SENIOR DEFENSE OFFICIAL:  So, first of all, pleasure to be with all of you today.  As you know, this is -- this is a big day for our budget.  And Secretary Hagel is about to roll out the most significant recommendations of this budget submission, and we do see this as a very consequential budget.  And the reason for that is, first of all, the recommendations in this budget are going to take us from 13 years of war to focus on our future strategic challenges and opportunities.  We also think this budget reflects the unique realities of both the fiscal and strategic environments we're in today and that we're likely to face in the coming years. 

 

It is a strategy-informed budget.  It is in keeping with the president's defense strategic guidance of 2012.  And our recommendations, because they will define our defense institutions for years to come, is also aligned with our upcoming QDR [Quadrennial Defense Review] that refreshes that defense strategic guidance for making clear a focus on defending the homeland, building security globally by projecting U.S. influence and deterring aggression, and remaining prepared to win decisively against any adversary should deterrence fail.

 

To do all that over the five years, this budget projects about $115 billion above the sequester-level funding.  These funding levels we think give us an opportunity to present both a pragmatic and responsible approach to protect readiness and modernization, while maintaining a force large enough to fulfill that defense strategy, though with some additional risk.

 

But since sequestration remains the law of the land, beginning in FY [fiscal year] '15, we will also present the steps that we must take under sequester-level funding.  With that funding, we see our forces being too small and out of balance with respect to readiness and modernization to be able to execute the president's defense strategy.

 

Finally, I want to just say that Secretary Hagel has built this budget based on a considerable amount of work, beginning as soon as he became secretary.  The budget builds upon the work of the Strategic Choices and Management Review.  As I said a minute ago, it incorporates work done for the QDR, all of the service program objective memorandum submissions and the work that the department did last fall reviewing all of those programming (off mic).

 

It's been done collaboratively throughout, with service and COCOM involvement.  And in most cases, Secretary Hagel accepted the recommendations of the services for his budget submissions.  

 

So those are my opening remarks.  With that, I'd like to turn it over to the (SENIOR MILITARY OFFICIAL)

 

SENIOR MILITARY OFFICIAL:  Okay, good morning, everybody.  And to build on (SENIOR DEFENSE OFFICIAL) remarks -- and I would like to add that it's been a great pleasure to work with her for the last 30 years -- amazing partnership here -- I want to begin by emphasizing that this is a strategy-driven budget.  The strategy is about balancing ends, ways and means.  

 

We've worked very, very hard to strike that balance over the last year, starting with the Strategic Choices and Management Review.  It's been a very difficult, but very collaborative process within the department.  The means outlined in the president's budget submission will allow us to maintain a military that continues to protect the ends of our current strategy, our national security interests, albeit with some additional risk.

 

However, we concluded that the means provided at the Budget Control Act, or BCA, level beyond 2015 will not allow us to fully protect those interests, regardless of how much we improve the ways that we do it.  And I think it then becomes clear that if we had a budget-driven strategy, we would have done this the other way around and, thus, what (SENIOR DEFENSE OFFICIAL) said about the $115 billion over the BCA applies to that.

 

The best word that we've been able to find to describe what we're trying to do with the ways associated with this budget submission is rebalance, and I want to emphasize very strongly and clearly that this is not just rebalancing to the Pacific.  It's more than that-- it involves rebalancing in nearly everything that we do.

 

First, we're going to rebalance the types of wars for which we prepare the joint force.  As you know, recently we've been mostly focused on a single type of war, and we need to restore our readiness for the full spectrum of potential conflict.  In so doing, we're going to continue to build innovative approaches to how we fight, in some cases extending what we've learned over the last 12 years of counterinsurgency into other types of fights.  We're also going to closely examine many of our operational plans to ensure they reflect how the world has changed, how warfighting has changed, and to include some of our most innovative thinking.  

