Foundation Forum

Lt. Gen. George K. Muellner
Deputy to Assistant Secretary of the Air Force (Acquisition)
AFA Orlando Air Warfare Symposium
January 31, 1997

Air Force Modernization & Acquisition Reform

I can tell you that coming last is a formidable task. The good news, however, is that my task is to talk about our modernization programs. Our modernization programs are what the future is all about in warfighting capability and certainly for all the young men and women standing around the outside of this room, these are the weapons systems they are going to be bringing into combat for the next 50 years. I am very happy to have the opportunity to talk to you about some of the relevant issues happening in the acquisition business and also where we are trying to go in the future.

I am going to talk about three or four issues and then I will try to leave time for questions so we can get down to the individual systems that you might be interested in. First, I am going to tell you where we, in the Air Force acquisition business, see ourselves going in the future and trying to shape that future and I will describe our vision. I'll give you an update on some of our key modernization efforts and try to describe how they are faring in Washington. I'll talk to you about a really good news story, the gains we are achieving out of acquisition reform and streamlining. This really has been a success story and it is paying off in real dollars, not just promises. Finally, we've got a lot of challenges ahead of us and I'll try to describe those.

Last year when I had the opportunity to address you, I talked about how we've always produced effective weapon systems. We have not necessarily done so in a very efficient manner. Effective means different things to different people. Today we talk about highly mobile, deployable, flexible and most important, technically superior weapon systems. Clearly that is still our focus. But our attempt is make those more affordable and the process that creates them more efficient. So we put more rubber on the ramp, more warfighting capability on the launch pad for the dollars we spend in acquisition and procurement.

You've heard the phrase "faster, better and cheaper." We understand that. Cheaper doesn't necessarily mean the lowest cost. It means the most bang for the buck; and the most affordable solution. But we have added one concept, smoother development activities. Program stability is one of the real problems our development programs have had over the years. Even some of our current ones still experience instability caused by our own dabbling in the budgets, or caused by help in working the budget by OSD and sometimes the Hill. As a result, when we take a dollar out in the short term, we end up putting three or four dollars back in the long-term to fix that problem. We are trying to emphasize that problem, and I might add, so is Dr. Kaminski. One of his main charges is to work on program stability.

We have some specific goals. We want the support structure, not only the logistics support structure, but the entire acquisition and procurement support structure, to be much more agile. We can't have an 18-year acquisition cycle when the technology cycle for command and control areas is 18 months.

Second, we need to get rid of excess capacity in our infrastructure. I am talking about individual facilities, where we have too many test chambers or too many hardware in the loop facilities in some cases. We need to get rid of these operating costs.

Finally, I'll talk about "best value." We need to treat the support activities like a business. The Cold War era is gone. There is no longer a need to push huge amounts of supplies and maintain a huge stock pile in inventory. Those days are gone and we need to move beyond that to a more businesslike focus such as just-in-time delivery. They must become a part of our jargon as they have in the business community.

There are some key attributes that we are trying to pursue as we move into this future world. First, we already outsource a great deal of our science and technology. While we orchestrate and prioritize the program, most of our research activities are done either by industry or academia. You are going to see increased effort in this part. We are up around 75 or 80 percent right now. We need to keep those core areas so we can remain smart buyers, but the intent is to get that out into industry and academia so we can facilitate transitions into actual weapon system designs.

Secondly, we found great benefit in working directly with the warfighter and the contractor on the front end of the process. I had the opportunity to start up the Joint Strike Fighter, formerly the JAST program. From the very beginning we had warfighters in the room with contractors and our developers. As a result, there is a clear understanding on the warfighters' part of the cost of a requirement so they can make educated decisions as to what is really need on the battlefield, instead of making a decision and then five years later getting sticker shock over the cost of a particular requirement.

We are trying to make a lot of improvements in our modeling and simulation capability. We must get a lot better at being able to understand the impacts of not only putting air power and space power on the battlefield, but also making the tradeoffs within the capabilities of those individual air and space elements. We are getting better at it, but we need a lot more help from industry. We need a lot more help from some of the other communities that are working simulation.

