The New Global Defense Marketplace

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IntroductionEven though the big war decade is over and arms sales have declined in recent years, the Pentagon is still buying weapons, and lots of them. Fighter jets, troop carrying trucks, ships; they’re all on the list. The rest of the world’s militaries are out shopping, too.

Inside this eBook, we explore where the Pentagon is spending its money and how defense companies are preparing their businesses for a future that will rely on cyber, special operations and space.

We explore arms sales in the Middle East, the region where global defense  rms expect an uptick in sales to compensate for fewer American and European arms buys. These nations are spending big money on new  ghter jets, missile defenses and tactical weapons. Washington and Moscow are selling the most wares in this part of the world and  rms are scrambling to set up satellite o�ces to deepen ties with countries like the United Arab Emirates.

Even as the focus shifts overseas, spending stateside remains high. Projects, like the F-35 Joint Strike Fighter, are ramping up and new ones are on the horizon. The Army will buy a Humvee replacement, the Air Force will buy a new stealth bomber, and the Navy will get new nuclear submarines and redesigned littoral combat ships. And the next president of the United States will get a new helicopter and a new Air Force One.

Meanwhile, top Defense Department o�cials want the bureaucracy to become more like the agile and �exible technology industry of Silicon Valley. The question remains: Will engineers consider government jobs over high-paying, high-paced careers at the likes of Google and Facebook?

This is the New Global Defense Marketplace.

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US, Russia Biggest Beneficiaries of Arms BoomEmerging markets in Asia and the Middle East are splurging on drones, missile defense and aircraft—especially ones

made by American and Russian companies.BY TERRENCE GUAY

One of the features of the 21st century, particularly since the 2008  nancial crisis, has been the increasing number of rankings in which the United States is no longer number one. The title of top arms exporter is not among them—at least not yet—with the U.S. maintaining its No. 1 spot almost every year since the Cold War ended.

At February’s International Defense Exhibition in Abu Dhabi, around 1,200 companies from 56 countries showcased their hardware, trying to sell their high-resolution surveillance satellites, Reaper drones, and Kalashnikov ri�es to the government o�cials and military brass in attendance. Plenty of American arms makers were on hand in hopes of maintaining their global dominance.

The U.S. controlled 31% of the global market for weapons exports from 2010 to 2014, up from 29%

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from 2005 to 2009, according to the Stockholm International Peace Research Institute (SIPRI), the world’s best-known collector of defense spending and weapons trade statistics. Russia came a close second with 27%, up from 22%, followed by China, Germany, and France each with a 5% share of the arms market.

The fast-rising wealth of emerging markets like India and countries in Africa that are gobbling up a growing share of weapons is rapidly changing the arms market, particularly as global instability seems to grow year after year. The surge in con�icts involving non-state actors in the Middle East and Africa is also forcing more countries to stock up, creating more demand for tanks, advanced weapons systems, and especially light arms.

And regional rivalries between India and its neighbors Pakistan and China, as well as Saudi Arabia and the Gulf states with Iran, continue to simmer. Government co§ers,  lled with earnings from oil, manufactured goods and other exports, can readily be tapped to purchase weapons from abroad, even if spending on education, health and infrastructure might provide greater long-term bene ts. The U.S. Congressional Research Service estimates that global arms transfers rose from about $51 billion in 2004 to $85 billion in 2011, totaling more than $500 billion over the eight-year period.

U.S. corporate dominanceAt the moment, the global defense industry remains an area of U.S. corporate dominance. Six American companies placed among the top eight global  rms, based on defense-related revenues. Lockheed Martin topped the list with $35 billion

in arms sales, with Boeing in second place ($31 billion). Raytheon ($22 billion), Northrop Grumman ($20 billion), and General Dynamics ($19 billion) ranked fourth through sixth, while United Technologies ($12 billion) took eighth.

Obviously, a large portion of the revenues generated by these  rms comes from the U.S. But exports are essential, since it allows the companies to produce larger quantities of  ghter planes, tanks, and other weapons systems, thereby driving down the per unit cost, which ultimately bene ts the Pentagon and American taxpayers.