 

Second, we'll continue to rebalance our posture around the globe.  We'll rebalance with permanent preposition and rotational presence with surge capability, and we'll continue to balance our emphasis that areas where our security interests are likely to be most threatened in the future.  And, of course, this does indeed continuing to place more emphasis on the Pacific while maintaining our emphasis on the volatile Middle East and growing challenges in Africa.

 

Third, we're going to rebalance the capability, capacity, and readiness of this force.  They are out of balance now, and it's going to grow worse if we don't take action.  Even at the president's budget level, we're going to have to begin reducing the size of our force while restoring its readiness and modernization.  This budget does that, even though it requires hard choices.

 

Fourth, we're going to very importantly rebalance our tooth-to-tail ratio.  This, of course, involves a different set of ways, and we're determined to continue our efforts to become more efficient, including the secretary's imperative of downsizing headquarters staffs.

 

Fifth, we're going to rebalance among the active, Guard and Reserve forces.  As you know, this is always difficult to do, but we've worked very hard to adjust within this budget.  The active force for the Army and the Air Force will come down in greater proportion than the Guard and the Reserve, but all of them are going to have to get smaller, and some of these capabilities will move around a bit.

 

Sixth, this budget also rebalances the trajectory of military compensation.  This is about investing prudently to maintain the highest quality all-volunteer force we can, while simultaneously getting the best value for the taxpayer and what we need to win decisively in combat.

 

Over the past decade, we've enjoyed a very high rate of growth of compensation that brought our force into and in some ways exceeded what is required to fulfill those two needs.  It's time now to adjust growth gradually in order to set and sustain the right level of compensation for our wonderful men and women in uniform.

 

I want to make a point that nobody's take-home pay is going to go down under this plan, and that we are not closing commissaries.  There's plenty of room for innovation in all of these areas.  As we rebalance this force, as we mentioned before, we're going to be assuming a little more risk, so you would expect that with a smaller military and a smaller budget, but we believe we can mitigate this risk through two of the most important advantages we have always enjoyed as a force, namely, our great all-volunteer men and women in our force and our ability to think creatively across every discipline of what we do inside the department.

 

We're going to need some help from our elected representatives to get this budget across the finish line, because changes in force structure and infrastructure and institutional reform can be unpleasant and unpopular, and we know that.  It's hard to cut this amount of money out of anything and expect people to cheer about it.  For every efficiency that's denied, every program cut that's overturned, every element of old force structure or unnecessary base structure we're required to keep, there's going to have to be a decrease in readiness or modernization somewhere else that will only add to risk that we might be taking in the future.  And we can't afford to do that, and it only gets worse if we revert to sequester.

 

In the end, we believe that this budget will maintain the most powerful military force in the world.  It will allow us to defend this nation and continue to stand by our allies and friends around the world.  And we now look forward to taking your questions.

 

 

MODERATOR:  Bob?

 

Q:  I have a very narrow question about the inclusion of the proposal to have a new round of base closings in 2017, which has been tried many times and rejected by Congress.  Do you have a figure that shows how much would be saved?  And is there any new element to this argument that you think gives you any confidence that it's a realistic idea for Congress?

 

SENIOR MILITARY OFFICIAL:  First of all, I think the -- I wouldn't say it's a new element.  I think it's -- the need that to clarify what a BRAC does and doesn't do and there's some folklore out there about the 2005 BRAC that it didn't save money, it took too long to save money, and the like.  

 

And we have to remember, there are two...two components of that 2005 BRAC.  One was a transformational BRAC, which was quite expensive, and it's only now beginning to save money, but there was a closure BRAC that cost us $6 billion in the years following 2005 and is now saving us $3 billion per year.

 

We need that money.  We need to be able to reduce some of our 25 percent or so excess infrastructure that we have.  And I would turn it to (SENIOR DEFENSE OFFICIAL) 

 

Q:  Savings amount -- how much savings?

