date, ma'am.
Q: Yes, Bill Sweetman with Aviation Week.
Dr. Laplante, I think you suggested when we talked to you last week that you would give us a number for the number of EMD aircraft involved in the -- included in the EMD contract?
LT. GEN. BUNCH: So we did talk about that, but we are not going to release that number, sir. That was something we had talked about earlier, but due to where we're at in the program, we're not going to release that number.
Q: Thank you. Sandra Erwin with National Defense.
Can you explain the EMD phase? How long is the EMD phase? What would be the testing that would be required to move into production -- before you move into production?
DR. LAPLANTE: We're not -- I'm not to describe it in detail, but you know, you've heard what we said about we're essentially entering EMD now. So this is what milestone B is, is today, or now, and so the EMD phase, which goes through production -- or development of the test aircraft, the maturity of the designs, getting ready for production, you can imagine if we're shooting for a mid 2020s IOC you probably can in your mind see roughly when it would be phasing, but we have not given out the exact details and we - up to date.
LT. GEN. BUNCH: Back in the back.
Q: Yes, hi. Sam LaGrone with USNI News.
This is a question for General Rand. So moving forward, still early days in the program, how much joint interoperability are you guys looking to have with this platform. You mentioned anti-access aerial denial. That's kind of a Western Pacific idea at the moment, how are you going to be cooperating with the Navy and Marine Corps moving forward?
GEN. RAND: Well, we will still -- as this platform and this plan to be the family of systems and where we have joint equities right now I kind of look at it as the grandsons of whatever systems we have today in electronic attack, our ISR, the surface enemy air defenses, whatever those are when this aircraft is fielded, and I very much see that as a joint environment that we'll be working in.
LT. GEN. BUNCH: Yes, sir, right here.
Q: Marcus Weisgerber, Defense One
I actually had three really quick housekeeping ones. One, is their designation for the plane?
Two, who did the costs estimates? Was it CAPE?
And, three, how much have you already spent on the program?
LT. GEN. BUNCH: Okay, so question number one and we'll quickly step through these.
DR. LAPLANTE: Nice bundling as we call it.
LT. GEN. BUNCH: There is not a mission designator for the aircraft at this time. That's something that we will be working with General Rand's staff to come up with that. There were two independent cost estimates actually done on the program. One by the Air Force Cost Analysis Agency, and the other by the OSD cost assessment and program evaluation group. Those two numbers were within two percent of each other. And we, the Air Force, budgeted to the higher or more conservative of those, which was the Air Force estimate.
All of those estimates were done outside of the program office and were completely independent. We won't go into specific details of what we have done in the risk reduction phase, but we've spent over -- from FY'11 to FY'15 we have had apportioned out to us -- appropriated to us $1.9 billion for risk-reduction activities to mature so that we're more confident and prepared to go into the milestone B and the EMD phase.
Last question, right here, sir.
Q: James Drew for Flight Global.
This announcement, it sounds very much like how sharing the wealth. You have Lockheed with the F-35. You have Boeing with the KC-46. What confidence can you give us that the industrial implications didn't play into this source selection decision.
DR. LAPLANTE: Well, we -- all we can do right now and continue to say is the source selection criteria which were finalized when the RFP went out in July of 2014, did not have industrial base in them, and they remained -- it was unchanged through today, and they still have -- do not have industrial base in them.
LT. GEN. BUNCH: All right, thank you all.
DR. LAPLANTE: Thank you.