Aging aircraft, war costs weigh heavily in future budgets.

THE SENATE APPROPRIATIONS Committee staffer acknowledged the conundrum the Air Force is facing.

His boss, Sen. Ted Stevens, R-Alaska, "would like to see new platforms being brought on, and one way to bring on new platforms is being able to retire old platforms," said Mark Haaland, who spoke on the sidelines of the Strategic Space and Defense conference in Omaha, Neb.

As for fellow members of Congress who want to protect the jobs that accompany legacy systems, such as the B-52 Stratofortress, Stevens "is very respectful of other members of his committee," he added.

So will it be business as usual as the 2008 budget process gets underway?

"That's my guess," Haaland said.

Such predictions are not what Air Force budget officials want to hear. The service last year announced that it would cut 40,000 personnel, plus an additional 2,000 civilian jobs. It is also determined to recapitalize its aging aircraft fleet and maintain its technological edge. Meanwhile, requests to retire nearly 1,000 older aircraft have gone nowhere in Congress.

Something has to give.

Maj. Gen. Frank R. Faykes, Air Force deputy assistant secretary for budget, said the service's personnel costs have increased 51 percent during the past 10 years. Higher pay and added benefits have helped the Air Force close the so-called pay gap between itself and the private sector. "All those things are good, but all those things have put pressures on the budget by driving our personnel costs up," Faykes said at an Air Force Association conference in Washington. Skyrocketing medical costs have added to the personnel budget woes, he added.

And while fuel costs have decreased as of late, every $10 raise in the price of a barrel of oil costs the Air Force $600 million. The base realignment and closure (BRAC) process was expected to save the service $2.6 billion in 2008, Faykes said. But congressional actions that prevent the Air Force from closing as many installations at it wanted mean additional BRAC expenses of $1.8 billion in fiscal 2008.

A $2.1 billion reduction in the operations and maintenance account will average out to a $25 million cut to each Air Force base, he added.

And while supplementals to the budget to fund the wars in Iraq and Afghanistan are continuing, any movement to cut them off would be a disaster at this point, Faykes added.

"That's a nonstarter ... You won't be able to fight the war," he said.

Faykes said the Air Force is determined to continue to retire old aircraft. "We've got to push hard to retire all those weapon systems in the next couple years. The ones we're unable to do this year, we'll try again next year."

Haaland said, "It's really up to the Defense Department continue to explain the rationale for what they need to do and seek Congress' support."

Richard Aboulafia, an aerospace analyst with the Teal Group, said at the end of the day, the two sides are both getting what they want. Lawmakers are preserving the aircraft that translate into jobs in their districts, and the Air Force is getting what it wants--"fighters, fighters, fighters," he said.

The F-22 Raptor and the F-35 Joint Strike Fighter programs are on track--as is development of a new tanker, the KC-X, which won't require large amounts of funding until the out years.

"From the [Air Force] standpoint, they've done a good job of circling the wagons around their own priority programs," Aboulafia said.

As for the 42,000 positions eliminated, there was little opposition to the plan last year on Capitol Hill, he noted.

When Haaland was asked about the Air Force plans to cut its workforce, he shrugged his shoulders. "We realize that to recapitalize, the armed services have to look at all the options available to them," he said.

Faykes said the criticism he hears most on Capitol Hill is, "Air Force people just want new stuff.' It's not about new stuff. It's about the cost of maintaining. [It's about] utility and capability and whether they're relevant for the fight today."

The F-117 Nighthawk is a case in point, he said. At one time, it was dominant. Now enemy radar and warning systems have easier times spotting it.

It "no longer has military utility today, and therefore we want to retire that platform," Faykes said. On the flip side, the A-10 Warthog, designed for close-air support, is still useful, and while the aircraft are aging, there's no call for retirement. The Air Force will seek additional funds in 2008 to refurbish their engines, Faykes said.

He described the 2007 budget as a good start on the service's long road to recapitalizing the fleet, even though no major systems were retired. The budget included $1.4 billion to build 20 F-22s, $70 million to begin the process to build a new tanker and $16 million in seed money to initiate the joint cargo aircraft with the Army.

Funds to roll the first seven F-35 Joint Strike Fighters off the assembly lines were cut. Now there will be only two. Still, moving from development to production is a crucial milestone in the JSF program, Aboulafia noted.

Congress passed up the opportunity to save funds by developing one JSF engine by adding $170 million to continue development of a second.

Lawmakers also boosted the number of C17 Globemasters requested from seven to 10, to 10 to 12. The Air Force was not displeased, Faykes suggested. Because of the increased workload, the C-17 fleet is wearing out more quickly than anticipated. To reduce the exposure of soldiers in convoys to roadside bombs, the C-17 is doing more intra-theater lift. Frequent and short flights add more wear and tear to the aircraft.

Aboulafia said there might be a pause in C-17 acquisition in 2008 if exports take up the slack on the production line.

The Air Force has lost about 120 aircraft since 2001, Faykes said. Forty-six have been lost in Afghanistan and Iraq. The rest fell victim to training accidents. The office of the secretary of defense has decided not to replace these aircraft, he added.

The Air Force, meanwhile, has submitted a war-emergency funding request for fiscal year 2007 that could be as high as $50 billion, to cover operations costs, plus combat losses, repairs and modernization of the fleet.

In recent years, the Air Force has received $2.5 billion a year in supplemental funds to cover fuel and other war-related expenses, but that is not nearly enough replace aircraft lost in combat or to repair equipment, said Gen. Ronald Keys, head of the Air Force Air Combat Command. "The $50 billion is to recapitalize the force, to replace the airplanes we have lost in combat," Keys told reporters.