 

SENIOR DEFENSE OFFICIAL:  (off mic) we don't have an estimate yet of the specific savings.  We certainly would look to have the kinds of savings that we've achieved in the prior BRAC that just focused on not the 2005 one as much, which was an efficiency BRAC and a restructuring BRAC altogether, but the ones before that that were just in the efficiency category, because, really, what we need to do is align our infrastructure to the size of our future force.

 

Now, and we just need to be able to do that.  And I would say, no, there's nothing new here, except that we have to be able to do this.  We are doing everything we can that's within our authority as the (SENIOR MILITARY OFFICIAL) said overseas.  We're trying to consolidate in a way that's aligned with our overseas posture now and not have anything excess there, and we just -- we just need to do that (off mic)

 

MODERATOR:  Barb (off mic)

 

Q:  Can I ask you, the $26 billion growth and security initiative, you say it's going to be paid for by a package of spending and tax reform.  Can you help us understand, when you say spending and tax reform, what exactly you're talking about, what you've earmarked?

 

And very quickly, you also lay out a number of compensation reforms (off mic) what gives you the confidence this time that it might work?

 

SENIOR DEFENSE OFFICIAL:  So let me start with the opportunity, growth and security fund.  So, first of all, the exact way that that is going to be -- that's a government-wide proposal from the administration, and the way that they are going to pay for that is going to be all part of the overall president's budget.  There's going to be a full briefing coming to you -- or coming out very soon on this, and I don't have those details today.  We're not going into the exact way that it's going to be paid for.

 

What I would like to say is, for the Defense Department, our piece of that fund, the $26 billion, is really important for us.  That Bipartisan Budget Act was very important in giving us stability, and we're very grateful for it.  However, the truth is, is that in FY '15, it's still $45 billion below PB [president's budget] '14 request.  So it's still a very significant reduction.

 

So if you think of where we are in readiness, in FY '13, we were sequestered, hit readiness very hard.  FY '14, the BBA gives us some more money, still not PB '14, but it's better, and the services are starting to recover.  FY '15, we're back down almost to sequester levels and it's a dip in readiness.

 

And so our near-term readiness remains one of our most critical risk factors.  And the $26 billion opportunity, growth and security fund that is a, is a part of -- it's a proposal that's a part of the president's budget submission would significantly mitigate that.  We would put, if that was to be appropriated, we would put all that money against readiness and facilities, (off mic) that's just been gutted.  So the way that the administration intends to pay for that will be coming out from the administration.

 

Q:  (off mic) compensation reform?

 

SENIOR DEFENSE OFFICIAL:  Compensation reform, let me just say a little bit, and then I'd like to (off mic) so -- so we've both been engaged on the Hill on compensation.  And my sense is that there is a growing recognition that we -- every time that we are not able to achieve these modest changes to compensation, it continues to impact our ability to be ready and modern.

 

And so the balance that we've got more details, I think, in this budget about between the quality of life and quality of service I feel is -- it's starting to be communicated effectively.  People are starting to understand that that's a trade.  We can have the best quality in life as a servicemember, but if you report to you, your unit or your ship, and you can't operate, you don't have the spare parts, you're undermanned, the reasons you got into the service in the first place are not fulfilled and our needs as a department are not fulfilled.

 

So I think there's growing recognition that this is a direct tradeoff, and I'm hopeful that that's going to create more of an opportunity to talk about these (off mic) changes.  Let me turn it over to (SENIOR MILITARY OFFICIAL)

 

SENIOR MILITARY OFFICIAL:  Yeah, I'd add briefly, because we want to give everybody a chance to -- or as many as possible to ask a question that. What we've seen in the last decade or so is a fairly steep rate of increase in compensation for our men and women.  And that was needed.  It was basically a correction for a force that was really underpaid back in the '90s.  And thanks to the help of Congress, we were able to correct that.  But if we were to maintain that sort of steep correction, I think it would be irresponsible.