Finally, we need to maximize competition throughout development and production activities. Clearly, competition still remains the primary element to drive down cost. We must make more effort to maintain competition in one form or another throughout the lifecycle of a program. That is the only way we are going to maintain efficiency in maintaining that weapon system effectiveness.

We are doing a lot better at reducing the size of our development infrastructure. We are going from 600-person program offices to a sustained program office size of about 50 people and a development program of maybe two to three times that. That is a far different organization, with far different responsibilities, than we had in earlier days when we had in some cases well over 600 people. That means more responsibility is passed on to the prime contractor, and that will be passed on in the form of performance-based specifications. Those specification say what it is we want to buy and then let the contractor decide how to make it and how to bring that into being.

We found that our integrated weapon systems managers [IWSM] need to have full accountability and responsibility for executing the lifecycle sustainment of their weapon systems. We have not done a good job in this area before. In particular, AFMC has a great deal of emphasis on this right now.

Finally, we emphasize best value procurement. This means the IWSM needs to be able to go out when it is time for sustainment decisions, and assess where the best source is of that product or service and make that decision based upon economic elements. Right now, we have difficulty doing that because of accounting issues and because of not really understanding the requirement from a performance standpoint.

I'm sure General Viccellio talked about lean logistics _ we are using autonomic logistics. Autonomic is like breathing. You don't consciously think about. It doesn't take conscious action to make it happen and yet most of us continue breathing. That is what we want logistics to be to the warfighter. We want that sustainment function, that operation and the support, to be a minimum forward-tail and to occur without a lot of mandatory action. If you look at the way the triple seven is supported right now, it is done autonomically. Data bursts send back failures, parts are ordered, those parts are delivered to the right point for installation _ all without much human intervention. That is exactly what we would like to provide to our warfighters.

Let me quickly give you an update of some of our key weapon systems and where we are. The Air Force has worked very hard to develop a time-phased and balanced modernization program. It is time-phased to fit under our budget authority, and what we expect that to be.

It is time-phased because weapon systems have lifecycles associated with them. We have phased those things so we can retain a fairly constant level of budget requirement. These are the time-phasings. I will describe a few of these and show how we are doing in each area.

I would like to point out one thing. Sourcing of additional modernization funds is a big item of discussion in the newspaper and certainly a big item of discussion in Washington. They have said we need an additional $60 billion for modernization across the Services. Right now we are down in the low 40s. Clearly there is another 15 to 20 billion dollars required. Given a constant or diminishing top line, "where do you get that from?" The answer is "from those items listed on that chart, from acquisition reform, from reducing our ops and support costs, and from savings that we are now, finally, getting from our base closures." Hopefully, we're moving in that direction from our outsourcing and privatization activities. Then the other key part is getting rid of that $100 billion in inventory. We made progress there. We are down to something in the order of $70 billion, but clearly there is probably another $15-20 billion that can come out of our inventory stock piles to further facilitate modernization.

The first area is global reach. Obviously the mainstay of that right now is the C-17 program. The program is in a multi-year procurement. Approved by the Hill, it has significantly lowered the cost of those airplanes and I am happy to say aircraft P-30, the 30th production airplane, is due out in the next couple of days. It will go to Charleston. The airplane is performing extremely well in the fleet. There is now commercial and some international interest in this airplane. The program has turned into a real success story after a very rocky start.

In the tactical airlift area, we have low-rate production on the C-130J _ two a year for the next few years. That is mostly to replace our special use air frames like the WC-130s, the ABCCCs [Airborne Battlefield Command and Control Center] and some of the other EC versions of that airplane.

Clearly our number one development priority remains the F-22. This is going to be a big year for the F-22. We ought to have roll out sometime in the early part of April and first flight during the last week in May. By the summer timeframe, the F-22 ought to be out flying during EMD [Engineering and Manufacturing Design]. We are ahead of schedule for the first flight. The airplane has come together well. It has power on it down at Marietta. The first flight software has been flown in the F-16 Vista airplane. Paul Metz and the other test pilots are very comfortable with the software configuration. We've had some challenges this year in the economics of it due to adding about another billion and a half dollars to the development program because of some technology areas we encountered in the avionics and also some of the assembly. But I think we are on a good track, and more important, we are on a track that will control the production unit cost. We are indeed going to have an affordable airplane.

