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Press Briefing by Rear Admiral Brian E. Luther on the President’s Fiscal Year 2018 Defense Budget for the Navy

STAFF:  Good afternoon, everybody.  Welcome to the next brief.  Rear Admiral Brian Luther is the director of the Department of the Navy's Fiscal Management Branch.  He's going to deliver his presentation introducing the Navy budget, and then we'll go over some ground rules and take some questions.

REAR ADMIRAL BRIAN E. LUTHER:  Hey, good afternoon.  As he mentioned, I'm Read Admiral Brian Luther and I'd like to thank you for the opportunity to brief the Department of the Navy's fiscal year 2018 President’s Budget submission, in which I'll address our portion of the second step of the Department of Defense's multiyear effort to restore readiness.

The brief will be broken into four parts.  The first we'll briefly review the current and evolving strategic guidance, the second provides the operational context in which the naval forces operate in today's world.  And a third, I'll review historical challenges that underlie the requirement for the current readiness reset.  And finally, I will provide a summary by appropriation group.

The national-level guidance that provided us the mission sets which drove the operations of the last decade are under review.  Earlier this month, the Department of Defense began a Defense Strategic Review.   This brief will not provide FYDP, or out-year procurement quantities, due to the ongoing review and a possible change to mission sets and force-sizing constructs.  

The Cooperative Strategy for 21st Century Seapower informs naval force employment across the listed naval missions to bounce readiness against current fiscal challenges in the global security environment that is volatile, unstable and increasingly competitive.  

Senior leaders, from the Secretary of Defense, service secretaries and chiefs, to service resource sponsors and program managers, have briefed and testified to the growing challenges and sense of urgency to respond to the advanced capabilities and increasing pace of development demonstrated by potential adversaries.  

Despite fiscal challenges, the global employment of naval forces remains extensive—over 100,000 sailors and Marines are forward-based or deployed around the world.  They have operated across the Baltic, Black, Mediterranean, Red and Arabian Seas; the Atlantic, Indian and Pacific Oceans; and on the ground in 37 countries.  A few examples are: 
Participation in Inherent Resolve, to include the Dwight D. Eisenhower and George H.W. Bush strike groups; as well as electronic warfare support from Marine Corps squadrons based in Incirlik
USS Ross and Barry responding to Syria's use of chemical weapons
Makin Island and Bataan amphibious ready groups for the 11th and 24th Marine Expeditionary Units were used, deploying ashore to provide support in northern Syria
Marines from the 2nd Marine Expeditionary Force, or MEF, assisting Afghan partners in Helmand province
The USS Zephyr and Shamal, which, with embarked Coast Guard law-enforcement detachments, seized over 5,000 kilograms of contraband in Operation Martillo
The USNS Spearhead conducting civil-military operations in Guatemala, Honduras and Colombia
A hundred Marines from the special-purpose Marine Air Ground Task Force, or MAGTF Southern Command, USS Iwo Jima and Mesa Verde and elements of the 24th MEU, again provided humanitarian assistance and disaster relief to the people of Haiti after Hurricane Matthew.  
Sailors and Marines participated in BALTOPS, a high-end joint exercise in the Baltic Sea region, and later Marines tested their war-fighting skills in a cold-weather environment during the Norwegian-hosted exercise Cold Response.  
On the other side of the world, the largest international maritime exercise—the Rim of the Pacific, RIMPAC—brought together 26 maritime nations, including China, along with 40 ships and submarines, over 200 aircraft and 25,000 personnel.  
A U.S.-led naval training maneuver near the Gulf of Guinea was transformed into a counterpiracy mission where Navies from five African countries tracked a hijacked tanker through their waters and successfully freed the vessel and rescued the hostages.  
In support of Combined Joint Task Force Horn of Africa, U.S. naval forces command and operate Camp Lemonnier, the United States’ sole forward-operating base on that continent.  
Earlier this year, the Marine Corps relocated their first operational squadron of F-35Bs to Iwakuni and increased the capability of its rotational aviation combat element in Darwin, Australia with four MV-22 Ospreys.  

