Defense Economics

1
Defense Economics

• Frank KilleleaNational Security Analysis
  DepartmentJohns Hopkins University Applied
  Physics Laboratory
• March 2005

Note Additional explanatory material can be
found in the Notes view
Distribution Statement A Approved for Public
Release Distribution is Unlimited
2
Abstract

• This analysis identifies economics factors and
  conditions that are important to a nation-states
  ability to develop, acquire and sustain
  significant military forces and capabilities. It
  examines readily available economic data which
  influence the size and direction of a countrys
  defense spending. It is less applicable to
  subnational and transnational threats whose
  financial and arms requirements tend to get lost
  in the background noise.

This report is an occasional paper of the APL
National Security Analysis Department Its ideas
are intended to stimulate and provoke serious
thinking. Not everyone will agree with them.
Therefore it should be noted that this report
reflects the views of the author alone and does
not necessarily imply concurrence by APL or any
other organization or agency, public or private.
3
Executive Summary (1of 4)

• This analysis identifies economics factors and
  conditions that are important to a nation-states
  ability to develop, acquire and sustain
  significant military forces and capabilities. It
  examines readily available economic data which
  influence the size and direction of a countrys
  defense spending. It is less applicable to
  subnational and transnational threats whose
  financial and arms requirements tend to get lost
  in the background noise.
• The base year for this update is 2002, the latest
  year for which data were available. Where
  available, pertinent data on subsequent years
  have been included.
• This analysis addresses
• ? Economic factors that support or inhibit
  defense spending
• ? Defense and military RD spending and trends
• ? Weapon costs and trends
• ? Arms transfers and trends
• ? Defense industries and trends
• ? Defense economics impact on military
  capabilities
• ? Defense economics impact on US military
  spending
• ? An economically influenced view of global
  threats. (Asymmetric threats are included to
  remain consistent with data contained in the
  previous external environment assessment.)

4
Executive Summary Continued (2 of 4)

• Since last updated
• Global defense and RD spending has trended
  upward led by the US, China, and Russia to a
  lesser degree. Other countries spending more
  include India, Iran, Brazil and South Korea.
  Most countries spending, however, has either
  remained flat or increased/decreased slightly.
• The value of global arms transfers, which
  decreased over 70 from the mid-80s through 2002,
  has shown no signs of leveling off.
• Escalating weapons costs have continued to
  outpace defense budget growth making it difficult
  (actually impossible) for nations, including the
  US, to replace aging systems with new models on a
  one-for-one basis. Few countries can afford to
  purchase large numbers of modern combat systems.
• Global defense industries have continued to
  contract and consolidate via mergers and
  acquisitions, with current trends favoring
  national and cross-border collaborations
  (teaming) in an effort to share development and
  production costs, and gain market access.
• Some insights
• Defense economics analysis remains useful as a
  means of identifying countries capable of
  acquiring significant military capabilities that
  could challenge US forces.
• It can alert decision-makers to countries with
  changing military aspirations, and in effect
  provide years of early warning to developing
  threats.
• Defense economics can also help decision-makers
  prioritize weapons spending based upon global
  weapons development and acquisition efforts.

5
Executive Summary Continued (3 of 4)

• Findings
• Developing military capabilities in nation states
  is largely a function of defense spending. In
  2002, 73 of the countries worldwide spent under
  2B on defense. Eleven countries besides the US
  spent in excess of 10B, including four over 30B
  (China 62B). Among the countries spending
  over 4B, Syria, Iran, Russia and China are
  probably the only ones that could be considered
  potential adversaries. (By way of comparison,
  the US defense budget in FY2002 was 344.8B.)
• Escalating costs of all things military including
  weapons development and acquisition, personnel,
  operations and maintenance, and infrastructure
  have led many countries to smaller forces with
  mixed inventories, retaining older systems
  longer.
• The high cost of military RD has significantly
  limited the number of countries capable of
  developing and producing modern, sophisticated
  combat systems. Few new state-of-the-art
  systems, in all major weapon categories are being
  developed worldwide.
• Many countries rely on others to develop the new
  systems and hope they can afford a few.
  Unfortunately, the cost of the latest models has
  escalated beyond the reach of most countries,
  resulting in a growing market for less costly
  used and/or upgraded combat systems.
• The ratio of defense spending and escalating
  weapons costs is the most significant influence
  affecting acquisitions, force size and mix, arms
  sales, and the global defense industry.

6
Executive Summary Continued (4 of 4)

• Findings Continued
• Without the amortization of weapon costs across
  large unit buys, there is little hope to reduce
  the cost of new sophisticated combat systems to
  affordable levels.
• It will become increasingly difficult to prevent
  sensitive technology transfers because of
  industrial offsets related to arms sales, and
  cross-border industrial collaborations to
  develop, produce modern weapon systems.
• In the US, large federal budget and trade
  deficits, growing national debt and related
  servicing costs, and increasing social, welfare,
  health, infrastructure and domestic security
  costs will likely pressure non-war related
  defense spending downward as early as FY2006.
• Defense modernization (RD, Acquisition) will
  like absorb most cuts as military personnel,
  medical, and OM accounts continue to grow as a
  share of the defense budget. Expensive programs
  will likely be reduced, stretched or cancelled to
  accommodate the reduced funding. Likely
  candidates include the F/A-22, Joint Strike
  Fighter, National Missile Defense, DD(X),
  Littoral Combat Ship, Airborne Laser, Army Future
  Combat System (FCS), and space systems.
• Transnational threats are not dependent on large
  budgets to further their aims. Their employment
  of asymmetric tactics and inexpensive and readily
  available weapons and explosives make them a
  continuing and dangerous threat.

