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The U.S. DoD 2012 Budget:What are the Spending Priorities?    Brad Curran, Industry Analyst      Aerospace and Defense    ...
Today’s Presenter               Brad Curran               Industry Analyst               Frost & Sullivan                 ...
Focus Points                                                                      Key Defense Budget Issues, Economic Impa...
Key Defense Budget Issues, Economic Impact•   6.6% decrease from 2011 request, but projected OCO requirements are overly  ...
Market Drivers and Restraints                                  U.S. DoD 2012 Budget: Market Drivers and Restraints (U.S.),...
Requirements and Purchasing Trends      Length of arrows indicate impact of the challenge Trends and Opportunities (U.S.),...
Funding by Category    U.S. Defense Budget Projection                                            U.S. O&M Budget          ...
Funding by Military Component         U.S. Army Budget                                     U.S. Air Force Budget          ...
DoD OCO Request - Program FundingThe $117.84 Billion OCO request remains flexiblewith more of the funding included in the ...
Industry Challenges                      U.S. DoD 2011 Budget: Impact of Top Industry Challenges (U.S.), 2010-2015     Len...
Poll Question•   What technology or service will be most in demand by DoD in 2012?•   Missile Defense•   Software Defined ...
Poll Question•   Will Congress and DoD make significant acquisition prioritization    decisions in 2012?•   Yes•   No•   *...
Market Attractiveness Grid                 Attractiveness: High     Medium      Low                                       ...
DoD Competitive Overview2010 $371.99 Billion in contracts                                                                 ...
Conclusions and RecommendationsU.S. defense procurement and services in areas such as medical services, helicopters, missi...
Next Steps Request a proposal for our Growth Partnership Services or Growth Consulting Services to support you and your te...
Your Feedback is Important to Us          What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive St...
Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare,and Twitter              http://www.facebook.com/FrostandSulliva...
For Additional InformationSarah Saatzer                Aaron KravetzCorporate Communications     Sales ManagerFrost & Sull...
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The U.S. DoD 2012 Budget: What are the Spending Priorities?

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An analysis provided by Brad Curran, aerospace analyst, Frost & Sullivan.

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Transcript of "The U.S. DoD 2012 Budget: What are the Spending Priorities?"

  1. 1. The U.S. DoD 2012 Budget:What are the Spending Priorities? Brad Curran, Industry Analyst Aerospace and Defense 21 April, 2011
  2. 2. Today’s Presenter Brad Curran Industry Analyst Frost & Sullivan 2
  3. 3. Focus Points Key Defense Budget Issues, Economic Impact Finding opportunity in 2012 and Beyond 2012 U.S. Defense Budget Drivers and Restraints, Requirements and Purchasing Trends Funding by Category and Military Component OCO Funding Industry Challenges, Market Attractiveness Competitive Overview Conclusions and Recommendations 3
  4. 4. Key Defense Budget Issues, Economic Impact• 6.6% decrease from 2011 request, but projected OCO requirements are overly optimistic• Base budget request maintain stability, 0.2% growth projected by DoD• Future Army and Marine Corps personnel reduction; expansion of Special Operations Forces• Need to repair, upgrade, replace worn out equipment understated• Ensuring medical care• Building alliances• Expanding C4ISR capabilities-emphasis shift to HUMINT and EO/IR/MS collection to PED• Reform acquisition business operations, use savings to reinvest• Economic Challenges, Federal Budget $3.7T, record deficits• Defense Budget is $670.90B or about 16.2% of the total• About 4.6% of GDP 4
  5. 5. Market Drivers and Restraints U.S. DoD 2012 Budget: Market Drivers and Restraints (U.S.), 2011-2016 HighDrivers Med Continuing combat Worn out equipment Both major political operations and Increasing use of and expanded ground parties seek continued nation building, COTS in all segments, force TO/TE’s drive high levels of defense SOF increases More European and growth spending APAC competitors Low Economic Challenges. Force structure Immature Defense must be on reductions planned. technologies and Low the table for major Reprogramming, and cost/scheduleRestraints decreases according current equipment overruns. DoD to the Bipartisan Debt requirements are all acquisition reform Panel negatively impacted may delay implementation of Med large projects High Note: Length of arrow indicates relative impact. Source: Frost & Sullivan 5