 

So all we're trying to do is just re-correct the upward glide slope a bit so that we can maintain -- in some cases, we might have overshot a little bit -- but to maintain the right amount of compensation for the wonderful men and women that put on the cloth of this nation, so we can recruit and retain the best possible force we can, while doing it in a responsible way so that the taxpayers get the best value for their investment.

 

MODERATOR:  (off mic) please identify yourself (off mic) 

 

Q:  (off mic) Reuters.  I want to draw you out on these -- this coming negotiation or discussion with Congress in terms of weapons programs.  For years, you tried to do away with the alternate engine, and you kept getting it, for instance.  You know, you've tried over and over again. 

 

So kind of to pick up on Bob's question, like, what is different about where you are now?  And how will you ensure that you don't wind up, you know, with additional funding for programs that you don't want that, you know, reduce your ability to do that?  I mean, you know, are there innovative approaches that you can take in terms of working with them versus Congress?  Do you think the dynamic with the Tea Party members has changed the dynamic?  Does it change the calculus (off mic)

 

SENIOR DEFENSE OFFICIAL:  So what I would say is that we need to make as clear as we can -- and I think this budget has gone a long way to doing that -- exactly what it means for us to operate at these different funding levels and the traits that are embedded in those budget lines.  And that's the best argument I know to make to the Congress.

 

So if somebody comes and they want a particular program, I think we are now in a position at the president's budget level and sequester-level funding to say, okay, where's that going to come from?  Without additional money, it's got to come from somewhere.  We have looked for a long time now in great detail at everything.

 

And so there just isn't anywhere to just take it.  So it has to trade with something.  And we need to do a very clear job, I think, in the department of making that clear, and I think that -- I hope that they will be partners with us (off mic) 

 

Q:  Can I just follow up on that?  The -- you know, with the F-35, for instance, it is such an enormously expensive program, and, you know, a lot of critics argue that you -- if you just lop off the Navy version and stick with the Super Hornets, that you could be doing it cheaper and you -- you know, still in tremendous (off mic) what's your view on that?

 

SENIOR DEFENSE OFFICIAL:  Well, so my view on that is that the actual production cost of the JSF is pretty stable and has been and is actually starting to come down.  Our -- we are going to have F-18s in our air wings for a very long time, and they're a very good airplane, and that's a good thing.

 

But our carriers are our forward assets.  And having some carrier variant JSF on those carriers we judge is consistent with the strategy and the technology requirements of the future.

 

SENIOR MILITARY OFFICIAL:  Yeah, and just specifically on the JSF, there -- it's a complicated answer, obviously.  For one thing, that airplane is incredibly capable and there are things that you can't see in that airplane that make it unbelievably capable, you know, can't even talk about, right?

 

And then on top of that, if you were to lop off that chunk of the program, it affects the rest of the program, cost, partners who might want buy the airplane, might be scared off because of the unit costs would go up and that sort of thing.  And as (SENIOR DEFENSE OFFICIAL) said, we really do need the capability in a very dangerous world in 20 years.  The F-18 is just not going to do it anymore, and that in those out years.

 

MODERATOR:  Thom?

 

Q:  Thom Shanker (off mic) two-part question on risk.  You acknowledged this budget will accept greater risk.  You said you were going to mitigate that with innovative thinking.  What specifically does that mean, how we fight, how we deploy?  And at the practical level, just as importantly, you (off mic) time of war.  What will you say to them (off mic) what you're saying is, as a matter of budget policy, you're putting them in greater risk?

 

SENIOR MILITARY OFFICIAL:  Our young men and women understand risk, and they are very mature about that.  They face it every day.  They are very creative in the ways that they -- they innovate.  And, I've lived this for 36 years now, and it's never ceased to amaze me what these -- these people are capable of doing.