7
Current and Near-Term GEO-POL OverviewUnsettled
and Challenging

• Post Cold War Period Unsettled and Dangerous
• Regional Conflicts Could Involve US
• Transnational Threats More Prominent
• Russias National Interests Still Uncertain
• China Perceives Greater Regional Role
• NATOs Future Role Unclear Europe More
  Introspective
• US Engaged
• Countering Transnational Threats
• Supporting Developing Democracies
• Will Preempt to Defend Interests
• Emphasis on Coalition OPS

8
International Defense EconomicsOverview

• Economics Analysis Applicable to Nation-States
  Much Less To Transnational Threats
• Defense Economics Analysis
• Identifies Countries Able to Acquire Significant
  Capabilities, Develop Sophisticated Systems
• Provides Early IW of Countries Changing
  Military Aspirations
• Understanding the Economically Feasible Threat
  That Which is Available, Affordable and
  Sustainable Can Help Defense Planners
• Focus on Potential Adversaries with Significant
  Capabilities
• Prioritize Weapons Spending Based on Global
  Weapons Development and Acquisition Efforts
• Few State-of-Art Systems in All Major Categories
  Being Developed
• Not As Useful Assessing Transnational/Terrorist
  Threats
• Other Than WMD, Most Arms Are Low Tech,
  Inexpensive and Available
• Data Not Readily Available

9
International Defense Economics (Cont'd)Overview

• Global Defense Spending
• Affected by Strategic and Economic Considerations
• Driven by Big Spenders, i.e., US, Western Europe,
  Japan, Russia, China
• Unlikely to Return to Cold War Levels in
  Foreseeable Future
• Defense Forces
• Smaller Personnel- and Equipment-wise
• Mixed Inventories, with Fewer Modern Systems
• Growing Personnel and Operating Costs Pressure
  Procurement
• Military RD
• Investment Driven by US Western Europe to Lesser
  Degree
• Few Can Afford
• Few New Sophisticated Combat Systems Being
  Developed Worldwide
• Europe Needs to Consolidate RD Efforts to Reduce
  Duplication and Achieve Greater Investment Mass
• Arm Sales
• Fewer Domestic Sales for National Forces
• Stiff Competition Among Defense Industries for
  Shrinking Foreign Sales

10
International Defense Economics (Cont'd)Overview

• Ratio of Defense Spending and Escalating Weapons
  Costs the Single Most Significant Influence on
  Acquisitions, Force Size and Mix, Arms Sales, and
  the Global Defense Industry
• Previous Efforts to Reduce Costs Largely
  Unsuccessful
• Major Defense Industrial Restructuring Has Not
  Slowed Price Escalation
• Streamlined Acquisition Procedures, Including
  Less Oversight, Use of Commercial Products,
  Capabilities-Based Process Not The Answer
• Still Waiting for Significant Hi-Tech Solutions
• Without Significantly Lower Weapon Costs, Foreign
  Sales Will Continue to Decrease
• Without Foreign Sales and Significant National
  Demand, Production Runs Will Be Short, Fewer
  Units Produced, and Unit Costs Will Continue To
  Outpace Defense Budgets
• Amortization of Weapons Costs Critical To Lower
  Prices
• Easy Answer is to Reduce Costs and Sell More
  But The Devil is in the Details

11
Defense EconomicsSummaryGlobal Defense Spending

• Defense Spending Decline Bottomed in 98 Slow
  Climb Since
• Military RD Spending Also Bottomed in 98
• Arms Transfers Trend Still Down Since Mid-80s
• Higher Priority Economic Considerations Gaining
  Greater Share of National Budgets
• Sophisticated Weapons Cost More Than Systems
  Being Replaced
• Fewer Costly New Hi-Tech Systems Being Acquired,
  Developed
• Greater Competition For Fewer Arms Sales
• Leaner Defense Industries
• Sophisticated Systems Available, but Few Can
  Afford Many
• Transnational/Terrorist Threats Dont Need Large
  Budgets, Expensive Weapons

12
Notional Worldwide Defense Spending Trends
DEFENSE BUDGETS
WEAPON COSTS
RD
WEAPONS TRANSFERS

MID-80s
2010
2002
CONSTANT 2000
TIME
VG7
13
Defense Spending Economic Factors

• Economic Factors Impact World-Wide Defense
  Aspirations
• Increasing Social, Welfare, Infrastructure
  Competition for Limited Revenues
• Varying Combinations of Stagnant Economies,
  Budget Deficits, Large External Debt, Currency
  Devaluation, High Inflation, Trade Deficits,
  Limited Foreign Reserves, and Growing Population
  Drive Defense Budgets Down. Autocratic Regimes
  Can Delay This For Awhile.