Overall, the Navy and Marine Corps today remains deeply engaged, operating at a high tempo, in harm's way, providing options for national leadership, assuring allies and deterring adversaries.  There is no expectation that demands will slow down based on the last 15 years as shown on this slide.  

It shows that deployment lengths have been increasing as the fleet has been decreasing 40 percent.  The chart shows fleet size in grey starting in 1993, annual deployments in blue, and deployment lengths are shown by the green line.  It shows over time, the Department of the Navy has deployed a growing percentage of the fleet by increasing the average length of deployments.  The optic is clear.  A smaller force more heavily used will burn out faster.

The recent oversubscription of naval forces that has accelerated the aging of our ships and aircraft, increased maintenance requirements, and compressed training and maintenance schedules, is shown in more detail here.  This shows the last four years of sea-based deployments.  The red line depicts the maximum number of deployable ships the Department of Navy can provide using its sustainable force generation model. known as the Optimized Fleet Response Plan.

Services, as force providers, must balance the needs of generating both the current and future force requirements with available funding.  The blue area represents the actual number of deployed ships by month; the box in the upper right is the oversubscription for that year.  It is worth noting that the average use of the last four years is 5 percent more than the funding provided could generate.

The oversubscription of deployed forces combined with BCA reductions exacerbates the impact to shore establishments, non-deploying forces and readiness-enabling accounts.  An illustrative example of a readiness-enabling account is aviation spares.  This slide represents funding and associated Full Mission-Capable rates for the last 17 years.

There are multiple takeaways from this slide.  First, high sustained operating tempos require sustained levels of higher funding.  Second, readiness trends lag funding, both ways.  It's difficult to maintain FMC on multi-mission aircraft.  It's harder when the force is heavily used and harder still when the force is aging.  In modernization, all too often a bill payer is key to maintaining capabilities.

The funding profiles on this slide are familiar.  The black line is the 2012 budget, the last time strategy and budget were aligned.  The red is the funding by BCA, and the maroon is the enacted budgets, every one of which was delayed by a Continuing Resolution.  It's worth noting that the final enacted budgets for the first two years of BCA were below BCA and that the FY17 budget when submitted last year was 3.9 percent below the President's Budget of 2016.

This forced the department to make hard choices to balance, during which only three areas were exempted: deployed and next-to-deploy forces, personnel, and shipbuilding—shipbuilding being the least reversible of our mitigations.  The takeaway, however, is not the dollars, although important.  The takeaways are what the profiles represent: a strategy-funding mismatch, budget instability combined with consistent and lengthy CRs, and, most importantly, the squandering of the precious resource of time, time that should be spent maintaining our tactical advantages.

Every year we operate under the mismatch and a CR, we pay the price in time, decreased productivity, and reduced purchasing power.  Beyond showing a reduction in funding, the area between the black and maroon lines by year represents the decline in training of non-deployed sailors and Marines, a decline in material conditions of ships, of aircraft, of ground equipment, and shore facilities. And the total area between lines represents the urgency with which we should address this shortfall.  

Reversing this trend and rebuilding the readiness of the current force was the guidance from Secretary of Defense Mattis.  His budget direction was clear: 
Improve war-fighting readiness, which was addressed and enacted in the FY17 bill   
Restore program balance by continuing to rebuild readiness and filling holes in this submit
And finally, after the Defense Strategic Review is complete, and during the next President's Budget Submission, build capacity and improve lethality.  

Additional guidance from the secretary is to gain full value from every taxpayer dollar spent on defense, thereby earning the trust of Congress and the American people. Accordingly, this budget supports auditability goals set by Congress and the Department of Defense, which is to undergo an audit in FY18 with the Marine Corps under full financial audit this year.

The 2018 President's base increased $12.3 billion from $159 billion to $171.5 billion in this submit.  Operations and maintenance increased to $54.6 billion; military personnel increased $2 billion to $47.6 billion; procurement accounts increased $800 million to $49.5 billion; research and development $500 million to $17.6 billion; and infrastructure increased $370 million to $2.2 billion total.  