The other key system in this area is the airborne laser. Boeing won a downselect competition this year. That technology has really come into its own _ the adaptive optics, and the laser power. By just past the turn of the century, we are very confident we will have demonstrated in a flying platform the capability to deal with ballistic missiles. The real issue now is to try to cram all that technology into a 747-400 and get it to perform. But it is an engineering task, not a technology issue.

Another good news story on this chart is that the Chief continually harasses us because we only have the fourth or fifth best air-to-air IR missile in the world. We are on a good track to have the best IR missile with the AIM-9X. That competition was won by Hughes and not only did they come in with a very good offer that lowered the cost dramatically, but it also accelerated the schedule. That missile and the helmet-mounted queuing systems will be on our airplanes about the turn of the century.

In the air-to-ground or precision employment area, the Joint Strike Fighter downselect was won by Boeing and Lockheed Martin. They are now going into a concept demonstration phase. I can tell you that the affordability message really came home and was well demonstrated in all three responses to our RFP. In particular, these two showed us that they can build a technologically superior weapon system and still make it affordable.

The other key part of our precision employment is in the modernization of the conventional side of the bomber force. We have Block 20 B-2s in the field right now with the capability to deliver the GPS-aided munitions [GAM] with a differential GPS accuracy. We've had great success in demonstrating that accuracy in tests out at the Nellis range complex [Nev.]. We've got airplanes that can deliver from high altitude and standoff distances with less than 10-meter accuracy using 16 bombs against 16 different targets. That is a capability that our forefathers would have liked to have had.

On the weapons side, we've had a lot of success in bringing on board commercial content to drive down the cost of our weapons. Last year I talked to you about the success Terry Little has had in JDAM [Joint Direct Attack Munition], taking something that was supposed to cost $40,000 a round and bringing it down to $14,000 a round. McDonnell Douglas won that contract and they are well into the execution for the program. The test results say we are going to significantly better the accuracy than we expected of that weapon.

Just recently we had a competition for the Wind Corrected Munition Dispenser that was won by Lockheed Martin. Instead of the WCMD costing $25,000 a round, it is now going to cost less than $9,000. These are significant savings in the employment of advanced capability. Now we have the ability to delivery cluster bomb units from high altitudes with pinpoint accuracy without worrying about winds and the other things that produce errors in the delivery of these weapons. Terry Little is now managing the JASSM, which is our Joint Air-to-Surface Standoff Missile program and we expect to see the same sort of savings in that competition, which is between Lockheed Martin and McDonnell Douglas.

In the information dominance area, Joint STARS [Joint Surveillance and Target Attack Radar System] returned from Joint Endeavor and did absolutely outstanding over there. It is in production now. We have two production airplanes on the ramp at Robins [AFB, Ga.] and they are coming off the production line down at Melbourne [Fla.] at a pretty good rate.

I can tell you that UAVs [Unmanned Aerial Vehicles] have become a big item of issue with the Air Force. We are spending a lot of time focused on both Global Hawk and Dark Star which will resume flying after some initial deficiencies. More important, as we speak, Predator is operational at Taszar, when the weather permits. It is also operational at Indian Springs [Nev.], where Air Combat Command is doing their training. UAVs have become a real active part of our warfighting capability.

Let me talk quickly about the space programs. We have two big problems in this area. One is the Space-Based Infrared Systems program. That contract for SBIRS-High was won by Lockheed Martin this year. That will produce a replacement to the Defense Support Program. They give us our I&W and threat warning capability. The SBIRS-Low program, which is also called the Space and Missile Tracking System is still in the developmental stage, but that program was accelerated as a result of budget activity this past fall. As a result, that will now be fielded in 2004 rather than '06. It is primarily a support element for national missile defense, but also very important for theater missile defense.