14
Defense SpendingKey Economic Data

• Economic Factors That Affect Defense Spending
• Gross Domestic Product (GDP)
• Population/Growth Rate/Literacy Rate
• Per Capita Income
• Natural Resources
• Industrial/Agricultural/Output
• Exports/Imports Balance of Payments
• Revenues
• Budget Surplus or Deficit
• External Debt
• Inflation
• Currency Devaluation
• Defense Budget/Allocation

Major Influences
15
Macro-Economic Factors InhibitDefense Budgets
More
Current defense budget level
Less
Current year
1
2
3
4
Economic Factors

• Sustained annual Gross Domestic Product (GDP)
  growth below 3, ornegative growth
• Sustained annual inflation rate over 15
• External debt equal to or greater than annual
  govt revenues
• External debt equal to or greater than 50 of GDP

Note Presence of more than one factor increases
negative pressure on defense budget.
16
Worldwide GDP Defense Spending Trends
Index 1986 100
140
GDP
120
100
80
60
DEFENSE SPENDING
40
20
0
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Note Over this period, worldwide GDP, excluding
the U.S. increased by around 36
percent while defense spending decreased by over
30 percent. Source DIA DI-1912-15-00, Defense
Intelligence Reference Document, Worldwide
Defense Expenditures, 1999(U), Jun
2000 The World Bank 2004 World
Development Indicators SIPRI Yearbook-2003 Worl
d Bank Development Indicators Data Bank, 4 Jun
2004 query
VG11
17
2002 Economic Data (1of 4)
Source The World Bank World Development
Indicators 04 SIPRI Yearbook 2003 CIA
The World Factbook 2003 IISS The Military
Balance 2003/2004 Note Range
of values reflect differing defense budget
estimates in source documents.
18
2002 Economic Data (2 of 4)
Source The World Bank World Development
Indicators 04 SIPRI Yearbook 2003 CIA
The World Factbook 2003 IISS The Military
Balance 2003/2004 Note Range
of values reflect differing defense budget
estimates in source documents.
19
2002 Economic Data (Contd) (3 of 4)
Source The World Bank World Development
Indicators 04 SIPRI Yearbook 2003 CIA
The World Factbook 2003 IISS The Military
Balance 2003/2004 Note Range
of values reflect differing defense budget
estimates in source documents.
20
2002 Economic Data (Contd) (4 of 4)
Source The World Bank World Development
Indicators 04 SIPRI Yearbook 2003 CIA
The World Factbook 2003 IISS The Military
Balance 2003/2004 Note Range
of values reflect differing defense budget
estimates in source documents.
21
DefenseSpending
22
Defense Spending Overview

• Worldwide Defense Spending Bottomed in 1998
• Fewer Producers of High End systems
• More Emphasis on Affordability and International
  Collaboration and Consolidation in Production and
  RD
• US, Western Europe, Japan, Russia Produce High
  Technology Systems ROW Countries Dont
• RD Down 60 from 1986 to 1998 Up 12 from 98
• System Upgrades, Software Modifications, Dual Use
  Technology, Asymmetric and Terrorist Threats
  Emphasized
• Arms Transfers Down over 70 Since Mid 1980s
• Greater Competition for Fewer Sales as Industries
  Fight for Survival
• Major Suppliers US, Russia, France, UK, Germany

23
Defense SpendingSmaller Inventories and Upgrades

• New Weapon Systems 2-5 Times More Costly Than
  Older Systems. Few One-for-One Replacements
• Most Weapon Sales Require Hard Cash, Pay-Back
  Loans, or Barter at Market Prices. Few Discounts
  or Grant-Aid. Many Countries Lack Foreign
  Reserves to Buy New Systems.
• Sophisticated Weapon Systems Available But Few
  Can Afford Them
• Seventy-Three Percent of Countries 2002 Defense
  Budgets Under 2B in US 2000
• Under 800 Million For Procurement
• Emphasis On System Upgrades, and More Capable
  Used Systems
• Sustained Defense Spending Over 2 Billion Buys
  Some Sophisticated Systems

