The companies that build tracked combat vehicles for the U.S. Army are making impressive progress in developing next-generation weapons. BAE Systems, Inc., the U.S. arm of the huge British military contractor, is building a highly survivable combat vehicle designated CV90 that offers superior mobility in virtually any terrain, and is equipped with a versatile main gun that can defeat both armored systems and aircraft. General Dynamics has integrated an armored fighting vehicle dubbed Scout SV that offers best-in-class protection, mobility, lethality and reliability -- including the world's most advanced combat-vehicle electronics architecture.
There's only one problem: these vehicles were developed by foreign subsidiaries of the two companies. The U.S. Army has no plans to buy them. Instead, it plans to upgrade and adapt tracked systems that were first fielded during the Cold War, while foregoing plans to introduce next-generation tanks or troop carriers for many years. This spring, the service will announce it is indefinitely deferring development of a "future fighting vehicle," the latest in a series of failed efforts to field information-age tracked combat vehicles that cumulatively have consumed over $20 billion to produce almost nothing of value. The amount of money the service proposes to spend on procuring wheeled and tracked combat vehicles in 2016 is a mere $1.9 billion -- about four hours worth of federal spending at current rates.
(Disclosure: Most of the weapon systems mentioned here are or were made by companies contributing to my think tank; some of the companies are also consulting clients.)
If this meager level of outlays was unique to the vehicle segment of the Army's modernization portfolio, then perhaps some rebalancing would be in order. But it isn't. At a time when Pentagon policymakers are fretting about how foreign adversaries are closing the technology gap with America's military, the Army's modernization program has collapsed. The service says it is prioritizing investment in better rotorcraft, but its proposed 2016 budget for helicopters is only about $6 billion, less than the amount Americans spend on recreational drugs each month. Last year, for the third time in ten years, the Army canceled plans to develop a new reconnaissance helicopter, even though all the existing recon helicopters will be gone from the force in the near future. The new plan is to take aged Apache helicopters out of the National Guard and team them with drones -- a concept almost nobody likes that probably isn't affordable anyway.
As for the Army's plan to field a new generation of battlefield networks and "software reconfigurable" radios, that effort has been shifting and shrinking for the better part of a decade as service leaders keep rethinking what it is that they really want. The latest move was to eliminate the next increment in its "warfighter information network" -- another supposed top priority. And further trouble lies ahead: Chief of Staff Gen. Ray Odierno has warned that if his service doesn't get relief from budget caps contained in a 2011 deficit law, it will have to cease buying survivability upgrades to its wheeled troop carriers, curtail purchase of drones, and slow improvements of its Patriot air-defense system (it already killed the Patriot's planned replacement). InsideDefense.com cited the head of the Army Aviation Center in January as opining that without more money, "the entire Army aviation modernization portfolio would be affected."
The CV90 combat vehicle produced by BAE Systems is an exceptionally rugged, reliable system with... [+]
Army leaders know they are under-investing in new technology, but with the force shrinking by 20,000 active-duty soldiers each year, readiness eroding and spending capped, they have no way out of their dilemma. Key contractors, who at first took a wait-and-see attitude concerning how deficit-reduction measures would affect their business, are now beginning to vote with their feet by moving on to more appealing opportunities. The latest example is United Technologies, which signaled last week that it intends to sell or spin off its Sikorsky helicopter unit. The Army is still buying scores of Sikorsky's Black Hawk helicopters each year, but that effort is programmed to shrink considerably in future years.
United Technologies CEO Greg Hayes tried to put a positive spin on why it had become necessary for the two businesses to go their separate ways after 86 years together, but his bottom line was clear: there's little growth in doing business with the military for the rest of the decade, and profit margins are too thin to measure up to the demanding metrics he has set for the rest of the business. Since the Air Force is actually planning to ramp up purchases of Sikorsky helicopters in the years ahead and the Navy will be buying two different Sikorsky airframes, there isn't much question that Hayes was speaking mainly about the Army. It has been Sikorsky's biggest customer for many years, but now that relationship is waning.
Waning Army demand was also cited by a senior General Dynamics executive last year as a reason why his company was combining two pre-existing technology units into a single business. One of the units has been struggling to keep its tactical-communications business on track despite repeated changes in Army plans, but with demand looking unlikely to recover anytime soon, the company decided it was time to streamline the business. GD's 2014 results in general were a good-news story with operating margins and earnings both rising at double-digit rates, but revenues at the company's units that do the most business with the Army shrank, even as they rose significantly at units selling warships and business jets.
Shrinking Army demand also was a factor in the recently announced merger of Harris and Exelis (formerly ITT Defense), two companies that in the past have competed to sell radios to the Army. Exelis spun off much of its Army business last year in a new company called Vectrus. Having developed world-class competencies in Army-centric technologies such as tactical communications and night vision, its merger with Harris was shaped in part by the need of both companies to cope with the consequences of softening military demand.
These are just a few examples of the consolidation trend taking hold in the Army's supplier base. There are others. Oshkosh Corporation beat BAE Systems in a competition to build Army trucks, forcing the closure last year of BAE's truck plant in Texas, but now Oshkosh itself is reporting weak results due to the drop off in Army demand for wheeled vehicles. An Army report assessing conditions in the industry that produces transmissions for combat vehicles (also reported by InsideDefense.com) found the business to be "high-risk, critical and fragile." The report suggested that one of the three surviving companies in the field might exit the business.
When BreakingDefense.com deputy editor Sydney J. Freedberg recently questioned Secretary of the Army John McHugh about his service's faltering modernization efforts, McHugh mounted an impassioned defense of the service's struggles to put its technology investments on a sustainable basis. But the examples of progress he cited were a next-generation jeep that hasn't been awarded yet and an upgraded version of the Reagan-era Bradley fighting vehicle that will replace even older troop carriers. Both programs are badly needed to replace vehicles that lack adequate protection, but they don't evoke the kind of bold vision of future land warfare that once informed Army modernization. That has largely disappeared from Army plans for the rest of the decade, and now the suppliers who might have helped realize such a vision are themselves beginning to disappear.
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