So while arms exports help achieve national security and foreign policy goals, they provide economic bene ts as well, particularly for the workers and communities where production is located.

Who’s buyingBuyers in Asia and Oceania snared the most U.S. weapons, or 48%, while recipients in the Middle East purchased 32%. Another 11% went to Europe. Meanwhile, Russia’s biggest buyers were India, China and Algeria, which consumed 60% of its arms exports. Overall, it sold arms to 56 countries and the rebels it backs in Ukraine, according to SIPRI.

One of the most interesting, and perhaps disturbing, global trends is the increased defense spending and weapons trade by emerging market economies. India was the largest importer of weapons from 2010 to 2014, accounting for 15% of all global arms imports, followed by Saudi Arabia, China, and the United Arab Emirates.

As countries in Asia and Africa get richer, larger sums are being spent on defense, particularly weapons imported from the world’s largest producers.

$35BLOCKHEED MARTIN ARMS REVENUES

$31BBOEING ARMS REVENUES

$22BRAYTHEON ARMS REVENUES

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Africa, which has experienced some of the world’s most impressive economic growth over the past decade, saw arms imports increase 45% over the past  ve years. Part of this is due to windfall revenues earned by oil-producing countries, while inter-state rivalries between Algeria and Morocco and intra-state con�icts in Nigeria and Cameroon drive additional demand.

China, whose economy recently surpassed that of the U.S. on a purchasing power parity basis, has moved into third place in weapons exports for the  rst time, signifying the country’s growing importance in international a§airs. It also shows o§ China’s rapidly rising defense budget, which concerns many of its neighbors, as well as the U.S.

The illicit arms marketTraditionally, governments have been the primary buyers of armaments. However, the rise of non-state actors such as Al-Qaeda, Boko Haram, and ISIS has raised concerns about weapons falling into their hands. Organizations such as these rarely purchase weapons directly from the leading arms-exporting countries—certainly not planes, tanks, and heavy artillery.

Terrorist and guerrilla groups typically acquire weapons in two ways. The  rst is the illicit trade of small arms and light (man-portable) weapons such as assault ri�es, grenades, mortars and land mines. Many of these weapons have been in circulation for decades, the result of U.S. and Soviet support for their respective allies during the Cold War.

Such weapons are easily smuggled across borders today, facilitated by all of the  nancial, logistic and

communication bene ts that globalization provides to legitimate international commerce. When countries such as Libya collapse into civil war, their supply of weapons is quickly acquired by factions within the country, or enters the illicit global arms market.

The second way that non-state organizations acquire weapons is from soldiers they defeated in battle, or military supplies from areas they conquered. So, for example, Boko Haram bene ts from sympathizers in the Nigerian military who have facilitated the transfer of weapons to the terrorist group, as well as porous borders that make it easy to transport weapons from neighboring countries.

ISIS obtained many light weapons from the battle eld where it defeated Iraqi forces, and more sophisticated weapons when it overran Iraqi military bases. It is an unfortunate fact that far more people around the world, especially non-combatants, are killed by these light arms and weaponry than the far more expensive weapons systems associated with major defense contractors like Lockheed Martin or UK-based BAE Systems.

The post-9/11 arms worldToday’s military leaders are prioritizing command, control, communications, computers, intelligence, surveillance, and reconnaissance over more traditional weapons like aircraft, ships, and tanks. As a result, less well-known companies such as L-3 Communications, Exelis, and Leidos are quickly moving up the global rankings by producing high-tech avionics, drones, encryption devices, sensors, night-vision goggles, and information technology services.

Far more people are killed by these light arms and weaponry than by far more expensive weapons.

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In response to cuts in U.S. defense budgets in the years following the Iraq and Afghanistan draw-downs, most defense  rms have diversi ed their sales to more non-defense applications, or to other countries by way of exports. These trends have made competition for Pentagon weapons contracts even more intense, since fewer and higher-priced items are being acquired.

But this appears to be shifting in light of heightened levels of global insecurity from the

likes of terrorist groups, provocations by Russia, rivalries in Asia and nuclear ambitions in Iran and North Korea. In recent weeks, Congress has called for increases in defense spending. And other countries are using their growing economic power to build up their military power as well so they can better protect their interests and increase their regional and global in�uence.