The next section of slides will provide a detailed overview of how the department addressed, by appropriation, requirements to enhance readiness, to include modest personnel increases, how our ships, aircraft and ground vehicles will be sustained, the proper training of our personnel and preparation for their deployments. And how we maintained our ship procurement profiles; make difficult tradeoffs in aviation, enhanced weapons procurement; and made investments in key technologies to better posture us.  It is important to note, however, the effects of multiple years of insufficient resources cannot be corrected by the increases of one budget year. The Department will require stable, predictable funding over multiple years to achieve sustained positive results.  

The ship depot maintenance is funded to 100 percent using base and OCO funds.  It funds 10 additional ship availabilities for a total of 71. It complies with the current 2-4-6 law.  By the end of FY17, we’ll have six cruisers inducted into modernization.  This submit will also fund an additional shipset for an additional induction.  It funds LSD midlife and modernization, it increases planning, engineering, and maintenance support manpower to align the workforce to the projected workload, and it modernizes major shipyard equipment and IT infrastructure at a rate above benchmarks to improve workforce performance.  

We continue to leverage the skill sets and capacity of prior industry to augment our efforts and for the future we work to retire the backlog of deferred maintenance, which currently stands at $3.5 billion. 

The ship operations growth from FY17 to '18 is comprised of increases to 13 new warships in the inventory as well as an increase of two ships in our MSC fleet.  The increased ship count combined with increased fuel prices leads to a minor growth in this program. In using base and OCO, ship operations funds, as with the '17 request, 58 days underway per quarter when deployed and 24 days underway when not deployed.  

In this submit, aircraft depot maintenance is funded to capacity, which is 89 percent of the requirement.  This is an increase from last year where we funded the air depot maintenance to 85 percent.  Capacity is limited for different reasons at our fleet readiness centers.  Some are limited by the hiring of civilian personnel, others by physical space and aging tools and materials. In all cases, we are investing to correct these limitations.  

The Flying Hours Program funds flight operations for Navy and Marine Corps squadrons, Fleet squadrons and air training.  The Flying Hours Program is funded to the maximum executable level.  The growth is driven by increased cost per hour, primarily for repair parts to return non-mission capable aircraft to service.  The unavailable aircraft are primarily legacy Hornets, with some MV-22s and CH-53 Echos included.  

In the past, many of our aviation enabling accounts were under-resourced to fund flying hours.  This out-of-balance funding contributed to ready basic aircraft gaps and decreased mission capability rates.  Executing the training and deployable flight hours requires more than just the flying and depot maintenance funding.  It requires sufficient funding for enabling accounts such as aviation logistics, aviation support and, funded in APN, aviation spares.  The aviation logistics support has increased six percent to a high of 87 percent of the requirement.  These logistics contracts for the F-35, KC-130, MV-22 and E-6B are funded at an all-time high, and we anticipate future growth as more F-35s enter the fleet.

Aviation support, primarily program-related engineering and logistics, is funded higher than '17, but not to a hundred percent.  This account also funds critical chain initiatives to improve depot throughput and increase hiring of planning, engineering and maintenance support manpower to align the workforce to the projected workload.  And aviation spares is funded to the highest level in the last 14 years, at 91 percent.  

The way ahead for the Marine Corps will maintain the equipment they have and prioritize investments and key programs that are aligned to the Marine Operating Concept.  The Marine Corps Force 2025 will provide a rapidly deployable, scalable force, able to succeed across the full spectrum of conflict.  In that regard, at 92 percent reset, the Marine Corps is nearing completion of ground equipment reset from the CENTCOM area of responsibility.  Funding remains at 79 percent, which is executable levels at the depot and is consistent with previous funding levels.  Funding for operating forces is indicative of our investment in the Marine Operating Concept.  That includes increased investments in: net-centric information technology services; funding the fielding and operations and maintenance for six additional Ground/Air Task Oriented Radars, or GATOR, the Marine Corps’ next-generation ground radar; battle space awareness that funds sparse for small, unmanned aerial systems to include Raven, Puma and Wasp; and Network on the Move, which sustains systems bought in the last two fiscal years and supports the 35 systems being procured in FY18 as we bring this critical capability to our deployed forces.