The other key development program for space is the Evolved Expendable Launch Vehicle. We have a competition between Lockheed Martin and McDonnell Douglas. Both have brought in designs that demonstrate radically reduced costs for putting things in orbit, not only in low-earth orbit, but also up to geo-orbit. So, both the medium and the heavy lift capabilities are going to dramatically drive down the costs of getting payloads into orbit.

Everything came together over the last couple years for acquisition reform. Dr. William J. Perry [former SECDEF] has been talking about this for 25 years and Paul Kaminski religiously believes in it and continues to push it very hard. As Victor Hugo said, "An invasion of armies can be resisted, but not an idea whose time has come." The time is here to do it. I encourage those of you who represent industry to continue to milk that idea. You are doing a great job, but you need to keep pressing it. Sometimes we fall back into our old ways. Fortunately, we have program managers like Terry Little and some of the others who give us wake up calls.

The key parts of AQ reform are really working well. We are seeing reduced cycle times; and we are seeing much lower costs. We are seeing smaller staffs necessary to generate those programs, to manage them, and to have oversight. We are seeing contractors accepting more responsibility for their performance.

We are using that money and often plowing it back into modernization. It is not all going into modernization. Unfortunately, some of it is going to pay contingency bills and some other things. If we are going to robust the modernization budgets like we believe are needed, we are going to have to fix some of our other ways of paying for things like deployments to Bosnia.

To date, the Air Force has either saved over $17 billion or avoided costs of existing programs by introducing reform _ getting rid of mil specs, getting rid of standards, getting rid of contract deliverables, and reducing the size of staffs. That is $17 billion that is going to pay other bills. That is an important message.

You've seen some of the numbers. As mentioned earlier, for the Wind-corrected Munition Dispenser, we have moved from $25,000 down to less than $9,000 per copy. That is a dramatic cost reduction effort, and I commend the contractors who participated in that competition.

We still have many initiatives on the table. There are a lot of financial stability initiatives that we are working with OSD. Most of these have to do with providing adequate management reserve to our program managers so they can deal with technical uncertainties.

Cycle time still needs a lot of work, especially in the avionics and electronics area. Ron Kadish, who commands the Electronics Systems Center at Hanscom [AFB, Mass.] has an 18-month challenge to his folks. In some of the initial systems they've fielded, they are coming close to where they can routinely generate an 18-month cycle in getting hardware out the door.

We've significantly reduced the policy we put out. All center-level policies at our product and logistics centers are gone. It is significantly making the job of our program managers easier. We are working hard reducing the cycle time associated with contracting. We still have our RFP source teams out looking for answers. Our main challenge still remains effectively using past performance and assessing past performance, especially with multiple services involved with the process. The Air Force is the only one right now that has an established past performance rating scheme.

Finally, I'd like to thank the AFA for their support in the area of acquisition training. AFA has been the leader in making that happen in partnership with industry. We really thank you.

There are a few challenges. The process is still complex. I spent four days, as has a large part of our staff, trying to get money that was appropriated and authorized for F-15 acquisition released for expenditure. We still have too many people in the game so the process still needs a lot of work.

We are not moving as fast as we think we should in using more commercial content in our systems. Joint STARS is a perfect example where they brought in commercial work stations and dramatically drove down the cost and the weight of the systems on the airplane.

Expanding the use of past performance is a challenge, and outsourcing and privatization is a challenge. The challenge is not only to do it, which is what we are facing right now, but actually to save money as a result of doing it. General Boles has been very successful in AETC in doing that with their A-76 activities. But clearly in the case of our depots, the jury is still out on recognizing those savings.

Finally, and I know this is a big issue with a lot of contractors, we have got to improve our contracting and payment process. There is still too long a lag between when a bill is submitted and when they actually see payment. We are working hard to clean that up.

We have a couple of near-term issues. Year 2000 software is a big issue. It is not a big issue from the standpoint of cost, But every one of our program managers who has computer resources is actively taking this on. Since we have been aggressive about it, we are going to do it without any major perturbations in our programs, but indeed there is some cost associated with fixing that problem.