At the end of the day, the main winners of global insecurity are likely to be defense companies.

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Defense Firms Put Down Roots in UAECompanies hope to sell arms to United Arab Emirates, particularly as Pentagon purchases have slowed.BY MARCUS WEISGERBER

ABU DHABI – Inside an o�ce halfway to the top of a skyscraper that leans 18 degrees to the west, freshly painted white walls are covered with pictures of American military V-22 Ospreys, Shadow reconnaissance drones, and Commando armored trucks.

The equipment is built by Textron’s Bell Helicopter and Textron System, which jointly opened this o�cer here in the capital of the United Arab Emirates earlier this year. The items are not built here, but they could be one day.

About a 20-minute drive away in Masdar City, Lockheed Martin recently opened what it calls the Center for Innovation and Security Solutions, a place where employees can collaborate on projects with UAE government o�cials and academics. The center allows these o�cials to receive technical information about Lockheed products, according to company employees.

Boeing already has two o�ces in UAE, one in Dubai and the other here in Abu Dhabi, that support its defense and commercial airplane businesses. DRS Technologies, the U.S. arm of

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Italian defense  rm Finmeccanica, is “looking at options to opening an o�ce,” o�ce in Abu Dhabi, according to company o�cials.

U.S. and other global defense  rms are putting down roots here in hopes selling arms to UAE, a strong American military ally in the region. For these companies, the sales have become even more important, particularly as Pentagon purchases have slowed in recent years.

Ellen Lord, the president and CEO of Textron Systems, checked out her company’s new digs earlier in February on the eve of the International Defence Exposition and Conference, the largest military arms bazaar in the Middle East.

Just a handful of Textron employees are based here now, but more are expected to come, particularly if the company scores new business in the Emirates.

“The idea is it will grow because as we get more programs here, we would like to have some program mangers here and so forth,” Lord said in an interview.

As she chatted, workers a�xed the Textron Systems and Bell Helicopter logos in an elevator lobby just outside the o�ce.

Textron Systems sees billions of dollars in possible arms sales of its products in Middle East. The company already sells the UAE Air Force the Sensor Fuzed Weapon, a 1,000-pound guided bomb used to destroy armored vehicles. The company is looking to sell the Emirati military armored vehicles and drones. The UAE military is also said to be considering a purchase of V-22 Ospreys, a tilt-rotor aircraft jointly made by Bell and Boeing.

UAE is expected to spend $40 billion on new weapons over the next  ve years, according to Avascent Analytics, a Washington-based consulting  rm that tracks global defense spending.

On the  rst two days of IDEX, the UAE announced it had spent more than $3.6 billion on weapons, equipment and services, including a $1 billion deal for new satellites made by Airbus Groups and Thales, both European defense  rms.

UAE wants to build up its manufacturing sector here. Two years ago, the country announced a focus toward joint ventures, according to Maj. Gen. Obaid Al Ketbi, chairman of the IDEX organizing committee.

“I think what we have is more focus from the government on local manufacturing and … we have a bigger number this year of local companies that became more professional in this defense  eld,” Al Ketbi said. “We are always glad to work closely with our friends around the world in joint ventures and I think we see the results now.”

At IDEX, Raytheon and NIMR Automotive, part of the Emirates Defence Industries Company, announced they would collaborate on a project to put Raytheon’s Talon laser-guided rocket on six-wheel NIMR armored vehicles.

DRS will be conducting a joint venture with the UAE defense industry as well, a company spokesman said.

“We hope that in the future [the local industry] will develop more, still we rely and work closely with our friends around the world basically to supply us with our requirements,” Ketbi said.

$40BEXPECTED UAE WEAPONS SPENDING

OVER THE NEXT FIVE YEARS

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For all companies looking to build their business in UAE and elsewhere in the Middle East, IDEX is a must-attend event. More than 115 U.S. companies exhibited this year.