The Navy and Marine Corps installations provide physical environments essential for individual, unit and total force training; materiel sustainment; unit recovery; and equipment reconstitution.  This submit funds facility sustainment at 78 percent for the Navy and 74 percent for the Marine Corps.  While these levels are roughly seven percent higher than '17, they are down from the 85 percent for Navy and 84 percent for the Marine Corps funded in FY16.  The provided sustainment funding will be prioritized to preserve critical facility components and perform facility maintenance that affects the health and safety of sailors, Marines and their families.  However, we continue to carry risk in facility sustainment, and we will need to closely monitor and manage the material condition of our facilities.  

In depot investment, this submit exceeds the six percent legislative requirement, 10 percent is provided across the shipyards, and 8.7 for Fleet Readiness Centers and Marine depots.

As always, our ability to successfully complete our mission rests on the Navy and Marine Corps team—sailors and Marines, Active Duty and Reserves, our civilian teammates and all their families.  Key to recruiting or retaining the force for the Navy is continued support for the Sailor 2025 program, which is comprised of three main efforts: a modern personnel system, the ready relevant learning system to support modern teaching initiatives focused on providing the right training at the right time in a sailor's career, and increased sailor readiness.

This submit funds a pay raise of 2.1 percent, in line with the enacted pay raise in '17.  Both services align end-strength with force structure.  For the active Navy force, the net increase is an additional $4,000 to fund a final end strength of $327,900.  This increase is due in part to cruiser modification; LCS blue and gold crew concept; the joint strike fighter initial operational capability requirements; support to increase Marine Corps end strength, for example Corpsmen and Chaplains; Expeditionary Staging Base 4; and total ownership cost, to include the individual accounts and the TPPH account.  Several reductions occurred in the Major Headquarters Activity billets and recruiters following the consolidation of the Regional and Headquarters Recruiting Districts.

Lastly, for the active component, this request increases funding for the Navy Permanent Change of Station, or PCS, moves to begin recouping risk Navy assumed in '17 due to funding constraints as we work towards the CNO’s goal of a six-month lead time on written orders for sailors.

The Navy Reserve shows a modest increase as we complete a period of planned growth that has been in progress over the last six years.  The primary growth areas are cyber, unmanned aerial systems, and shipyard surge maintenance.  Additionally, we are permanently fortifying off-installation, Navy Operational Support Centers with armed and trained Reserve security personnel to protect our sailors against threats.

For the Marine Corps—the Marine Corps is the nation’s crisis response force, which provides the nation the ability to respond to unexpected crises from humanitarian assistance and disaster relief efforts, to major combat operations.  This submit funds an active duty strength of 185,000 Marines and a Reserve end strength of 38,500.  The end strength provides overall dwell ratios of 1:2 for active forces against the sustained goal of 1:3 and 1:4 for Reserve forces.

The makeup of this force was informed by Marine Corps Force 2025, a yearlong review which focused on the changes necessary to successfully operate in an increasingly complex global environment.  And it builds a balanced MAGTF optimized for global threats.  Several key information initiatives include the establishment of a MEF Information Group to improve increased defensive cyber operations in communications battalions; increased reorganized aviation intelligence support in its intelligence battalions; a new infantry battalion design; and increased long-range precision fires through HIMARS rocket artillery battalion.

The budget funds the civilian workforce required to restore readiness.  To accomplish this, the department's FTE, or full-time equivalent, increased at shipyards to meet scheduled maintenance and to reduce the backlogs that have accumulated over the last decade.

Overall, the Navy working capital fund FTE increased for engineering and support for an expending portfolio of airframes; for STEM personnel at surface warfare centers; for NAVSUP personnel needed for increased weapons support; at SPAWAR for tactical communications and cyber support; to handle aviation maintenance backlogs.  It also funds an additional 226 civilian guards to protect the Department of Navy installations.

The Department remains committed to complying with the MHA.  And the budget reflects a decrease of 310 FTE for headquarters.  