The Air Force spends $6 million to $7 million a day on the global war on terrorism, he said. Until the supplemental funds arrive at the end of the fiscal year, "I have to cash flow these operations from other operations in my budget," Keys said. "That has to be done carefully so you don't break those programs. Sometimes that adds costs."

Keys estimated that his command alone has $11 billion worth of "unfunded requirements" to upgrade aircraft with anti-missile defensive systems, advanced computers and radios. "As this force ages, you have more unscheduled maintenance. The cost per flying hour goes up," Keys said.

Whether the new Congress and defense secretary will agree to this unique request remains to be seen. Aboulafia said the 110th Congress may be eager to prove that it is strong on defense issues.

To make room in the budget for other priorities, the Teal Group predicts, the Air Force will attempt to kill the $6 billion E-10 MC2A (multi-sensor command and control aircraft) program, which is intended to succeed the airborne warning and control system (AWACS).

The program, still in its infancy with only one prototype funded so far, is not scheduled to deliver an aircraft until 2015. Congress already cut back funding in fiscal year 2005. Many of its capabilities already exist on other platforms, the Teal Group noted.

"Promising to leapfrog the E-10 concept by moving the mission to space-based assets would be a good excuse for an E-10 cancellation," the consultants said in program briefing report.

On the space side, Lt. Gen. Michael Hamel, commander of the space and missile systems center at Los Angeles Air Force Base, and program executive officer for space, said he anticipated growth in his sector.

Despite forces that may push the overall defense budget down, he told defense reporters in Washington that he's optimistic that space programs will be spared from major funding cuts.

"I think we're still likely to see increased space spending simply because the demands continue to grow," he said.

The third generation of the global positioning system, the transformational (communications) satellite, and space-based radar are all progressing. And unlike air-breathing platforms, space systems must be replenished.

In the long term, he predicted more funding for the neglected space defense sector--what he called "space situational awareness." That could be protecting satellites from hostile attacks or natural threats such as solar flares,

"We are taking a much more comprehensive look both at space situational awareness and how do we defend and ensure the availability of our space capabilities," Hamal said. "Our military is growing more dependent on space," he said. That gives the United States great advantages over adversaries, but it is also a great vulnerability if they should ever come under attack, he added.

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RELATED ARTICLE: Tanker procurement faces budget hurdles.

A REPLACEMENT FOR THE AIR FORCE'S aging air refueling tanker fleet has been tagged as the service's top procurement priority. If the program gets under way as planned, however, it will face fierce competition from other projects vying for Air Force funds.

A tanker procurement program--valued at $28 billion--would replace up to 500 KC-135 refueling aircraft, although the Air Force expects to buy 179 initially.

The Air Force is scheduled to launch an industry competition this month, and intends to award a contract to begin the development in late 2007. More than any other military procurement, the tanker program will be closely watched because of its troubled history. In 2002, the Air Force was about to enter a lease agreement with Boeing for up to 100 tankers when it came to light that a procurement official had negotiated an employment deal with Boeing in exchange for contract awards.

Starting in 2010, the Air Force will need to budget anywhere between $2.5 billion and $4 billion a year to buy up to 15 tankers annually. But that is contingent on whether the Air Force stops buying C-17 heavy cargo aircraft before 2010. "The C-17 has to die--from the Air Force budget--so that the tanker may live. It's a dollar for dollar tradeoff," said James A. McAleese, a defense industry analyst at McAleese & Associates.

"The tanker program can be sustained at $2 billion to $2.5 billion a year, which is what was being spent on the C-17," he said. "But it is unlikely that it will receive the $3 billion to $4 billion a year the Air Force says it will."

A contractor will be selected to begin the tanker development in fiscal 2008, but production would not start until 2010. At that point, the C-17 would have to be off the books. The Air Force still may acquire additional C-17s beyond 2010, but they would be funded by war-emergency dollars and would not crowd out tanker dollars.

The Air Force also may contemplate canceling aircraft upgrade programs for the C-5 and the C-130 cargo aircraft to pay for the new tanker, McAleese said.

Two industry teams--one led by Boeing and the other by Northrop Grumman--will be competing for the tanker award. Boeing will be proposing a tanker based on either its 767 or 777 commercial airliner. Northrop Grumman will be bidding a modified Airbus 330. Both will be equipping the jetliner with advanced air-refueling systems, anti-missile defenses and cargo handling equipment, so the tanker can serve both as an aerial refueler and as a conventional transport.

It is a highly anticipated competition not only because of the size of the program but also because of its global implications for international trade. While some insiders speculate that the U.S. government is unlikely to buy an Airbus tanker, others argue that the Air Force should be trusted to carry out a fair competition and to select a contractor based on its merits and ability to deliver the best product.

Despite senior-level support for the program, however, it may not be easy to get it funded in the timeline the Air Force wants. Even after the C-17 procurement ends, the Air Force still has to contend with other budget pressures, such as congressional efforts to increase the size of the Army and the Marine Corps, possibly at the expense of Air Force big-ticket programs. "It is unlikely that the incoming Congress will be as favorable to the Air Force as [former Defense Secretary] Donald Rumsfeld was," said McAleese.

For that reason, the Air Force should try to accelerate as many programs as possible into production before a new administration comes into office in 2009, he said. "The Air Force is in a race against time."

Lawrence Korb, a former Reagan administration official and a critic of the current White House, said these issues are symptomatic of a budget process that has been "out of control" under Rumsfeld. The incoming defense secretary, Robert Gates, "will have to make some tradeoffs and difficult decisions that will not go down well with military, industry and Congress," said Korb. Speaking about the Defense Department, he added, "The place has been on 'automatic pilot' when it comes to reshaping the force and making the tough choices."--SANDRA I. ERWIN