“[UAE is] a country that has demonstrated the ability put on a very top-notch show at IDEX and it’s a country that is very clearly committed to innovation and to improving [its] technological capabilities,” Frank Kendall, the Pentagon’s acquisition chief who attended the trade show on his  rst visit to UAE, said in an interview. “I’m hoping we can work together to accomplish that.”

But for foreign companies, setting up shop in UAE takes time. It took Textron Systems and Bell more than a year of paperwork and other procedural musts required of U.S. company doing business in the Emirates before it opened its doors for business.

“It’s a lot of work in a lot of di§erent ways to start an o�ce here, but we thought it was absolutely critical to have our employees living in the same community with our customers,” Lord said. “I think it’s serving us well. It’s obviously giving us a venue to have meetings [and] hold larger meetings.

Lord reorganized Textron Systems business development division 18 months ago, basing more employees overseas where the  rm has contracts.

“We said instead of having people get on airplanes and go to our customers, we’re going to take our international business development team and deploy them globally,” Lord said.

Beyond defense business, companies are also looking for commercial sales in the region. Oil and gas companies are interested in unmanned aircraft, particularly for pipeline and infrastructure security. A Middle East company �ies one of the  rm’s drones, however Textron does not disclose the customer.

Armored Vehicle maker Streit was founded in Canada in the early 1990s and now has factories around the world. In 2005, the company opened a manufacturing factory in UAE that could build hundreds of vehicles per month, according to company o�cials. Its product line includes military-style trucks and even an armored six-wheel G-63 Mercedes SUV. Many of the  rm’s customers are private citizens living in this dangerous region.

Now as Islamic State, or ISIS, militants spread across Iraq and Syria, and the security situation in Yemen deteriorates, there has been a renewed focus on the region, particularly as many Middle Eastern states contribute troops, equipment and money to the campaign against ISIS. UAE has �own its F-16  ghter jets on missions to strike ISIS locations in recent months.

“There’s a lot going on here and not all of it good by any means,” Kendall, said of the Middle East region. “It remains a very important region and our partners here are very important to us, particularly UAE.

There’s a lot going on here and not all of it is good.FRANK KENDALL, AQUISITION CHIEF, PENTAGON

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How the Pentagon Can Recruit in Silicon ValleyDefense Department and national security political leaders are eager to attract tech minds. But are they willing to change enough?BY PATRICK TUCKER

Last week, Sen. John McCain took to WIRED to explain how various provisions in the National Defense Authorization Act, or NDAA, would help bring young tech minds to bear on the military’s various problems. “By removing barriers to new entrants into the defense market. By adopting commercial buying practices,” by adding protections for intellectual property and technical data that contractors develop at their own expense, the Arizona Republican wrote, the Defense Department will attract the services of

fast-moving Silicon Valley companies and the people who work in them.

Meanwhile, Pentagon leaders will open a satellite o�ce next to Google headquarters. “One of the reasons that we’re establishing this new presence in Silicon Valley is to have a visual presence out there and get people to think about the DoD as a source of  nancing and as a potential customer,” Frank Kendall, the department’s undersecretary for acquisition, said at a recent lab day at the Pentagon.

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Will all this be enough to draw the attention of the world’s top software engineers? If one were to judge from reader responses to McCain’s op-ed, optimism would seem unwarranted. One of the more polite comments read, “Why would a reputable tech publication such as WIRED allow a politician that doesn’t fully understand the technology he references to write an op-ed that is nothing more than propaganda for increased militarism and corrupt cyber-surveillance?”

But two former Pentagon acquisitions experts called the e§orts a good start.

“It will be the execution that matters most, and, in my opinion, it will take more than acquisition reform to do it,” said Peter Newell, a former director of the Army’s Rapid Equipping Force who became a managing partner at the Palo Alto-based consultancy BMNT. “My experience tells me our challenge in the future will be less about how long it takes to acquire technology than it is about how long it takes us to realize we have a problem and translate that understanding into something that energizes an ecosystem to take action, an ecosystem that must go well beyond the walls of the Defense Department.”