Overall, the civilian personnel numbers highlighted here reflect the essential role in our civilian personnel play in our mission success.

The department appreciates the continued strong support in Congress of naval shipbuilding.  Changes in this budget from the President's Budget '17 plan reflect Congressional action, which added an LCS and an LPD.

New construction totals remain the same in this submit as were submitted last year.  Other construction totals reflect a reduction of three ship-to-shore connectors.

Key shipbuilding efforts in this submit are: 
The Columbia-class program.  It continues with its second year of advance procurement funding for the lead ship, SSBN-826.  826 remains on schedule to meet its first deployment in 2031.
Procurement funds for Columbia are requested in SCN.  However, to comply with law, any appropriated SCN will be deposited in the National Sea-Based Deterrence Fund.  
We are using two authorities provided by the NSBDF: continuous production of common missile compartment components, and advanced construction.
We plan to award the next aircraft carrier, USS Enterprise, in March of 2018.  CVN 80 is incrementally funded with $1.9 billion requested.
Fiscal Year '18 is the final year of funding for the John F. Kennedy, with $2.6 billion requested.  CVN 79 is on track to deliver within the cost cap.

Two Virginia-class submarines are requested, and they are the final two Block IV boats in the FY14-18 multiyear contract.  

The department's requesting funding for two destroyers.  These destroyers will be funded—will be a Flight III ship funded with the advanced missile defense radar and are requested as part of a 10-ship multiyear.  

One Littoral Combat Ship is funded.  We continue to procure LCS mission packages with two surface warfare mission packages in this submit.  It also includes the first procurement of the surface-to-surface missile module, which will provide in-close and, eventually, an over-the-horizon engagement capability against surface threats.  

For amphibious ships, we are requesting the second and final increment of full funding for the LHA 8.  The construction contract is expected to award in June.  

The second T-AO 205 replacement is requested in ‘18 along with advance procurement for a future oiler.  The oiler contract was awarded in ‘16 for one ship and five priced options for future oilers.  The ‘18 is the first of those five priced options.  And the department's requesting a second combined towing, rescue and salvage ship with a plan to award in January of 2018.

The department appreciates the continued strong support of Congress of aviation procurement.  Changes in this submit from the '17 plan reflect congressional action which added six total F-35s, 12 F/A-18s, two C-40 Alphas, two AH-1Zs, or Zulu Cobras, one MQ-4, and four MQ-8s.  Procurement totals for the submit decreased from 99 to 91 aircraft: a reduction of two F-35 Charlies, five Zulu Cobras, and five MQ-8 Tritons were cut, with one P-8 added.

Key aircraft procurement in this submit include 14 F-18 Super Hornets and 24 F-35s, with four Charlies and 20 Bravos, to address efforts to mitigate our strike fighter shortfall while we continue the transition to a fifth generation fighter.  

On the rotary side, there was a small decrease in the Zulu Cobras, which was for fiscal balancing, specifically to fund a comprehensive strategic recovery plan aimed at maintaining combat relevance through capability improvements.

The 53K replacement for the CH-53 Echo helicopter completed its milestone C review in ‘17.  Low-rate initial production, or LRIP, of four aircraft continues in ‘18 leading to an IOC in ‘20.  This submit requests funds to procure the first six Navy CMV-22s to replace the C-2 COD.  Forecast IOC for the Navy variant is Fiscal Year ‘21.  This submit includes a requested multiyear authority to complete the production buy for both Navy and Marine Corps MV-22s.

For our unmanned systems, continued LRIP procurement of three MQ-4 Tritons, a fleet delivery of early operational capability is planned for this year.  And the MQ-8 Fire Scout production was truncated because sufficient inventory is on hand to meet planned LCS deployments.  The program will continue to be assessed as the LCS and frigate program progresses.

In weapons procurement, the submit provides a net decrease of 10 weapons, with reductions funding an optimal mix of weapons and enhanced capabilities.  The Navy begins procurement of the Small Diameter Bomb Block 2, which adds moving target capability for the F-18 and F-35 aircraft.  AMRAAM quantities were decreased to procure the first lot of Form, Fit, Function Refresh missiles, which will replace 80 percent of the missile guidance section components. 