 

We are going to open up the aperture even more.  I think you'll find that we're going to have more innovative deployment concepts.  We're going to have more innovative warfighting concepts.  We're going to have more innovative operational plans.  We are just beginning to scratch the surface of some of the potential here, including innovations in the way -- in the types of weapons that we would buy to counter some of the asymmetries that people are trying to exploit.  The asymmetric advantages that we have right now, people are trying to exploit those-- deny them to us-- and we're going to work hard at protecting those.

 

So there is -- it's actually kind of exciting to look at all of the possibilities that are out there for my successor and my successor's successor to be able to capitalize on.  And I just got tremendous faith in the ability of this force to be able to get across those kinds of challenges.

 

MODERATOR:  (off mic)

 

Q:  The --

 

MODERATOR:  And you are?

 

Q:  -- budget --

 

MODERATOR:  And you are?

 

SENIOR DEFENSE OFFICIAL:  Identify --

 

Q:  Oh, Julian Barnes, Wall Street Journal.

 

SENIOR DEFENSE OFFICIAL:  (off mic)

 

Q:  Thank you (off mic) (Laughter.)  The LCS [Littoral Combat Ship] is cut back in this budget.  There is -- previously, the Navy has been skeptical of cruisers, but this talks about modernizing the cruiser fleet and designing a new frigate.  I wonder if you could put this a little bit in a larger context of the Asia Pacific, why these movements, how much of a change (off mic) why is this important to do?

 

SENIOR DEFENSE OFFICIAL:  So one of the key aspects of our -- of our strategy, as I talked about, is being forward to assure and deter, build partnerships.  And that requires a strong and capable Navy.  And we also -- and (SENIOR MILITARY OFFICIAL) just talked about our growing adversaries.

 

So as we've looked at the Navy -- as the Navy looked at the Navy, they see a real need for capable ships that -- and they see a need for many of them.  And the budget puts pressure on force structure, as we said.

 

So this is a budget that tries through -- I think we just talked about innovation -- a very innovative set of proposals to maximize the number of ships that we can, as well as their capabilities, but obviously we have to be responsible to the reduced budget.

 

So the cruisers -- there has been a proposal -- as I know you know -- in the last couple of years to take some cruisers out of the force structure.  And that has been denied to us by Congress, because they see the need for the ships, but they are falling behind.  They're getting old, and they're falling behind.

 

So this will take these cruisers and -- and what we're calling, lay them up.  So we'll put them in the yard.  They'll be in -- they won't be manned.  You know, we'll be able to get some savings, because they won't be operational, but they will be modernized and their life will be extended.  

 

So then later on, as the cruisers that remain operating get old or we get the need to introduce the new modernizations, we would swap, take one out and take from the yards and put it in.  And the Navy has a scheme for this that they've worked through in great detail that I know they'll be happy to share.  But it allows us to keep a very capable ship longer, and it makes certain it's modern enough to deal with the threats that we have.  

 

On the LCS, we clearly do need the LCS capabilities of the minesweeps, the ASW [Anti-Submarine Warfare] module for example is looking very promising, and we absolutely need those capabilities.  But as we look at our adversary growing capabilities, we also need to make certain that our fleet has enough capabilities, enough survivability and lethality that they can go up against those adversaries, so we want to look at what -- what is out there for the future of the small surface combatants beyond LCS?  And we -- and we want to start that now.

 

MODERATOR:  (off mic)

 

Q:  Jim Miklaszewski with NBC.  First, I'd like to follow up on Thom's question.  Could you specifically detail the additional risks that you think could result as a result of this budget?  And, second, do you have any details on how you intend to slow the growth of compensation benefits.

 

SENIOR MILITARY OFFICIAL:  The (off mic) the details are in the secretary's speech.  We will be having a -- we will propose a more modest base pay increase.  We will propose --

 

Q:  Are there numbers attached to that?

 

SENIOR MILITARY OFFICIAL:  There are.

 

Q:  Okay.