Newell said the entire department needs to overhaul its approach to with new ideas. “Within the walls of the Pentagon, they will need to reeducate a generation of civil servants to look for ways to say ‘yes’ to trying innovative concepts rather than excuses to say ‘no.’ Most importantly, at all levels, they will need to develop a new lexicon that embraces the pursuit of disruptive innovation rather than treat it as a threat to the e�ciency of the system,” he told Defense One.

Dan Ward has written extensively about how a nimbler approach would bene t the military. “I’d call [McCain’s ideas] a good step,” he said, “a positive move towards resetting the Pentagon’s default away from slow, expensive, complex programs and towards lighter, faster, more agile e§orts. I think the next step to really getting Silicon Valley on board is for the DoD — and Congress — to reconsider how it treats failure,” said Ward, a retired Air Force lieutenant colonel and acquisitions o�cer. “That is, to let failed projects die like the Valley does, and also to see failure as an investment in learning and a springboard for next time.”

Newell said the Defense Department also needs to foster innovation, experimentation, and research by individual soldiers. “In only rare cases today will you  nd a military base that o§er STEM-based educational programming to its servicemembers,” he said. “If you want to  nd a 3D printer, the best place to look will be in a barracks room because there isn’t a Maker Space or TechShop on any installation today.” These are DIY havens where people can collaborate and receive tutorials on everything from modifying consumer drones to 3D-printing plumbing parts. “Nowhere will you  nd a FIRST Robotics competition for military servicemembers, nor will you  nd ‘hacking problems’ to be the intramural sport that it should be,” he said. “All represent problems that will take a coalition beyond the Pentagon to  x.”

Needed: ‘Legislative Ingenuity’Of course, the government can’t fund the enterprise of providing for a common defense in the same way that a VC out t in Palo Alto can fund a dating app. The latter needs only to provide a service to a user base at below cost and prove that it can do

It will be the execution that matters most; it will take more than acquisition reform to do it.PETER NEWELL, FORMER DIRECTOR, ARMY RAPID EQUIPPING FORCE

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so at scale. The former must be fully accountable to the public, and Congressional oversight is rather di§erent from a board of directors.

But while acquisition rules have de nite bene ts like reducing unfair competition, “those same checks and balances when applied in the innovation space tend to kill it,” Newell said. In virtually every study on innovation within corporations, he said, “researchers acknowledge the need to create a sandbox or playground where the gritty, rough and tumble work of innovators can be done without being held to the same standard of scrutiny of the rest of the system while also protecting the system from the destructive behavior of the innovators. Work in these boxes should be judged or scrutinized not on what they are currently doing but rather on what they have  nished and only after they have  nished.”

The government can’t fund the enterprise of providing for a common defense in the same way that a VC out t in Palo Alto can fund a dating app.

Newell said setting up such a space “will require some legislative ingenuity.” He recommends that lawmakers create a fund to underwrite and reward innovative solutions to mundane problems, as distinct from just funding R&D. They could also work with the Defense Department to identify areas where restrictions and requirements could be modi ed or suspended.

Among other things, this might encourage smart network or software engineers to do a stint in government or the military. “For example, personnel policy restrictions on the use of the Intergovernmental Personnel Act could be suspended to allow a free �ow of talent from commercial organizations into government service

for speci c projects/periods of time while allowing them to be paid at competitive commercial rates,” he said. The act currently covers only people coming from state governments, universities, or private organizations, he said.

The Pentagon has already made some movement in that direction, announcing in April the goal of recruiting thousands of private-sector cyber security professionals as a “surge force” — in essence, a cyber National Guard.

Ward said that although a faster acquisition program would seem to o§er less public accountability, the reverse is actually true. “The more time we spend, the harder is it to keep people accountable because of personnel turnover,” he said. “Who gets held accountable for a 10- or 20-year project? Is it the person who starts it and makes early decisions, or the person who’s holding the bag at the end?”

Finally, the importance of attracting top software minds is only growing as software’s importance does. Even as the Pentagon buys fewer ships and aircraft, it’s buying far more code, and that code can be produced by far more companies and at far lower risk than jets or warships. “The trick is creating a system that is �exible enough to adjust the level of oversight to the nature and risk of the acquisition,” said Jason Tama, author of a upcoming policy paper from the Brookings Institution on defense acquisition reform. “Not all acquisitions are created equal in this respect, and the current system doesn’t necessarily do a good job recognizing this.”