JAGM's Milestone C was delayed from ‘17 to ‘18.  The ‘17 funding will be used to procure the first LRIP quantities and maintain IOC for ‘19.  Due to the delay, no missiles were requested in this submit.

In shipboard weapons, the Navy added 100 Tomahawk missiles to obtain quantity-cost savings.  The request includes 66 OCO missiles to replace those expended in the Red Sea and Syria, and 34 baseline missiles.  ‘18 also begins procurement of modernization kits to be installed in FY19 with recertification.  

The Navy decreased RAM Block 2 quantities to invest in an upgraded capability to counter emerging complex raid threats.  This submit includes initial procurement of the Block II Evolved Sea Sparrow missile procurement and the Harpoon Block II Plus mods.  The Block II Sea Sparrow replaces the guidance section with an improved seeker, and the Harpoon provides an expanded capability to provide more accurate targeting.

The Navy increases the buy of the LCS surface-to-surface missile module, which is the Longbow Hellfire, to provide LCS the ability to protect sea lanes and to move forces quickly through a chokepoint or other strategic waterway. 

The submit provides substantial investments to modernize and enhance capabilities of currently fielded systems in order to continue to overmatch our adversaries.  That includes key investments in cybersecurity to ensure resiliency of our networks and operational technology.  Advanced efforts to outpace the threat in C4I, electronic warfare, and information warfare domains is supported by the Consolidated Afloat Network and Enterprise Services, and the Navy Multiband Terminal System.  

Various ship and submarine modernization efforts include:
The Submarine Warfare Federated Tactical Systems, which provides hardware and software upgrades to submarine sonar, fire control, imaging, electronic warfare systems, as well as integrating unmanned aerial system and advanced electronic warfare and attack capabilities. 
The DDG modernization ensures the fleet meets or exceeds an expected service life of 35 years for Flight I and II, and 40 years for flight II Alphas.  Another enabling count, the OPN spares, is funded 85 percent of the requirement.

The Marine Corps and PMC continues to balance ground equipment, procurement, and future development to support the current fight, while modernizing to dominate a future fight.  It funds major programs, including the procurement of 527 Joint Light Tactical Vehicles, three GATOR systems, and the initial procurement of 26 Amphibious Combat Vehicles.

Procurement of Ammunition, Navy, and Marine Corps, funds munitions and related weaponry that replenishes weapons expended in ongoing contingency operations.  It funds major fleet requirements, such as general-purpose bombs, JDAM guidance systems, and airborne rockets.  And munitions also range from the five-inch 54 guns on cruisers and destroyers, to precision-guided artillery.  

While there is general agreement we must increase the size of the fleet, the urgency associated with budget uncertainty and increasing global volatility requires that we implement improvements in concept development, research and development, and rapid fielding efforts to accelerate the fielding of advanced capabilities that will provide our fleet a force multiplier effect.

In the R&D appropriation, science and technology funding remains steady, at approximately $2 billion per year.  The Navy’s top programmatic priority, the Columbia-class submarine, supports common missile compartment efforts, nuclear technology development, strategic weapons system integration, and ship design efforts.  Capability assessments to ensure the multi-mission frigate paces future threats.  

In aviation, the F-35 is funded to maintain the F-35 Charlie IOC of 2018, the Next Generation Jammer, and the F-18 fatigue life expectancy.  

The request includes $67 million for technology maturation in the unmanned undersea vehicles, aimed to increase endurance, payload hosting, and payload delivery capability.  

There’s funding for Navy cyber situational awareness, combat system cyber security, enterprise workforce and building control systems.

The Navy invested $15 million to establish the Digital Warfare Office, whose priorities will include setting requirements, prioritizing resources and leading efforts related to information and systems operability.  We’ve increased investments in laser technology to accelerate delivery of more laser capabilities to the fleet.  It builds on the Navy’s successes with lasers with funding for the Surface Naval Laser Weapon System and Low Power Module with a future investment of $107 million.  