24
Worldwide Defense Budgets 2002
100
90
90
80
70
60
Number of Countries
50
40
KUWAIT COLOMBIA BELGIUM POLAND NORWAY PAKISTAN
30
IRAN BRAZIL TAIWAN CANADA SPAIN ISRAEL
20
NETHERLANDS SYRIA AUSTRALIA GREECE
S. ARABIA GERMANY RUSSIA ITALY
CHINA 61.5 JAPAN 46.7 U.K. 36 FRANCE 33.6
N. KOREA INDONESIA
TURKEY S. KOREA INDIA
EGYPT
SWEDEN SINGAPORE
14
13
10
9
6
4
6
4
4
2
3
0
0
0.5
1.0
2.0
3.0
4.0
5.0
7.0
10.0
15.0
30.0
30.0
Defense Budgets in Billions Constant U.S. 2000
Dollars
Notes Includes all countries less the
U.S., Sources SIPRI Yearbook 2003 and The
Military Balance 2003/2004
VG19
Ref 9800648B_UK.PPT-4
25
10-Year Defense Budget Growth ()1993 ? 2002
25
CONSTANT U.S. 2000
S. KOREA SAUDI ARABIA TURKEY GREECE IRAN ISRAEL SY
RIA MEXICO CHILE PORTUGAL OMAN BANGLADESH SRI
LANKA IRELAND JORDAN TUNISIA BOTSWANA BURUNDI KENY
A PANAMA CAMBODIA CYPRUS SLOVAKIA BAHRAIN
20
15
JAPAN PAKISTAN DENMARK NORWAY POLAND SWEDEN EGYPT
MOROCCO HUNGARY ROMANIA LEBANON GHANA NICARAGUA MA
LTA
Number of Countries
U.K. GERMANY CANADA SWITZERLAND PERU MOZAMBIQUE RW
ANDA SEYCHELLES ZIMBABWE BRUNEI MONGOLIA ALBANIA K
AZAKHSTAN
USA RUSSIA SPAIN NETHERLANDS AUSTRALIA BELGIUM AUS
TRIA FINLAND SENEGAL EL SALVADOR BULGARIA YEMEN
INDIA BRAZIL COLOMBIA SINGAPORE LETHOSO MALI NAMIB
IA NIGERIA TANZANIA ECUADOR ARMENIA LUXEMBOURGE
TAIWAN ARGENTINA VENEZUELA N. KOREA THAILAND ANGOL
A CHAD SIERRA LEONE GUATEMALA URUGUAY PARAGUAY AZE
RBAIJAN
10
ITALY KUWAIT MALAYSIA CZECH REP. PHILIPPINES BURKI
NA FASO CAMEROON MADAGASCAR BOLIVIA
5
CHINA ALGERIA SUDAN UGANDA NEPAL
UKRAINE ETHIOPIA ESTONIA LATVIA LITHUANIA
LIBYA BELARUS CROATIA ZAMBIA
0
10 Year Growth -100 -50 -25 -10 0 10 20
50 100 150 250 Avg. Ann.
Growth -10 -5 -2.5 -1 0 1 2 5 10 15
25
Source SIPRI 2003 Military Balance 2003-2004
VG20
26
Estimated Worldwide Defense ModernizationFunding
2002
100
90
90
80
70
60
Number of Countries
50
40
KUWAIT COLOMBIA BELGIUM POLAND NORWAY PAKISTAN
30
IRAN BRAZIL TAIWAN CANADA SPAIN ISRAEL
CHINA 61.5 JAPAN 46.7 U.K. 36 FRANCE 33.6
S. ARABIA GERMANY RUSSIA ITALY
20
NETHERLANDS SYRIAI AUSTRALIA GREECE
N. KOREA INDONESIA
EGYPT
TURKEY S. KOREA INDIA
SWEDEN SINGAPORE
14
10
13
9
6
6
4
2
4
4
3
0
30.0
0
0.5
1.0
2.0
3.0
4.0
5.0
7.0
10.0
15.0
30.0
Defense Budgets
_at_ 20 0.1 0.2 0.4 0.6 0.8 1.0 1.4 2.0 3.0 6.0
6.0 _at_ 40 0.2 0.4 0.8 1.2 1.6 2.0 2.8 4.0 6.0 1
2.0 12.0
Defense Funds for Force Modernization _at_20 and 40
Notes Modernization includes all forces (Ground,
Air, Naval Platforms, Weapons, Sensors) in
billions of constant U.S. 2000 dollars Includes
most countries less the U.S. Primary Sources
SIPRI Yearbook 2003 and The Military Balance
2003/2004
VG21
Ref 9800648B_UK.PPT-4
27
Defense Spending Trends

• Trending Upward Since 1998, Led By US (46B),
  China (13.3B), Iran (8.1B), Russia (4.3B),
  India (3.5B), Brazil (2.1B)
• Likely to Continue Upward Near-Term, Influenced
  By US, China, Russia, South Korea, and India.
  Economic Developments Could Slow or Reverse Trend
• Worldwide Defense Spending in Billions US 2000
• 1988 1993 1998 2002
• 909 762 690 784

Sources SIPR1 2001, 2002, 2003 IUSS Military
Balance 2003-2004
28
Defense Spending (Cont'd) Trends

• Fewer New High-Technology Weapon Systems Likely
  to be Developed and Fielded Over Next 10-20 Years
  Because of Costs
• Most Countries Defense Spending Flat or Negative
  Over Time Unless Involved in or Preparing for
  Conflict, Insurgencies, or the War on Terrorism

Sources SIPRI Yearbooks 2001, 2002, 2003 The
Military Balance 2003-2004
29
Defense RD/ST
30
Worldwide Military RD Spending Overview

• RD Down 60 from 86 to 98 Up 12 from 98 to
  2002
• 2002 Estimated Spending at 66 Billion in 2000
• 50.6 B by US 57.4 B by NATO
• Most for Aircraft Related Programs
• Nine Besides US Spending Over 500 Million on RD
• US, Russia, China Spending More in 2002
• RD Budgets Compete with Procurement, Personnel,
  Maintenance and Operational Readiness Accounts
• Aggregate Worldwide Defense RD Spending Likely
  to Increase Near-Term as US, Russia, China Spend
  More
• European RD Likely to Decrease Somewhat as Major
  Aircraft Programs (RAFAEL, EUROFIGHTER, A400
  Transport) Transition to Production

Note China Has Made RD a Priority Chinese RD
Funding Figures Are Best Estimates
Sources SIPRI Yearbooks 2001, 2002, 2003 IISS
The Military Balance 2003-2004
31
Estimated Worldwide Military RD Spending - 2002
10
9
PAKISTAN
8
SWITZERLAND
7
U.S. _at_ 50.6B 66.3B in 2004
NORWAY
6
NETHERLANDS
5
Number of Countries
POLAND
ITALY
GERMANY
4
UKRAINE
SPAIN
SINGAPORE
INDIA
3
ISRAEL
AUSTRALIA
BRAZIL
IRAN
CHINA
2
ARGENTINA
S. AFRICA
TAIWAN
FRANCE
JAPAN
1
GREECE
CANADA
SWEDEN
S. KOREA
RUSSIA
U.K.
0
50M
100M
200M
500M
1.0B
2.0B
5.0B
RD Spending in Constant 2000 U.S. Dollars
Notes Includes only countries spending 50
million Sources SIPRI Yearbooks 2001, 2002,
2003 Defense News, 2 Feb 04
Ref 9800648_UK.PPT-7
32
Worldwide Military RD Spending
Billions of US Constant 2000 1995 1994 19
96 1997
Source SIPRI Yearbook 2001, 2003 IISS The
Military Balance 2003-2004 Various Defense News
Editions
33
Worldwide RD Sophisticated Systems Costly