Ultimately, Congress must help turn smarter-and-cheaper into a key consideration for everyone in DoD.

The government can’t fund a common defense in the same way that a VC out�t in Palo Alto can fund a dating app.

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Buying a New Air Force One is ComplicatedFinding the president’s next plane is more complicated than cutting Boeing a check for a new 747.

BY MARCUS WEISGERBER

Think it’s tough to buy a new car? Try buying a plane that has all the bells and whistles, including some that might not have been invented yet.

The aircraft is the easy part. In this case, it’s a massive, four engine, two-�oor Boeing 747-8 from a company that has been churning out aircraft from its Washington State assembly lines for nearly a century. But the must-have equipment needed on the plane that acts as a mobile White House is where things get more complicated.

First, the plane must be able to refuel in�ight so, if need be, it could remain airborne inde nitely. A nuclear war is likely the only time this would happen, but Air Force One must be prepared for everything.

But that’s not the hard part. The must-haves include the latest cutting-edge military communications equipment that allow the president to work as if he’s sitting in the Oval O�ce in Washington. The president must be able to

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conduct secure video conferences and phone calls, access classi ed government computer networks and order a nuclear strike.

It also needs an operating room, walk-in refrigerator and defensive systems that could allow the jetliner to evade a missile attack.

President Barack Obama on Monday will set aside money in his 2016 budget proposal for a new Air Force One, a jet he, and possibly his successor, will never have the chance to �y.

President Reagan bought the two VC-25 aircraft that currently serve as Air Force One. While they look like bright and shiny 747s on the outsides, their insides have aged. Not so much the leather seats in the cabin, but the guts of the planes. The VC-25 is a highly modi ed 747-200, a design that has been modi ed and improved three times over the past 40 years.

To put it in perspective, the  rst 747-200 jetliner began �ying passengers in 1971, according to Boeing. The last commercial version came o§ the Everett, Washington, production line 24 years ago, in 1991. The two VC-25s were among the last 747-200s built, with Boeing delivering them to the Air Force in 1990. George H.W. Bush was the  rst president to �y on this aircraft.

Since the 747-200 hasn’t been built in nearly a quarter century, replacing broken parts is tough. In fact, some of the companies that built the original parts no longer exist. There have been times when spare parts have been taken from retired jetliners parked in desert, according to Air Force and industry o�cials. Sometimes parts have to be specially made. A new plane, experts say, would not only boost reliability but improve e�ciency.

There are little-known, unwritten rules a president must follow when buying a new Air Force One. Most important, the buy has to come in a president’s second term. That ensures the current president will never use the aircraft. He or she is expected buy the plane for future presidents. There would be plenty of negative perceptions, and likely political rami cations, if a  rst-term president bought himself a new jet.

Obama will join Reagan, who bought the current Boeing 747s, and President Dwight Eisenhower, who bought the  rst VC-137, an Air Force One based on the Boeing 707 jetliner  rst used by President John F. Kennedy, and set aside money for the presidential aircraft in their second terms.

President George W. Bush tried to buy a new Air Force One before the end of his presidency, but was blocked. Inside the Pentagon, top generals could not agree on how many new aircraft to buy; some wanted three aircraft, others two.

There are two VC-25s now. One of the aircraft is typically in maintenance, a process that lasts about six months. But when the ever-expanding campaign season comes around, the White House often wants both VC-25s ready hit the trail, according to former Air Force o�cials associated with the plane.

Some within the Pentagon felt a �eet of three Air Force On aircraft would ease maintenance pressure and ensure two jets were always ready. Others felt that the Air Force should combine buying new presidential jets with the overdue replacement of the defense secretary’s plane, the E-4B Nightwatch, more commonly called the “Doomsday Plane.” The E4-B is a specialized 747 designed to serve as the command center in the sky during a nuclear war.

If the Air Force buys the planes in 2016, the earliest they would likely carry a president is 2019.

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There are four Doomsday Planes, all heavily modi ed 747-200s built for the military in the 1970s.