  6. 6. Requirements and Purchasing Trends Length of arrows indicate impact of the challenge Trends and Opportunities (U.S.), 2011-2016 U.S. DoD 2012 Budget: Low Medium HighRequirements All types of Human Intelligence capabilities, especially language and cultural expertise and training. Helicopters and pilots. Improved ground and sea mine detection and neutralization techniques and equipment including hand held devices Smaller, lighter, and lower power equipment of all types. Long lasting and reliable batteries. Lighter and stronger armor, hull and blast dispersion designs, and shock mitigation seats for vehicles of all types “Instilling a culture of savings,” at the Pentagon. Price matters now. The goal is to save at least $13.60 billion between 2012 and 2016 by cutting contractors, senior officials, and staffs. Save $178.00 billion through other “efficiencies” Consolidation of the defense intelligence community, and some logistics, maintenance, and public affairs organizations is expected. For serious future cuts RDT&E is the easiest politically and operationallyTrends To control costs due to expanding program requirements, engineering change orders to come from the highest DoD levels only. New Boeing KC-46A tanker will be the first test. Effort to balance costs with the danger of obsolescence if designs are frozen over the life-time of a program Note: Length of arrow indicates relative impact. Source: Frost & Sullivan 6
  7. 7. Funding by Category U.S. Defense Budget Projection U.S. O&M Budget O&M 2010 2011 2012 Admin & Srvwd Activities 60,706.4 56,973.3 62,178.4 Concept Obligations 30.5 181.3 19.2 Environmental Rst. 1.0 1,505.4 1,467.3 Foreign Security Support 10,491.5 10,194.4 13,263.4 Defense Health Program 1,968.3 964.1 1,296.2 Humanitarian Assistance 884.7 109.7 107.6 Mobilization 9,374.2 9,754.6 10,084.9 Operating Forces 166,702.9 172,098.5 162,317.9 Operation & Maintenance 28,720.7 29,866.1 32,428.8 Training and Recruiting 12,913.8 12,961.8 12,448.8 Total 291,794.0 294,609.2 295,612.5 CAGR -0.7% Source: Frost & Sullivan U.S. RDT&E Budget U.S. Procurement Budget The total procurement request for 2012 is $128.05 billion. The programmed procurement priorities are: Classified Programs, Virginia Class Submarines, F-35 JSF, MRAP Vehicles, F/A-18E/F Fighters, V-22 Osprey Aircraft, P8A Poseidon Aircraft, LPD-17/DDG-51/LHA Replacement, and LCS Ships, Evolved Expendable Launch Vehicles, UH-60M Blackhawk Helicopters, Aircraft Spares and Repair Parts, and Electronic Warfare Equipment Source: Frost & Sullivan Source: Frost & Sullivan 7
  8. 8. Funding by Military Component U.S. Army Budget U.S. Air Force Budget Source: Frost & Sullivan Source: Frost & Sullivan U.S. Navy/Marines Budget U.S. Joint Services Budget Source: Frost & Sullivan Source: Frost & Sullivan 8
  9. 9. DoD OCO Request - Program FundingThe $117.84 Billion OCO request remains flexiblewith more of the funding included in the basebudget. The emphasis is on:Personnel • Iraq-transition from military to civilian mission • 98,250 troops on average in AfghanistanOperations & Maintenance • Cost of operations and consumables • Reset damaged and destroyed equipmentProcurement • Continue to train/equip Iraqi and Afghan troops • Temporary Army end strength equipmentRDT&E • Counter IED/Force ProtectionRevolving Funds • Commanders Emergency Response Fund • Afghan Infrastructure Fund • Iraq Transition Assistance Note: $ Billion. All figures are rounded; the base year is 2011. Source: Frost & Sullivan
  10. 10. Industry Challenges U.S. DoD 2011 Budget: Impact of Top Industry Challenges (U.S.), 2010-2015 Length of arrows indicate impact of the challenge Low Medium High Changes to DoD auditing agency roles. Defense Contract Management Agency and Defense Contract Audit Agency have reduced staff and capability due to budget constraints. Some functions have become blurred, leading to late reports and and late contract awards DoD plans to eliminate more than 1,000 contractor jobs from 2012 to 2016, saving $6.0 billion. The Missile Defense Agency will have the most reductions in the near termChallenges Pressures and debate on the defense budget and operational capabilities. Congress and planners are starting to make difficult choices. DoD internal steps to streamline acquisition policy and procedures to save money. Realistic set requirements and shorter schedules to shorten development and field weapons faster Pentagon’s “Better Buying Power Initiative” puts greater emphasis on price. Price is now a priority in product and services negotiations. The impact of non traditional COTS suppliers is growing on both ad hoc and program of record applications Note: Length of arrow indicates relative impact Source: Frost & Sullivan