• High Technology Weapons Development Programs
  Costly
• Most in US, Western Europe, Japan, and Russia
• Situation Not Expected to Change Because of High
  RD and Manufacturing Infrastructure Costs
  Associated with High Technology Development
  Programs
• Most ROW Countries Rely on Foreign Acquisition of
  Complex Weapon Systems
• State-of-the-Art Combat Aircraft, Naval
  Combatants, Main Battle Tanks, IADs, etc.

34
Worldwide RD (Cont'd)Sophisticated Systems
Costly

• Most ROW Countries Cant Develop High Tech
  Systems
• Main Impediments to High Technology Development
• Funding
• Technical Education and Pool of Scientists and
  Engineers
• Well-Equipped Research, Laboratory, and Test
  Facilities
• Natural Resources
• Manufacturing Facilities and Capabilities
• Skilled Work Force
• Quality Control
• Technology Base and Infrastructure

35
Worldwide RD (Cont'd)Sophisticated Systems
Costly

• Some ROW Countries Produce Low to Medium
  Technology Systems Based on Co-Production and
  Reverse Engineering of Acquired Systems
• Ground Force Weapons, Vehicles, MLRS, Small
  Patrol Craft, Training Aircraft
• Some Produce Niche High Technology Systems with
  Foreign Assistance
• TBMs, WMD, Helicopters, UAVs, Anti-Ship Cruise
  Missiles, Diesel Subs
• Industrial Offsets, Collaborations and
  Consolidations Future Wild Cards?

Source SCCS
36
Worldwide High Technology Weapon Design
andDevelopment Capabilities
Ref 0400346_UK.ai
None Very limited. Dependent on foreign weapons
acq. and related co-production, reverse eng, and
tech transfer to produce a few low to medium
technology systems. Some low to medium tech.
design, development, production capability.
Needs foreign assistance in some areas. Few niche
high tech. capabilities. Relies on foreign
weapons acquisition and related co-production,
reverse engineering and tech. transfer. Broad
low to med. tech. capabilities. Broad med-tech.
capabilities capable of designing, developing,
producing many high-tech systems external
assistance required for high performance aircraft
and other complex systems. Broad high-tech.
design, development and production capabilities.
Indigenous capability to develop, produce high
performance combat aircraft, missiles and other
highly complex systems.
37
Worldwide Military RD Trends

• Without a Clear Technologically Advanced Threat,
  or a Market for Costly High Tech Systems, RD
  Investment Will Decrease, and the Pace of
  Technology Development Will Slow
• More for Counter-Terrorism, Homeland Defense,
  Asymmetric Threats
• Fewer High Tech Weapon Systems Will be Developed
  in all Major Categories
• Development and Availability of New Generation
  Systems Delayed
• Fewer Producers of High-End Systems
• More Cross-Border/International Cooperation,
  Pooling of RD Resources

38
Worldwide Military RD Trends (Cont'd)

• Emphasis on Affordability, Technologies that
  Reduce Development, Manufacturing Costs
• Emphasis on Dual-Use Technologies, COTS, System
  Upgrades
• Future Threats Include Fewer High-Tech, Many
  Low-Medium Tech Systems
• Adversaries Can Leverage Small Defense Budgets
  with Less Costly Asymmetrical Threats, i.e., IW,
  TBMs, C/B Weapons, Mines, CCMs, Small Boats,
  Terrorism, etc., to Complicate, Impede US
  Military Ops
• Caution A Resurgent Near-Peer Type Threat Would
  Negate Some of These Trends

39
Foreign Science Technology Overview

• Technology Haves and Have Nots Persist
• Technology Increasingly Dual Use
• Technologys Economic Impact More Important Than
  Militarys
• Nations and Industries Will Sell Technology for
  Political and Economic Reasons
• Credible Asymmetric Threats Can Offset Some
  Technological Advantage

40
Foreign STAreas of Interest

• Areas of Foreign Technological Interest
• Anti-Navigation/GPS Systems
• Remote Sensors and Weapons
• Standoff Weapons and Penetration Aids
• Ballistic Missiles
• Cruise Missiles
• Information Systems and CM
• Data Transfer and Interoperability
• Data Blocking/Corruption
• False Target Generation
• High-Power Microwave (HPM)
• Encryption
• Antiterrorism Systems
• Aircraft Protection
• Harbor Protection
• Helicopter Protection
• Improvised Explosive Device Detection,
  Neutralization
• Precision Airdrop Systems
• CBR and Nuclear Weapons Detection, Protection and
  Defeat Systems

41
Foreign ST (Cont'd) Areas of Interest

• Areas of Foreign Technological Interest
• Nanotechnology
• Robotics
• Low Observable and Masking Technologies and CM
• Diesel Submarine Endurance
• Biotechnology
• Increased Lethality
• Conventional Explosives
• Weapons of Mass Destruction

