AFA Policy Forum

Honorable F. Whitten Peters, 
Secretary of the Air Force
AFA Convention
Washington DC
September 13, 2000
Secretary of Air Force Luncheon (Media Availability)

Q: When will you complete the production cycle for the C-17?

Secretary Peters: My understanding is that some of the early pieces of the production cycle for the C-17 will, over the next year and a half begin finishing the current orders, which are booked out through 2003. We do not have a full 15 aircraft in 2003. People will actually, in the next year and a half or so, begin finishing production runs.

Obviously, we want to try to keep production at all levels of subcontracting running while we continue because there is no doubt in my mind that we are going to need some additional number of C-17s, plus I should say, a balance with C-5 modernization in my view. These are issues that can wait until the 2002 cycle, but they can’t wait any past the 2002 cycle. They have really got to be addressed.

Q: What about a strategic lift trust fund?

Secretary Peters: I think we are basically okay through 2001, but it is the 2002 cycle we’ve really got to look at this. If there is going to be a strategic lift trust fund, for example, we’ve got to really get that seriously funded. The difficulty is we are not running at the optimum production rate in 2003. The amount of money currently in the budget for 2003, it is as a unit cost with an assume buy of roughly 15 and we are not buying 15 so the unit costs are wrong.

We’ve got to decide what we are going to do with C-17 in order to avoid production breaks at lower levels of subcontracting. We are going to have to do that over the next a year. There is money in 2002 for the full program at this point. We are still on the multi-year through all of 2002 and that money is there.

Q: SATCOM issue. Any relief on this?

Secretary Peters: I think the answer is yes to some extent but we need to really get a better program for monitoring that.

The difficulty is that there is no really good coordination process. Looking at the assumptions we are all making about how we are going to do these smart decision-dominance type of things we are going to do. People aren’t required to log that into the books in terms of a bandwidth requirement or a spectrum requirement and we need to start doing that. This is not a problem instantly, but it is a problem down the road and as we look at things like Global Hawk, which are going to be requiring a lot of satellite communications for over-the-horizon operations, where you see a looming potential saturation or a very significant use of the existing networks that are on the books.

We need to make sure that as things like digital army are fielded, we need to make sure that people understand not only the dollar budget of those programs but the spectrum budget and the SATCOM budget. This is one of General Eberhart’s highest priority items as he and I have talked about the CINC Space’s needs, a somewhat chronic scarcity of satellite communications. We have been able to buy that. In Kosovo we would buy time. We do buy time from other federal government agencies now, but we need to address this problem over the next five to 10 years because the preferred solution was that we would turn to industry and it is not all clear to me that the industry solution is going to be there.

Q: Recapitalization question. How do you see the F-22 program progressing?

Secretary Peters: I see the F-22 funding as there. The testing is going reasonably well. We still need, in my view, to get what we call some flex language out of Capitol Hill to allow us to spend money on the production contract after the end of the year.

We are in an ironic position where at this point, if everything goes well, we will award that low-rate initial production contract in the last week of December of this year. Any significant slip that kicked that over into a period of time to perhaps the third week of January where they may be nobody here who really wants to sign that contract or can sign that contract.

What worries me really is that Congress will go home probably by mid-October and Congress will not reconvene to provide any relief probably until the end of February to early March. So there is a period of time where we could be out of funds prior to FY ‘01 and not have the authority to spend FY ‘01 production funds. So we have been working on Capitol Hill to try to get the ability to spend some of the FY ‘01 production funds to keep the program going until Congress and the new administration are able to actually deal with the program on its merits. We are having continuing discussions with the Hill about that. We’ve had it over a number of months and we will be continuing. But basically, the testing is going well. It looks like we are going to make, if everything stays on course and no more strikes, no more unforeseen, we will in fact get LRIP awarded at the end of the year.

Q: Is this in fact your last convention as the Air Force Secretary?

Secretary Peters: I said it may be, I didn’t say it would be. But it does seem unlikely given the fact that the next time one could do this would be next September and given my personal family situation, I suspect I will not be here

I started my sixth year in DoD on the weekend. I came to DoD expecting to stay for two years. That was the deal with my family. In the period I’ve been here, I’ve put two kids through college, one through graduate school and in most years the total of my compensation from DoD was exceeded by the college tuition I paid. That is inherently an unstable position to be in. I think in all likelihood I will be changing out for personal reasons toward the end of the administration.