 

SENIOR MILITARY OFFICIAL:  And I think they're -- they may be in the -- in the secretary's speech.  It would be a one percent number in the next -- in 2015 (off mic)

 

Q:  (off mic)

 

SENIOR MILITARY OFFICIAL:  The basic allowance for housing, we're going to -- you know, nobody's going to have their basic allowance for housing (off mic) you know, dropped, where they're living.  We're going to let inflation catch up in some -- in these areas.  And so they'll go from having 100 percent of expenses paid to probably having around 94 percent to 95 percent of expenses paid, and we'll stop it there, which is much better than what we saw in the 90s.

 

We're going to transform the health care system into a single plan.  I can't tell you how confusing the current plan is and how extensive it is administratively.  We believe we're going to get a better health care system out of this.  And then we're going to gradually phase out a good chunk of the commissary subsidy that will result in your average commissary in the United States going for maybe a 30 percent savings to a 10 percent savings, but they're still going to be getting free rent, you know, tax-free rent, you know, utilities, that sort of thing.

 

So -- but we'll preserve the subsidy for certain commissaries, like the overseas commissaries and the -- or commissaries more rurally located inside the United States, where it's harder for somebody to actually drive out in town and search for a competitor.

 

So those are the types of things that we're going to do.  We've really worked hard on this.  We've brought in senior enlisted leaders from the services, the chiefs, it's been a very collaborative effort.  We all agree that this is the path we need to take and we -- we think a fairly thoughtful spreading of how we do the -- the compensation savings in a pretty fair way.

 

Q:  And what specific risks do you see as a result of this?

 

SENIOR DEFENSE OFFICIAL:  So -- so let me -- let me take a crack at this, because we've worked it the (SENIOR MILITARY OFFICIAL) and I and the service leadership has worked this very hard on exactly how to articulate it.  So there's two buckets of risks that we see specifically.  The first is the risk I have already talked about in FY '15 with readiness, and this is why the opportunity, growth and security fund is important to the defense department, because were that to be appropriated, it would help us mitigate that readiness risk in FY '15, but the law of the land is where it is at BBA, and so we are very concerned about that readiness risk.

 

Longer term, what we see is we have designed this force to be able to implement the tenets of the strategy, but it -- it is smaller.  And there's less margin for error.  And the world is an uncertain place.  So there's more strain on the force to be able to quickly adapt to something unforeseen.

 

And adversary capabilities, conflicts that pop up, I mean, let's face it, things are pretty uncertain out there, and so for what we can see, we feel like we've got a good force, but there's an awful lot that we can't, and we feel that the margin of error is -- is less.  So those are the kinds of risks that we see.  

 

Now, on sequester, I mean, that's the third risk that I have to just point out.  This department is very clear-eyed that FY '16, sequester is still the law of the land, and there's many things in this budget that prepares us for that, but that is -- that is very high risk (off mic) 

 

MODERATOR:  (off mic)

 

Q:  (off mic) at some point?

 

SENIOR DEFENSE OFFICIAL:  (off mic)

 

Q:  Thank you (off mic)

 

Q:  Tony Capaccio with Bloomberg News.  Two quick questions.  Break down where the $45 billion is coming from by way of your major accounts.

 

SENIOR DEFENSE OFFICIAL:  I can't do that off the top of my head, Tony, sorry.  We can maybe get you that detail.  It will certainly be in the detail budget submission that drops on the Hill.

 

Q:  It would be useful for today, because you've put the figure in play, and it would be useful to give the public a sense of where it's coming from the (off mic)

 

SENIOR DEFENSE OFFICIAL:  Well, so the $45 billion is delta from the BBA to PB '14, and so we looked at everything to pay it.  I mean, it's -- we've looked at readiness, we've looked at force structure, we've looked at facilities and installations, and so it's coming out of all of the accounts.  You want the details on the account breakout, well, that's usually something we submit in the budget drop and will.