42
Foreign ST TrendsCommercial Technologies
Available to All

• Technology Available to Buyers
• Commercial Sector Drives Technology Development
• Emphasis on Technologies That Make Things Happen
• Micro-Miniaturization More Important
• Biotechnology A Breakthrough Area
• Ubiquitous Access to Communications
• Greater Access to Space Based Sensors, and
  Related CM
• Broader, More Timely Access to Information
• Sophisticated/Interdependent Systems Increasingly
  Vulnerable To Single Point Failures

43
Weapons Costs
44
Weapon System CostsFew Can Afford to Develop or
Buy

• Sophisticated System Costs Escalate Faster Than
  Annual Inflation Rates
• Techinflation Affects Development Costs of
  Aerospace, Ship, Submarine, Armor Systems
• Major Program Initial Costs Underestimated
• Cost Overruns Lead to Stretched Schedules,
  Smaller buys, increased unit costs
• Sophisticated Programs Expensive Not Many
  Countries Can Develop Them
• Representative Program Costs

• F-35 JSF 200B
• F/A-22 Raptor 72B
• V-22 Osprey 46B
• RAH-66 Commanche 39B
• Evolved Expendable Launch Vehicle 31.8B
• Eurofighter Up 20B since 96 ½ fewer a/c

• Space Based Radar 30B
• Multi-Mission Maritime Aircraft 26B
• European A-400M Transport 23.7B
• SBIR 8B
• Kinetic Energy Interceptor 4.5B
• Airborne Laser Program more than doubled

Note Significant cost overruns Multiple Sources
45
Weapon System CostsFew Can Afford to Develop or
Buy

• Sophisticated System Costs Escalate Faster Than
  Annual Inflation Rates
• Techinflation Affects Development Costs of
  Aerospace, Ship, Submarine, Armor Systems
• Major Program Initial Costs Underestimated
• Cost Overruns Lead to Stretched Schedules,
  Smaller buys, increased unit costs
• Sophisticated Programs Expensive Not Many
  Countries Can Develop Them
• Representative Program Costs

• F-35 JSF 200B
• F/A-22 Raptor 72B
• V-22 Osprey 46B
• RAH-66 Commanche 39B
• Evolved Expendable Launch Vehicle 31.8B
• Eurofighter Up 20B since 96 ½ fewer a/c

• Space Based Radar 30B
• Multi-Mission Maritime Aircraft 26B
• European A-400M Transport 23.7B
• SBIR 8B
• Kinetic Energy Interceptor 4.5B
• Airborne Laser Program more than doubled

Note Significant cost overruns Multiple Sources
46
Weapon System CostsFew Can Afford to Develop or
Buy

• Sophisticated System Costs Escalate Faster Than
  Annual Inflation Rates
• Techinflation Affects Development Costs of
  Aerospace, Ship, Submarine, Armor Systems
• Major Program Initial Costs Underestimated
• Cost Overruns Lead to Stretched Schedules,
  Smaller buys, increased unit costs
• Sophisticated Programs Expensive Not Many
  Countries Can Develop Them
• Representative Program Costs

• F-35 JSF 200B
• F/A-22 Raptor 72B
• V-22 Osprey 46B
• RAH-66 Commanche 39B
• Evolved Expendable Launch Vehicle 31.8B
• Eurofighter Up 20B since 96 ½ fewer a/c

• Space Based Radar 30B
• Multi-Mission Maritime Aircraft 26B
• European A-400M Transport 23.7B
• SBIR 8B
• Kinetic Energy Interceptor 4.5B
• Airborne Laser Program more than doubled

Note Significant cost overruns Multiple Sources
47
Ball Park Weapons Cost Data
48
F/A-22 Program
257M (GAO)
?
260
?
750
240
72B
?
?
220
?
200
a/c
179M
?
180
?
160
a/c Cost
?
140
Program Costs B
Unit Cost M
Number of Aircraft
?
Program
?
?
120
38B
?
?
277
?
100
?218
100M
80
Number a/c ? a/c cost ? Program Cost ?
60
50
40
30
20
1980
85
90
95
2000
2005
Note Program chg to F/A-22 in 2002
?DoD Estimate a/c
Sources Multiple
49
F/A-22 Program Acquisition Numbers
800
750
762
700
600
500
400
Number Aircraft
381
300
277
226
218
200
180
100
0
1981
85
90
95
2000
2005
YEAR
Notes 1 USAF requirement for 381-762
aircraft 2 USAF Plan 3 Affordable within
Funding ceiling Black figures/lines are
DOD Blue figures/lines are USAF
Sources Defense News, Beyond F-22 Decision 2
Aug 99 Defense News, Meet the F/A-22, 16-22
Sep 2002 Inside Defense, Rumsfeld Staff Moves
Closer to AF Size of F/A-22 Fleet, 31 Oct
02 Inside Defense, GAO Doubts DODs Readiness
to Make F-22 Production Decision, 15 Mar 04
50
Weapon Systems Cost TrendsNew Systems Cost More

• Trends Upward
• Most Prominent Microeconomic Force Affecting
  Defense Industries is The Rapidly Rising Cost of
  Weapons RD and Production
• New Systems Cost Far More In Real Terms Than
  Units Being Replaced
• Smaller Production Runs Resulting From Smaller
  National Requirements and Fewer Export Sales
  Increase Unit Costs
• Inflation and Currency Devaluation in Buyer
  Countries Raise System Costs Accordingly
• Typically, Weapon Costs Increase About 10 Per
  Year, Doubling Every 7.25 Years
• Ratio of Increasing New Unit Costs To Defense
  Budgets Affects Numbers Acquired