Q: General Deptula discussed funding for JFX, etc. What is your take on this?

Secretary Peters: I think we need to start planning. Right now, if you look at the Air Force planning projection out through 2020, we really don’t have replacement programs on the books and what we think is a reasonable funding line.

Every year, we look at where we are, what the age of the aircraft are, how you lay in replacement programs and space programs as well – any kind of major modernization program. We look to see where are we today, what is the likely growth rate of our budget and how do these programs fill in? We are making guestimates of costs in 2018 and 2019 and 2020. Take it for what it is worth. It is an inexact science at best. But it is an important way to think about the future, since it takes 10 to 20 years to get a completely new aircraft up and running.

What we with the bomber road map is that the bomber force does not fall out of the sky to the point where we have an ineffective bomber force until 2037, if you are willing to fly with 80 year old B-52s. Similarly, the tanker force will start falling off dramatically in terms of age-related failures some time between 2020 and 2040 depending on the age of the aircraft and where it has been used.

What worries me is that if you look at program projection and this is also true of strategic lift, there aren’t any slices available within current budgetary assumptions-- even budgetary assumptions, that you can listen to candidates. Those slices are not there for critical assets like C-17.

Tankers: the difficulty there is actually more, I think, on the ISR side where we are using 707s/135 platform for both ISR and tankers. We have ISR programs on the books which would add a $150 million upgrade to an AWACS program to the point where it is about 50 years old. You have got to ask – do you really want to do that? Farmers logic suggests that is not necessarily the best approach, but you might want to put it on a new airplane rather than investing $150 million in a 60 year old airplane where the airplane itself it worth a small fraction of that.

Those are the kinds of issues we are talking about and trying to grapple with and obviously on the ISR platforms, they are kind of driving that because of the massive upgrades that may go on over the next several years if you are going to start upgrading ISR. The idea is always that we try to get to a common platform and 707 for most of the tankers and most of the ISR and we’ve looked at a number of other platforms for the replacement ISR aircraft to get additional gross take off weight and additional electrical power and those sorts of things. If you are going to do that, you would ideally have a standardized fleet for tankers as well.

These are the kinds of issues rolling around the QDR. It is not that we aren’t going to have the tankers immediately but what we are seeing on the 135 fleet are what appears to be an increasing mission incapable rate due to technical surprises. We’ve had stabilizer tram actuator breaks this year. On the C-5 we had a T-tail problem last year about 18 months ago. These are the kinds of problems which can put a whole fleet down or 200 aircraft down over night for a period of time and those are the kinds of worries we have. We think the basic structures will last quite long. You get to a point where you know the cost of maintaining the airplane is going up and you know that the reliability may be going down just because you don’t know what is going to happen. We are operating all of these aircrafts substantially beyond the point where we thought we’d be operating them and substantially beyond the point where we really have any good engineering data to predict what is going to happen.

Q: Do you expect maintenance costs to spiral with these aging planes?

Secretary Peters: Let me say this, if you look at the program depot maintenance on a 707 class aircraft over the last – we have about 40 years with experience on those aircraft – almost 50 on some of them. The number of man hours it takes to do a program depot maintenance has gone up two or three-fold in that period of time so the answer is yes, you can expect more cost to maintain them and at some point, they economic value may turn down well before the engineering durability turns down.

Q: What about medical costs?

Secretary Peters: I think that DoD like other major medical providers is looking at a very significant possibility of medical inflation. I think we took a one-time set of cost savings when we went to TRICARE where we took out the equivalent of Blue Cross-Blue Shield and made it an HMO. There are probably not huge amounts of additional efficiency savings to be had on the TRICARE side. In fact, to get service up to what we need, we probably need to go back somewhat the other way.

We are buying drugs as a large purchaser at lower prices but we are facing the same kind of medical inflation in general that the United States is facing. There are not a lot of other alternatives out there for significant cost-savings through efficiencies because we have reached most of those. That is a very significant risk item in the budgets in the out years.

Thank you very much for coming.