At the time, a separate project to build a new Marine One, the president’s helicopter, was delayed and ran wildly over budget. In the end, everything was canceled, delaying the new Air Force One project at least six years.

Now as the 2016 budget proposal goes to Congress for review, it is the last opportunity to buy a new Air Force One for at least another  ve years. This will be the last budget the Obama administration crafts and executes. It will build a 2017 budget, but Obama’s successor will likely modify it upon taking the oath of o�ce in January of that year.

If the new plane is not purchased now, the project would certainly be delayed inde nitely as a two-term president would be needed to make the buy.

And there is another reason why the Pentagon is running out of time to buy an aircraft. Boeing announced late last year that it would slow production of the 747-8, the most recent variant of the 747, which is much larger, more e�cient and high-tech than the VC-25 airframe.

The Air Force formally announced last week that the new Air Force One would be a modi ed 747-8, not a surprise since the only other candidate was the quad-engine Airbus A380, which is a gargantuan, two-deck super jumbo jet. Airbus had expressed little interest in the new Air Force One project as it had been viewed as a political dark horse for one major reason: The aircraft is built by the multinational, European company in France. Boeing – the only American wide-body aircraft manufacturer left in business after decades of consolidation – had been seen as the only option for the new presidential aircraft. And when it comes to buying an aircraft

that will �y around the president of the United States, buying American really matters, experts and historians say.

In an attempt to control costs throughout the project, the Air Force is looking to compete long-term maintenance and upgrade work on the new jets over the 30 years it is expected to carry American presidents.

There is no formal delivery timeline for the new aircraft yet, but if the Air Force buys the planes in 2016, the earliest it would likely carry a president would not be until 2019 or 2020, experts say, as the specialized modi cations will likely take two or three years.

While the 747 has been considered the most likely contender to �y the president, the Air Force could have gone with a smaller, twin-engine 777 aircraft, but experts say it was not a likely candidate for two reasons: First, the extra two engines on the 747 generate much more power for the special communications and electronic equipment. The other is ramp presence, or the plane’s ability to stand out against other aircraft on the �ight line.

The president still �ies on other military aircraft, which use the call sign Air Force One when he is on board, usually on short-distance �ights or when an airport’s runway is not long enough for the VC-25. In those cases, the president would use a C-32, a modi ed Boeing 757, or a C-37B, an even smaller Gulfstream 550 business jet. The smaller planes do not have all of the bells and whistles of the larger 747.

With the new Air Force One project now moving along, the speculation can begin on who will be the president to christen it.

When it comes to an aircraft that will �y around the president of the United States, buying American really matters, experts and historians say.

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A Contractor’s Guide to the Pentagon’s 2016 BudgetDoD’s spending proposal would drive growth in several defense-industry sectors, but budget caps could slow weapon purchases.BY MARCUS WEISGERBER

From the outside, the Pentagon’s budget looks relatively similar that the plan the Defense Department laid out one year ago. But upon closer inspection, President Barack Obama’s budget request gives a glimpse into how the military will look decades from now.

Several new research-and-development projects could lead to multi-billion-dollar weapon programs, and defense  rms are paying close attention.

“This budget does show some priorities,” said Roman Schweizer, an analyst with Guggenheim Securities.

DOD is looking to the latter part of this decade as a time to get back to basics and invest for the future. For more than a decade of war, the military abandoned some of its high-end combat training and modernization to focus attention the counterinsurgency mission that in Afghanistan and Iraq. Now, defense leaders, primarily

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Deputy Defense Secretary Robert Work, have put an emphasis on innovation. Speci cally, the Pentagon’s budget proposal emphasizes high-speed strike weapons, advanced aircraft, railgun technology and lasers.

The future aircraft project looks beyond  ghter jets to all sorts of planes, according to Air Force Lt. Gen. Mark Ramsay, director of force structure, resources and assessment on the Joint Sta§.

“It really is the future of air dominance, how to dominate in air combat,” he said. “So there’s a whole host of things tucked underneath that that are all about driving and developing technology for 15 to 40 to 50 years down the road in the future. And, if we don’t do that today, we’re not going to stay ahead of our potential adversaries.”

