Conaton: Budget Pressure Necessitates Satellite Block Buys

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WASHINGTON — With the U.S. Congress pushing back on the Air Force’s proposal to start buying multiple satellites at a time using multiyear advance appropriations, a top service official reiterated the need to rein in the cost of space systems and stabilize the industrial base to prepare for the tough fiscal environment the military will face in the years ahead.

The Air Force’s budget for space programs likely will come under pressure from other Defense Department priorities, which means everyone will have to learn how to do more with less, Air Force Undersecretary Erin Conaton said at an event here hosted by the Space Foundation and Center for Strategic Space Studies.

The Air Force in its 2012 budget request is seeking permission to implement a new space acquisition strategy dubbed Evolutionary Acquisition for Space Efficiency (EASE). The concept is to buy satellites in blocks of two or more using fixed-price contracts for programs that have reached maturity. In parallel, the Air Force and its industry partners would continue to develop new technologies that could be inserted into later satellites, thus preserving a highly skilled industrial base.

The designated test case for EASE is the fifth and sixth Advanced Extremely High Frequency (AEHF) secure communications satellites built by Lockheed Martin Space Systems of Sunnyvale, Calif.

The Air Force requested $552.8 million in 2012 as a down payment for the two satellites, which would be funded incrementally for the next several years. The service asked lawmakers to approve several years of advance appropriations for AEHF, which would lock in funding for the procurement. In the 2013 budget request, the Air Force said it will pursue a similar block buy for the fifth and sixth Space Based Infrared System missile warning satellites, also built by Lockheed Martin.

Three of the four congressional defense committees have considered the AEHF block buy proposal. The House and Senate Armed Services committees, which authorize appropriations for the Pentagon, supported the concept of the AEHF block buy and recommended fully funding the procurement request for 2012. Both committees were willing to allow the satellites to be funded over multiple years, but neither was willing to authorize a specific appropriation level for the next few years.

The House Appropriations Committee, meanwhile, was critical, saying information provided by the Air Force on the strategy was “woefully lacking” and characterizing the advance appropriations idea as a “budgetary gimmick.” Nevertheless, the committee’s bill would provide the requested amount of AEHF procurement funding for 2012, though it would trim $67.2 million from the program’s proposed $421.7 million research and development budget. Senate appropriators have not yet marked up their version of the 2012 defense spending bill.

Though the Air Force could probably work within the parameters laid out by the three committees, the AEHF program would have more certainty if advance appropriations are provided, Conaton said. She acknowledged that the Air Force had not done an adequate job of detailing how it would spend the AEHF technology development funding, and it would soon be able to provide the committees with more insight.

Joanne Maguire, executive vice president of Lockheed Martin Space Systems, said block buys of satellites have the potential to save 15 to 20 percent compared to buying satellites individually, and in a period when the Defense Department is recapitalizing all of its satellite fleets, cost reduction has become a top priority for the government and for her company. The EASE strategy would create a more steady production rhythm, shoring up prospects for second- and third-tier component suppliers that might exit the market if production breaks stretch out too long.

“Concepts like EASE can make a difference, but only if the government is all in,” Maguire said.

The Defense Department’s increasing interest in modifying its approach to space acquisition is not driven by the desire to rein in corporate profits; rather it is about “doing more without more,” said Gil Klinger, deputy assistant secretary of defense for space and intelligence within the office of the undersecretary of defense for acquisition, technology and logistics. The single largest determinant for space programs will be the overall defense budget and whether it stays flat or declines, Klinger said. Even in a stable budget environment, reductions to spending on space programs are likely.

“The systems we’re building are too expensive, and not by a little,” Klinger said. “We are going to have to find ways we can do things differently in this business. We are going to use block buys when it makes sense. … We are going to use competition where and when it makes sense, and fixed-price contracting when it makes sense.”

 

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