Outcry Over Navy Order Confusion: Evidence of Budget Pains?

Lockheed Martin

On October 17, the United States Navy posted what is known as a pre-solicitation notice for up to 36 more Boeing (NYSE:BA) F/A-18 fighter jets or EA-18G electronic attack planes on a federal procurement website — FedBizOpps.gov — only to issue a cancellation shortly thereafter on October 31. The initial posting took the defense industry by surprise because the Navy had previously explained that its future budget planned for a switch to the radar-evading F-35, built by Lockheed Martin (NYSE:LMT), in coming years, meaning no additional F/A-18 fighter jets would be purchased after fiscal 2014 and production of the plane is slated to end in 2016. Officials in the Department of Defense’s F-35 program office were also taken aback.

In short, the posting was made “erroneously,” according to Vice Admiral David Dunaway, commander of Naval Air Systems Command, who issued a statement to BreakingDefense.com after the Navy canceled the notice. “We took immediate actions and retracted the solicitation,” added the admiral, who oversees the Navy’s aviation programs. But Dunaway did not address the Navy’s position on the F-35 program. Still, the cancellation of the pre-solicitation notice, which is meant to identify the criteria that will be used in evaluating bids, generating renewed concern in the defense industry regarding the Navy’s commitment to the struggling, $392-billion F-35 program — the Pentagon’s largest weapons program.

As for Boeing, the company has argued that, “This country should have more than one fighter manufacturer, but the truth of the matter is we can’t afford to have two fighter lines,” a United States official told Reuters last week, speaking anonymously. Revenue at its defense unit edged up a mere 3 percent in the past quarter while margins and contracted and profit fell, and Boeing is eager to sell the Navy and U.S. allies more F/A-18s to extend the life of its production line.

The jet manufacturer and its congressional lobbyists have pushed for several years to sell the Navy additional F/A-18E/F Super Hornets, which are used on aircraft carriers, or EA-18G Growlers, in the event that the more capable, carrier variant of Lockheed’s F-35 fighter jet is plagued by further delays or technical challenges. Of the three versions being manufactured by Lockheed, the carrier variant — or C-model of the jet — is the furthest behind in development. “There is a desire at pretty significant levels in the Navy to keep the Super Hornet line alive,” an anonymous source told Reuters last week.

Rather than spur concerns that the F-35 was behind schedule, the notice was meant to ensure that a “proper acquisition process” if more orders were made by the United States government or its allies, according to Navy officials. But, as there is no U.S. or foreign military sales requirement for the Boeing jets in fiscal 2015, the Navy decided to cancel the notice, a Navy official familiar with the incident told Reuters. “There is no program of record and no budget for the procurement of additional aircraft,” said the official. “The original notice was posted in error.

The Navy will be the last branch of the United States military to put the C-model into service in 2019, and if the Navy did decide to postpone its purchases of the F-35 in favor of the Boeing fighter jets, Pentagon, and F-35 program officials warned that move would increase the cost of the remaining planes to be bought by the Air Force, Marine Corps, and U.S. allies. Eight partner countries — Britain, Canada, Turkey, Italy, Norway, Australia, Denmark and the Netherlands — plus Israel and Japan — have also placed orders for the F-35.

In fact, one industry source told Reuters that the Navy’s cancellation notice was made at the behest of Pentagon officials in order to “protect the F-35 at all cost out of fear of international partners walking away from their commitments.” It is the Marine Corps that is in most need of new aircraft; its aging fleet was scheduled to be replaced by new F-35 B-models, which can land like helicopters, in mid-2015, and the Air Force was to follow a year later. Comparatively, the Navy has a relatively young fleet, strengthened by recent purchases of Boeing F/A-18E/F Super Hornets and EA-18G Growlers.

The F-35 purchases could be delayed if Congress does not revoke sequestration and the Pentagon’s budget is cut a further 10 percent in fiscal 2015. On March 1, automatic spending cuts to United States federal government spending, known as sequestration, began, reducing the U.S. military’s budget by $37 billion and forcing the Department of Defense to make difficult decisions as to how that money was spent.

As part of the budget deal that ended the government shutdown earlier this month, Congress passed a continuing appropriations resolution that kept funding for federal programs at existing levels, meaning Pentagon spending will remain at an annualized level of $496 billion in the 2014 fiscal year, which began on October 1. That level is about $31 billion below the amount requested by President Barack Obama, but it is $21 billion above the caps set in place by the Budget Control Act of 2011 — the legislation that brought about sequestration. Therefore, the Pentagon will have to implement another across-the-board cut unless Congress inks a new spending deal that changes the law before mid-January. For officials in the Department of Defense, the confusion was “embarrassing.”

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