 

Q:  Okay, specific follow-up.  Quick question.  On LCS, if you're worried about being responsible for the budget, why didn't you truncate the program at 24 when you're buying the last four in 2015 than buying another 18 through 2019 and truncating the program and -- when none of us are going to be here?  (Laughter.)  (off mic)

 

SENIOR DEFENSE OFFICIAL:  So -- so there -- there is an operational need for  the LCS, and we looked hard at that.  So we need a number for minesweeps and we need a number to be forward doing missions like ASW.  And when you do the math for what you want with the sea swap concept, the Navy has come up with a number that's 32.

 

Now, we definitely want a modern -- a more lethal and survivable small surface combatant.  And, frankly, it's not at all off the table that that could be a variation of an LCS.  And so depending on how that comes out, the secretary is going to evaluate exactly when that would come in to the LCS program.  But we also don't want to preclude -- we don't want to preclude-- I'm sorry -- prejudge that that's the outcome. 

 

Q:  (off mic)

 

SENIOR DEFENSE OFFICIAL:  So the Navy is going to look at all options for the LCS going forward or, I'm sorry, for the more capable small surface combatant.  So for now, based on what we know, we know we need about 32 LCS to do a mission, and we're going to look at options for a future small surface combatant.  Once we get all that information, we'll keep (off mic)

 

Q:  (off mic) in this FYDP [Future Years Defense Program], though, they're not saving money in the FYDP (off mic)

 

SENIOR DEFENSE OFFICIAL:  It's not.

 

SENIOR MILITARY OFFICIAL:  Let me just -- it's important, I think, to dispel some of the chatter out there, that the LCS is not a good ship.  It's actually a very good ship.  I joked with some friends lately that it's kind of going through its V-22 phase right now, where -- you know, there were challenges with that program, right?  And now we can't get enough V-22s.  There's a demand signal for those things all over the place that we can't fill right now.

 

So I think we're going to find that with the LCS, but I think we're taking a prudential step to challenge the Navy to come back and say, okay, show up what more you can do in this -- in this need for a small surface combatant.  Whether it's a frigate or an up-gunned LCS remains to be seen, but I think it's a good, smart move to ask the Navy to kind of re-look what you would do with additional ships beyond the 32.  I think we're going to be happy with that.

 

MODERATOR:  (off mic)

 

Q:  Thank you.  Amy Butler with Aviation Week.  I wanted to ask you about what appears to be -- and it might just be (off mic) but a mismatch between what people have been saying and what it looks like you're doing with the bomber.  To now, we've been told very little, but what we have been told is that it's going to incorporate existing technology.  But in the speech, it appears to say that there will be a $1 billion investment in promising next-gen jet engine technology.  Is that new technology?  Or is it old technology?  Is that $1 billion new to this budget or was it included in the last budget?  How are you going to incorporate new technology?  Are you going to drop it in?  Is it scalable?  Can you give us some meat on the bones to that?

 

SENIOR DEFENSE OFFICIAL:  So this is really an industrial base argument.  It's not at all tied to specifically to any program to include the new bomber-- this is-- we need to maintain our industrial base and some of the critical capabilities that are unique to the Defense Department, and the jet engine is one example.

 

And so if we could get a more fuel-efficient, more long-lived jet engine for our tactical aircraft or our bomber aircraft, that would be a good thing.  There are proposals out there.  We need to continue to invest in our industrial base so that we maintain the advancements that we need.  Even under these reduced budgetary situations, we need to keep pushing forward, and our industrial base is a vital partner with us, and so there are certain areas where we make strategic decisions for investments and that's just one.

 

Q:  (off mic)

 

Q:  (off mic) next-gen bomber in the speech?

 

SENIOR DEFENSE OFFICIAL:  I don't think it's intended to.  I think perhaps -- perhaps (off mic)

 

Q:  Okay (off mic)

 

SENIOR DEFENSE OFFICIAL:  (off mic) way it's written there, but it's --

 

Q:  Okay.