• Sources
• Hand Book of Defense Economics, Vol. I K.J.
  Arrow and M.D. Intriligator, 1995
• Global Arms Trade Commerce in Advanced
  Military Technology and Weapons, Congress of the
  US Defense News, LGEN M. Davison, USA, US
  Defense Security Assistance Agency, 9-15 Feb 1998
• SIPRI Yearbook 2003

51
WorldwideArms Transfers
52
Worldwide Arms TransfersOverview

• Arms Transfers Down 72 Since Mid-80s

• US (41), Russia, France, Germany, UK, Ukraine
  Account for 86 of Worldwide Transfers During
  98-02
• Major Recipients, China, Taiwan, India, Turkey,
  Saudi Arabia, Greece, South Korea, Egypt, UK,
  Israel, Pakistan, Japan, UAE, Australia, Account
  for 83 of Total Deliveries During 98-02
• Greater Competition for Fewer Arms Sales
• Many National Arms Industries Need Arms Exports
  to Survive
• Leads to Creative Financing to Close Sales

Sources SIPRI Yearbooks 2001, 2002,
2003 Military Balance 2003-2004 Multiple Issues
of Defense News, Armed Forces Journal 2001?2004
53
Worldwide Arms TransfersMore Flexible Financing

• Major Market for Used and Modernized Systems
• Most Post Cold War Period Sales for Cash
• High Weapons Costs and Intensive Competition for
  Sales Lead to More Flexible Arms Transfer
  Arrangements
• Grant Aid Primarily by US Egypt (1.3B in
  03), Israel (2.1B in 03), and Jordan for
  Mid-East Peace Agreements South, Latin American
  Countries for Counter-narcotics Ops Pakistan,
  Philippines and Others for Counter- terrorism
  Support
• Loans US Loaned Poland 3.8B to Purchase 48
  F-16s Poland Paying Only Interest First 8 Yrs
  of 15-Yr Loan
• US FMS Reached 14B in 2003 at a Flat
  Fee of 2.5
• Barter Russian a/c Sales to Malaysia,
  Indonesia for Commodities and Cash
• French Tanks to Saudi Arabia for Oil
• Debt Russian Exchange of Arms for Debt with
  China, South Korea, Czech Republic, Other
  Former East European Countries
• Lease Czech Republic, Hungary Leasing Gripen
  Fighters from Sweden Italy F-16s from US
  Denmark APCs from Finland India an AKULA SSN
  from Russia for 3 Yrs at 100M/Yr

Sources SIPRI Yearbook 2003 Defense News
Multiple Issues
54
Worldwide Arms TransfersOffsets

• More Countries Purchasing Major Weapon Systems
  Demand Industrial Offsets or Compensation to
  Defray Purchase Cost, Increase Domestic
  Employment, Acquire Technologies and Develop
  Local Industries
• Direct offsets Require Production of Some Weapon
  Components in the Buyer Country
• Indirect Offsets Include Tech Transfer, Local
  Investment and Counter-trade
• Offsets Becoming Increasingly Expensive Some at
  100 - 200 of Weapons Purchase Price
• Offsets Controversial
• House Armed Services Committee Would Ban
  Industrial Offsets
• Without Offsets, US Defense Industries Would Lose
  Arms Sales to Foreign Competitors
• Europe Views Offset Ban As Protectionist,
  Challenge to Free Trade
• Despite Availability of More Flexible Arms
  Transfer Arrangements, Global Arms Transfers
  Remain Depressed

Sources Defense News, 24 May 04, 14 June 04,
28 June 04
55
Worldwide Arms TransfersOffsets

• More Countries Purchasing Major Weapon Systems
  Demand Industrial Offsets or Compensation to
  Defray Purchase Cost, Increase Domestic
  Employment, Acquire Technologies and Develop
  Local Industries
• Direct offsets Require Production of Some Weapon
  Components in the Buyer Country
• Indirect Offsets Include Tech Transfer, Local
  Investment and Counter-trade
• Offsets Becoming Increasingly Expensive Some at
  100 - 200 of Weapons Purchase Price
• Offsets Controversial
• House Armed Services Committee Would Ban
  Industrial Offsets
• Without Offsets, US Defense Industries Would Lose
  Arms Sales to Foreign Competitors
• Europe Views Offset Ban As Protectionist,
  Challenge to Free Trade
• Despite Availability of More Flexible Arms
  Transfer Arrangements, Global Arms Transfers
  Remain Depressed

Sources Defense News, 24 May 04, 14 June 04,
28 June 04
56
Worldwide Arms Transfer TrendsNearing Bottom ??