The Navy’s focused on increasing the speed with which we provide war fighters with critical war fighting capabilities.  To facilitate this, the Navy implemented urgent needs and accelerated acquisition policies for the Maritime Accelerated Capabilities Office, or MACO, program and the Rapid Prototyping, Experimentation and Demonstration, or RPED, projects.  The Marine Corps’ major R&D initiative continues to be the amphibious combat vehicle.  

From military construction and family housing, the MILCON submission reflects a 13 percent increase compared to 17 and funds 35 projects—18 for the Navy and 17 for the Marine Corps.  The program focuses on targeted investments that provide maximum readiness and warfighting capability to include ship and repair training facilities; paint and blast and rubber facilities; repair facilities for avionics and lift fans; and ammunition recapitalization, with Chambers Field, Indian Island and Mayport for missile magazines.

Construction of four projects in Guam supports relocation of Marine Forces in Okinawa, and the family housing budget includes the operation, maintenance, and recapitalization, leasing, and privatization oversight of the department’s family housing worldwide.

Overall, this budget provides the investments required for the Navy and Marine Corps to execute its missions as assigned.  Against the backdrop of complex global security and challenging fiscal environments, it reflects the best balance of investments across our readiness inputs of people, equipment, supply, training, ordnance, networks and infrastructure.  Balanced resourcing across readiness-generating efforts provides a wholeness to the force that will allow us to maintain the capabilities and capacity to accomplish the missions of today and the future.  This completes my overview.  I look forward to your questions.

STAFF:  OK, just—we have about nine minutes, so I’ll be quick with the ground rules.  Of course, this is on record for attribution.  When I point to you, go ahead and please state your name and your publication, and please also limit your questions to today’s brief.


Q:  Hi sir, Megan Eckstein with U.S. Naval Institute News.  So you spoke of this year being a readiness year and not necessarily a growth year.

ADM. LUTHER:  Correct.

Q:  But Navy and industrial base folks have talked about for the LCS program needing three ships to keep the base healthy and for the LPD program needing that LPD 29 hold to help with the transition to LXR.  So I was just wondering what the discussion was as you were putting this budget together around those two and how industrial base helped—played into your talks.

ADM. LUTHER:  So as you said, the guidance was fix, fill the holes for ’18, and, but the industrial base is a consideration for the shipyards, for airplanes, for weapons.  So we—the direction was clear, fill the holes first, and then as we go forward for the future, we will look at the industrial base and we will conduct a review to ensure that we understand truly what a minimum sustained rate is for an acquisition program.

And then we will review, and what is sustainable?  The goal for the Navy is to have both shipyards available to compete for the FFX competition down the road.  So we would respond accordingly in the out years if it was necessary.

Q:  Hi, Admiral, Sydney Freedberg, Breaking Defense.  Just to get the big picture right of not a growth year, compared to the Obama plan from last year for FY18—and this was an out year—we’re sold the same number of ships being built and the exact same types of ships being built.  And I believe the aircraft are also very similar.  I think you said a difference of 99 in the last year’s ...

ADM. LUTHER:  Eight airplanes, 99 to 91.

Q:  What type was coming down in that?

ADM. LUTHER:  What type of airplanes that came down?

Q:  That came down, yes.

ADM. LUTHER:  We reduced some—F35’s were reduced and I as a mentioned the Zulu—or five Zulu Cobras, but they self funded their modernization program.  So they took quantity and then bought capability with that.  We truncated the buy of the fire scout because we have sufficient inventory on hand to address that.  I think those were the three major ones.

Q:  Hi, Lara Seligman with Aviation Week.  Why—what was the reason for the decrease in F-35 Cs this year?  And two, I didn’t see any mention of the next generation air fighter F/A-XX, I think.  Can you just explain why there’s no mention of it and what’s the plan for—has it been delayed?

ADM. LUTHER:  I’ll start with the first.  So to continue the theme of ‘17, we had to make hard choices.  And so we maintained our readiness accounts, and we had to balance somewhere, and so we tried to hold the line as best as we could in our procurement accounts, but if there was something—so reducing just two F35’s allowed us to maintain the IOC in ‘18 for the F-35.  So we made a hard choice, and—but maintain the risk because—to allow us to maintain the IOC.  So that was a cost benefit analysis on that one.