 

SENIOR DEFENSE OFFICIAL:  -- examples of technology investments the new bomber is one, the new jet engine is another.

 

Q:  And this is a billion that you didn't have last year for this (off mic)

 

SENIOR DEFENSE OFFICIAL:  It's in addition. It is.

 

Q:  Okay.  Okay.

 

SENIOR DEFENSE OFFICIAL:  We have been investing in this engine technology, but we made sure that we added a little bit to keep the industrial base alive.

 

Q:  Okay.  And one more to clarify on the Air Force remarks.  It says in there that you're going to be -- proposing the retire the 50-year-old U-2.  However, the U-2 fleet is not largely 50 years old.  A lot of these came off the line in the '80s and the '70s.  Why does the department constantly refer to the U-2 as a 50-year-old airplane?

 

SENIOR DEFENSE OFFICIAL:  Well, I think because (off mic) the technology, the -- what's in it goes (off mic)

 

Q:  But the sensors are all within a decade.

 

SENIOR DEFENSE OFFICIAL:  The sensors are -- are very good, and they're very new, and so you're making a fair point.  But the -- but the Global Hawk -- so, as you know -- you all know.  We've been back-and-forth on Global Hawk Block 30.  Let's be honest, okay?  I've been involved in that.

 

So -- but -- but the question is, you've got capabilities in Global Hawk and capabilities in U-2.  Eventually we're going to have to get rid of the U-2.  Wouldn't it be nice if the Global Hawk could be the replacement for that?  Well, last year, we judged it wasn't going to save us enough money to be the replacement for that, but since then, the operating costs have come down significantly, and the opportunities for the technology on the Global Hawk Block 30 have gone up, and our ability to afford them, to train with the operation and support costs has looked more attractive.  

 

So, overall, Global Hawk Block 30 now looks like a reasonable replacement for the U-2.  We have changed our mind.  I take it as our prerogative based on data.  And it does look like -- and so we decided now it's time to retire the U-2.  We can't afford them both.  We have to pick one or the other, and that's a key point here.  So if we can't afford them both, and the Global Hawk Block 30 can do the job, we're going with that.

 

Q:  Thank you.

 

SENIOR MILITARY OFFICIAL:  And we're going to have to upgrade (off mic)

 

MODERATOR:  (off mic) just one more.  Dan?

 

Q:  Sir, just on the cut on the Army end strength, how many years would that be carried out?  And then, also, there was a discussion of what happens in event of sequestration.  And there's even a lower end strength number.  What would be lost?  What would be the risk, for example, between that 440 number and the 420 number?

 

SENIOR MILITARY OFFICIAL:  Sure.  The -- first of all, the 440 to 450 number is what we would hope to be able to realize under the president's budget submission.  And as I think you correctly point out in your question, that if we are forced down to sequester level, we're going to have to go to 420.

 

And so how do you quantify the risk of between 440 and 450 and 420, I think it's logical that you'll have a smaller force, a less capable force, maybe a force that can't react as quickly.  As (SENIOR DEFENSE OFFICIAL) pointed out, it gives you less margin for error and what could end up being major ground warfare, you name it, anywhere in the world.

 

So we believe and General Odierno believes that his risk is more manageable at the 440 to 450 level than it is at the 420 level, and that's what we're supporting as a department.  It's going to be very interesting to see how that unfolds over the coming year.  We would really like to see sequester overturned for FY '16, so we can get some stability in this budget and we can give the Army a little more predictability about where they're going, along with the other services, as well.

 

SENIOR DEFENSE OFFICIAL:  Very definitely I'd just like to pile on to the -- if we could find out soon that we are not going to live under sequester again in FY '16 would help us decide these force structure decisions once and for all and get a sustainable path (off mic) 

 

MODERATOR:  Great.  Thank you very much (off mic)