  11. 11. Poll Question• What technology or service will be most in demand by DoD in 2012?• Missile Defense• Software Defined Radio• Engineering Services• Tactical Ground Vehicles• Video processing, exploitation, and dissemination tools• *Turn off your pop-up blocker, so you can respond to the next polling question 11
  12. 12. Poll Question• Will Congress and DoD make significant acquisition prioritization decisions in 2012?• Yes• No• *Turn off your pop-up blocker, so you can respond to the next polling question 12
  13. 13. Market Attractiveness Grid Attractiveness: High Medium Low Most Attractive Segments Aircraft Healthcare C4ISR EW/IO ShipsAttractiveness Revenue Engineering Services Ground Vehicles Admin & Logistics Weapons & Ammo Training & Simulation Market Openness
  14. 14. DoD Competitive Overview2010 $371.99 Billion in contracts U.S. DoD 2012 Budget: Top 10 Contractors (U.S.), 2010• 1,563,216 transactions with 134,737 contractors Lockheed Martin $26.95• The top 10 had $119.1 billion or 32.0 percent of the awarded contract value in 2010 Boeing $17.95• Lockheed Martin is the market leader with a variety of products and services such as aircraft, radars, Northrop Grumman $14.30 simulation, integration services, missiles, and satellites Raytheon $14.26 U.S. DoD 2012 Budget: Top 5 Products or Services Sold (U.S.), 2010 General Dynamics $14.26Aircraft, Fixed Wing $15.16 Oshkosh $7.20Engineering and Technical $12.80Services L-3 Communications $6.90Logistics Support Services $11.66 United Technologies $6.50Fuels and Petroleum $11.28 BAE Systems $6.20Health Care Services $10.32 SAIC $4.80 Note: $ Billion. All figures are rounded; the base year is 2010. Source: Frost & Sullivan Note: $ Billion. All figures are rounded; the base year is 2010. Source: Frost & Sullivan
  15. 15. Conclusions and RecommendationsU.S. defense procurement and services in areas such as medical services, helicopters, missile defense, training,logistics, maintenance and C4ISR will expand through 2016. Army requirements for equipment reset are extremelyunderestimatedU.S. Defense budgets will remain stable through 2016. Worn out equipment will continue to support acquisition andservices spending, but expect fewer air and naval platforms. DoD is underestimating the continued need for OCOfunding that will be requiredThe trend towards “80%” COTS technology and service support solutions will accelerate along with pricesensitivity. This will allow more market participants, but there will be fewer “joint” contracts overall; resulting infurther consolidation by and among the large prime contractors and systems IntegratorsThe dominant defense firms will remain, though with increasing foreign competition and acquisition of mid-tiertechnology and service firms. European based companies will increasingly look to compete in the U.S. as theirdefense budgets shrink at a relatively fast rate. Global contractors will compete for partnerships and acquisitionsof small innovative firms that can quickly translate commercial success into military applications and market sharePartner with established prime contractors. They are always on the look-out for innovative technologies andservices that can save them internal development and management costs and help them meet contractrequirements on schedule and budget.Be relevant to ground and special operations forces. Products and services must meet stated operationalrequirements and enhance the counter insurgent/terror and nation building missions.
  16. 16. Next Steps Request a proposal for our Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. (myfrost@frost.com) 1-877-GoFrost (1-877-463-7678) Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth (www.gil-global.com) Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news)
  17. 17. Your Feedback is Important to Us What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive Structure?Emerging Trends?Strategic Recommendations? Please inform us by taking our survey.Other? 17
  18. 18. Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare,and Twitter http://www.facebook.com/FrostandSullivan http://www.linkedin.com/companies/4506 http://www.slideshare.net/FrostandSullivan http://twitter.com/frost_sullivan 18
  19. 19. For Additional InformationSarah Saatzer Aaron KravetzCorporate Communications Sales ManagerFrost & Sullivan Aerospace & Defense(210) 477-8427 (917) 202-3422sarah.saatzer@frost.com akravetz@frost.comWayne Plucker Tony VizzoneResearch Manager Sales ManagerAerospace & Defense Aerospace & Defense(210) 247-3869 (210) 477-8462wayne.plucker@frost.com avizzone@frost.com 19
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