Q:  It’s deferred, or ...

ADM. LUTHER:  The F-35s?  Well, we’ll look at that as we go forward with the Defense Strategic Review.  So all the out years—and I think Mr. Roth mentioned this earlier—as we go through, those 10 mission sets will be examined.  Those 10 mission sets are the driver for the utilization for the forces that says, hey we need a different force size and construct, then that may drive.  My expectation is that we will continue to launch airplanes off aircraft carriers, and we’ll look at what the demand signal is and then procure the aircraft appropriately to the DSR when it comes out in August or September.

Because—for your F/A-XX, I’ll have to—I don’t have that up, so I’ll get back to you on that.

Q:  Can I just clarify on—you said that you—or eliminating those aircraft allowed you to get to IOC in 2018.  Can you just be more specific, or ...

ADM. LUTHER:  No, we maintained IOC in—maintained IOC, right.

Q:  Was that work—where does the money go?  Like, how does that work?

ADM. LUTHER:  Well I can’t—I can’t take you as a—this is a dollar and fund it through.  But I will tell you in the aggregate, we increase funding, as I mentioned, for example, in aviation spares.  So aviation spares is a high level.  We went to those enabling accounts, so PRE, PRL—so we bought engineers to do dispositions for the maintenance.  We bought working capital fund people to do—to handle the IOC for the JSF.

So the two airplanes, the jet that may have been programmatically to balance the increased requirements in other accounts.

STAFF:  OK.  Justin?

Q:  Hey, Justin Doubleday, Inside Defense.  I just was wondering, I think it was about $1 billion is going to be requested just for one LCS.  Ships have been coming in around $500 million on a—so why do you need that much money for just one LCS?

ADM. LUTHER:  I’m not familiar that we asked for $1 billion for one LCS.

Q:  There was a number—oh it was about six?  Well, then a second part of that question, how does this budget set up the transition to the frigate going forward?

ADM. LUTHER:  So as I mentioned earlier, we’ll take a look to maintain an industrial base that remains competitive.  And so in the R&D effort, we’re funding the capabilities assessment to assure we know what the FFX needs, and then we are on pace to do a fourth quarter 2020 award for the FFX.  So that’s the end state that we want to do.

Q:  You mentioned in brief that 4,000 sailor plus-up—how it’s going to be apportioned?  I was wondering if you could go more granularly, say, ‘this many sailors will be part of the blue and gold concept, this many for the expeditionary corps base.’?

ADM. LUTHER:  If you give me a second to get to it, I can.  

Actually it’s—this is a delaying technique, I have to go to the other brief.  I know that approximately 2,000 are in our I.A. and TTPH, the overhead associated with the (unclear), so we can get sailors to their ships on time.  There was 1,000 for cruisers’ modification, 450 for the LCS blue and gold concept, 373 to support the IOC for the JSF.

Support for the Marine Corps was 163, and the expeditionary staging base was 100, and that adds up roughly to about 4,000.

Q:  Sir, Rick Burgess, Seapower.  With regard to that single LCS for 2018, does that represent a down-select to a single hull design?

ADM. LUTHER:  It does not.  The intent is to have two shipyards competitive in 2020.  We—the Navy seeks to have a competitive bidding process.

STAFF:  Chris, last question.

Q:  Chris Cavas, Defense News.  Actually, following on the LCS, my understanding is that OMB wanted to add another LCS into this budget to make two, but the provision here is for one, the Obama request.  Are you—is there the possibility of the Navy submitting an addendum to this, or modification to this request, and going up to two ships?

ADM. LUTHER:  As I know today, we are not submitting an amendment budget submission for a second LCS.

Q:  Do you plan on submitting an amended budget submission right now?

ADM. LUTHER:  As of right now, I have not been directed to create nor submit an amended budget submission.

STAFF:  OK, thank you, everyone.  If you have follow-up questions, you can direct them to me.  I’ll be up here with Kara as well.