For those of you who are not familiar with GCCS [Global Command and Control System], this is what has become the new defense information infrastructure. It comes out of DISA [Defense Information Systems Agency]. The Air Force is absolutely committed to making that the backbone of all of our command and control systems, all of our information systems and also moving that into our weapon systems. You are going to see a lot of emphasis on our part in making that happen.

I talked to program stability as being one of our major challenges and we are going to continue to press that. Information protection is also a near-term challenge. The Air Force home page was invaded here a couple of months ago. We've had other attempted incursions and fortunately we are pretty far in front of this, but that is an increasing challenge, not only in our information systems, but also in our weapon systems. We are trying to work that hard.

Let me give a final wrap up and then I'll try to address any questions you might have. I think the "better, faster, cheaper" is working. We still have to get better stability to the process. We are fortunately seeing the payoff for those things in money and warfighters having equipment sooner. As a result of those elements, we have been reasonably successful at keeping our key modernization programs on track.

The first flight of our F-22 is going to carry the Air Force as an air and space power into the next century. We are on pretty solid ground.

General Shaud: We thank you. We had two things happen which indicate the success of your presentation. If the number of questions is some kind of metric, you win. Many have also requested a copy of your briefing. A transcript will be published by AEF and let us know if you want that. The first question concerns one area that seems to show promise in the acquisition reform arena _ leasing under commercial terms and conditions. In fact, the majority of the world's leading aerospace companies today tend toward leasing, rather than buying. Do you see similar leasing opportunities for the Air Force?

Lt. Gen. Muellner: Absolutely. There are some unique challenges we face in dealing with termination liability, which we still have to work our way through and understand. There are also some unique challenges with compensation for loss of a leased asset. For instance, one of the leasing operations we are looking at right now is to reengine the B-52s and move from their current eight TF33 engines to four newer generation engines. There are considerable cost advantages and significant performance advantages, but the termination liability is a major challenge. We had planned to lease our VC-X airplanes, the Boeing 757s, to reinforce our airlift force out at the 89th Airlift Wing at Andrews [AFB, Md.]. Unfortunately, when we got into the termination liability issues with doing that, it turned out to be much more economical just to buy them outright and we ended up adding additional money to do that.

One area where leasing is going to be come very relevant is for training. Some of you may have heard of or participated in the simulation day that General Hawley held down at ACC recently. We see nothing at all that would stand in the way of us leasing, or better yet having commercial service for, that training just as General Boles does for our fighter squadrons. We are trying to push that area a lot harder, not only the leasing side of it, but buying it as a commercial service.

General Shaud: What steps are being taken to better define best value to help reduce the number of industry protests?

Lt. Gen. Muellner: Two things are happening there. One is that best value, the way it is always put on the chart rather, is most "utils" for the dollar. I never understood what utils were until somebody at Wright-Patterson AFB [Ohio] explained to me _ it is the most "utility to the government" for the dollar. It really says that once you get over the threshold of performance that the user has to have, then the extra utility or value added for their offer is compared against the dollars it costs to get it. We've had three different industry sessions totally focused on identifying best value in terms that are readily understandable by both the government and the supplier/offerer. Prior to starting a source selection and prior to getting a proposal, we sit down with the suppliers and try come to a common understanding of what it is all about.

General Shaud: As the final question, what factors will determine when the F-22 is released for foreign military sales?

Lt. Gen. Muellner: The absolute answer is that it will be determined by two things. One, we have a Defense Department policy that says we will not release a system until it has actually gone through IOT&E and been certified for release by the U.S. forces. That doesn't mean we can't talk about. That means it just can't be released for sale until that point.

Also, because of the technologies that are involved in a program and the classification of some of them, we have an executive committee that is co-chaired by General Ralston and by Dr. Kaminski that needs to determine the release schedule for those technologies and what sort of caveats and protection has to be involved. We have started that process already. I have no doubt that the F-22 will be released and in fact we have some limited ability to do that now. But absolute release authority can't occur until after IOT&E certification.

General Shaud: Thank you so much. When you woke up this morning, you may not have considered heading for Orlando, but that happened. You just did a great job for us.

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