Defense manufacturers pay the most attention to two key parts of the defense budget: procurement and research and development. When combined together, these are called the modernization accounts, meaning the money is used to buy new weapons and equipment. Collectively, these two co§ers include $177.5 billion, making up more than 33 percent of DOD’s $534 billion base spending request in 2016.

The Pentagon’s procurement request alone — money for new planes, ships, vehicles and drones — is up more than 15 percent in 2016 when compared to the current year.

Defense companies are closely watching an Air Force contest to build a new bomber, a project likely worth more than $40 billion. Northrop Grumman is competing against a Boeing-Lockheed Martin team. The Air Force is expected

to choose a winner later this year.

The Pentagon has asked Congress for $1.2 billion for the new bomber in 2016. The project is considered a franchise project for Boeing, which is also in the early stages of building new aerial tankers that can refuel military aircraft in�ight.

DOD continues to ramp up production of the Lockheed Martin F-35 Joint Strike Fighter, the aircraft at the center of the Pentagon’s future weapons plans, asking for 57 new jets to the tune of $10.6 billion.

Another $1.4 billion is requested for new nuclear-powered submarines that will carry intercontinental ballistic missiles.

The Pentagon also wants to boost spending on classi ed projects in 2016. The spending request includes $18.8 billion for these secretive e§orts, a 7 percent increase from 2015, according to data compiled by Byron Callan, an analyst with Capital Alpha Partners.

The looming factor that could slow these weapon plans is the return of federal budget caps, or sequestration. The Pentagon’s budget proposal exceeds those caps by $34 billion, weapons spending could see about a 7 percent cut across the board, experts say.

“Any program that is up 7 percent is going to be a winner,” Schweizer said. “Conversely, any program that was kind of cut going into this budget is kind of a loser.”

Funding across the major weapon categories, such as aircraft, shipbuilding, missiles, ground

It really is the future of air dominance, how to dominate in air combat. AIR FORCE LT. GEN. MARK RAMSAY, DIRECTOR OF FORCE STRUCTURE, RESOURCES AND ASSESSMENT ON THE JOINT STAFF

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vehicles and equipment and computer systems, is up 7 percent or higher in most cases, with space systems being the one area that showed spending levels �at, according to Callan’s data.

Pentagon Comptroller Mike McCord said, “The vast majority of the e§orts that we’re undertaking in this area (space) are highly classi ed. We’re going to struggle to explain them, I fear, other than to our committees behind closed doors, which we’ve already tried to start doing. I can say in general terms, we’re looking at resilience.”

The other factor that could slow new weapon purchases are unforeseen global con�icts. The pace of Iraq and Afghanistan’s large war operations

has slowed, but not to the levels anticipated. The spread of Islamic State militants throughout Iraq and Syria and the airstrikes to counter them, additional deployments to Europe to reassure allies in the wake of Russia’s invasion of Ukraine and humanitarian deployments to Western Africa to help contain the Ebola outbreak have all consumed money and led to the deployment of around 10,000 troops.

Defense  rms still want more certainty, and with the current budget proposal more than $34 billion in sequestration looming. If budget caps are lifted, it bodes well for all of the major defense  rms, analysts say.

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PATRICK TUCKER

Patrick Tucker is technology editor for Defense One. He’s also the author of The Naked Future: What Happens in a World That Anticipates Your Every Move? (Current, 2014). Previously, Tucker was deputy editor for The Futurist for nine years. Tucker has written about emerging technology in Slate, The Sun, MIT Technology Review, Wilson Quarterly, and elsewhere.

MARCUS WEISGERBER

Marcus Weisgerber is the global business reporter for Defense One, and writes about the intersection of business and national security. He has been covering defense and national security issues for nearly a decade, previously as Pentagon correspondent for Defense News and chief editor of Inside the Air Force. He has reported from Afghanistan, the Middle East, Europe, and Asia, and often travels with senior military o�cials.

TERRENCE GUAY

Terrence Guay is clinical professor of international business at the Smeal College of Business at Pennsylvania State University.

About the Authors