• Near Term Likely to Increase Slightly if Asian
  Economic Problems Continue to Ease, European
  Economies Strengthen, Oil Prices Support
  Increased Spending
• Mid Term Probably Will Stabilize Around 20-25B
  in 1990
• Defense Industries Survival More and More
  Dependent on Foreign Sales
• Continued Strong Competition for Fewer Sales

Sources SIPRI Yearbooks 2001, 2002, 2003 The
World Bank World Development Indicators 2004
57
Notional Arms Export Market
5.0
4.0
3.0
2.5
2.0
1.8
1.6
Combat Aircraft M
Tanks M
Naval Combatants M
1.4
1.2
1.0
.8
.6
.4
.2
0
5
10
20
40
60
100
Market Access
58
WorldwideDefenseIndustries
59
Defense IndustriesOverview

• Post Cold War Search for Peace Dividends Led to
  Reduced Defense Spending
• Diminishing National Requirements and Foreign
  Arms Sales
• Industries Faced with Overcapacity, Obsolescence,
  Large and Underutilized Work Force
• Worldwide Defense Industry Comprised of Public,
  Private, and Govt Owned/Controlled Companies
• Most State Owned When Cold War Ended
• More Public or Private Today

60
Selected Worldwide Defense Industries
2004Nationalized vs. Privatized
State Owned/Controlled State/Public
Mix Transitioning from State to
Public/Private Public/Private
15
CHILE CHINA FINLAND INDONESIA IRAN ITALY MALALYS
IA N. KOREA PAKISTAN SPAIN SYRIA TURKEY UKRAINE
10
COUNTRIES
AUSTRIA CANADA DENMARK GERMANY JAPAN NETHERLANDS N
ORWAY SWEDEN U.K.
AUSTRALIA BRAZIL GREECE ISRAEL POLAND S.
AFRICA TAIWAN
5
EGYPT FRANCE INDIA PORTUGAL RUSSIA SINGAPORE
GOVT.
PUBLIC/PRIVATE
OWNERSHIP/CONROL
Note Considering Privatization
Multiple Unclassified Sources
61
Defense IndustriesIn Transition

• Supply, Demand and Profitability Issues Led to
  Major Restructuring
• Rationalization Leading to Plant Closures and
  Downsizing of Work Force
• Consolidation Via Mergers and Acquisitions with
  Competitors and Suppliers to Reduce Overcapacity
  and Redundant Production Lines In All Major
  Weapons Categories Especially Aerospace and
  Electronics
• Cross-Border Consolidations More Difficult as
  Nations Protect Defense Industries from Foreign
  Control (UK an Exception)
• Collaboration Among National and Cross-Border
  Companies Based Upon Workshares and Units
  Purchased
• Future Will See More Collaboration and
  Consolidation, Especially in Naval Shipbuilding
  and Land Combat Systems
• Issues Remain
• Problem with Govt Owned/Controlled Companies
• Protectionism vs. Free Trade
• Tech Transfer
• Does Less Competition Mean Less Innovation
• Reducing Unit Costs

62
Defense IndustriesIn Transition

• Supply, Demand and Profitability Issues Led to
  Major Restructuring
• Rationalization Leading to Plant Closures and
  Downsizing of Work Force
• Consolidation Via Mergers and Acquisitions with
  Competitors and Suppliers to Reduce Overcapacity
  and Redundant Production Lines In All Major
  Weapons Categories Especially Aerospace and
  Electronics
• Cross-Border Consolidations More Difficult as
  Nations Protect Defense Industries from Foreign
  Control (UK an Exception)
• Collaboration Among National and Cross-Border
  Companies Based Upon Workshares and Units
  Purchased
• Future Will See More Collaboration and
  Consolidation, Especially in Naval Shipbuilding
  and Land Combat Systems
• Issues Remain
• Problem with Govt Owned/Controlled Companies
• Protectionism vs. Free Trade
• Tech Transfer
• Does Less Competition Mean Less Innovation
• Reducing Unit Costs

63
Defense IndustriesIn Transition

• Supply, Demand and Profitability Issues Led to
  Major Restructuring
• Rationalization Leading to Plant Closures and
  Downsizing of Work Force
• Consolidation Via Mergers and Acquisitions with
  Competitors and Suppliers to Reduce Overcapacity
  and Redundant Production Lines In All Major
  Weapons Categories Especially Aerospace and
  Electronics
• Cross-Border Consolidations More Difficult as
  Nations Protect Defense Industries from Foreign
  Control (UK an Exception)
• Collaboration Among National and Cross-Border
  Companies Based Upon Workshares and Units
  Purchased
• Future Will See More Collaboration and
  Consolidation, Especially in Naval Shipbuilding
  and Land Combat Systems
• Issues Remain
• Problem with Govt Owned/Controlled Companies
• Protectionism vs. Free Trade
• Tech Transfer
• Does Less Competition Mean Less Innovation
• Reducing Unit Costs

64
Worldwide Defense Industry Trends

• Privatization Slow Process
• Consolidation More National and Cross-Border
  Mergers and Acquisitions
• Collaboration Sharing The Load (and Cost)
• Cessation Survival of Fittest
• Fewer Developers, Manufactures of Air, Space,
  Land, Naval and Electronics Systems

65
Defense Economics Summary
66
Defense Economics SummaryImpact on Military
Capabilities

• Sustained (2 yrs) Combinations of Following
  Economic Conditions Will Pressure Defense
  Spending Downward
• GDP Growth Less Population Growth
• Budget Deficit 3 of GDP
• Defense Budget 20 of Revenues
• Debt Interest Payment 10 of Revenues
• Inflation 20
• Debt 50 of GDP
• Debt Revenues
• Many Countries, Especially in Europe, South
  America More Likely to Cut Defense Budgets Before
  Public Health, Schools, Welfare, Security and
  Infrastructure to Accommodate National Budget
  Deficits, Debt, Inflation and Other Impediments
  to Spending
• Sustained Lower Defense Spending Leads to
• Reduced Force Levels Russia, Spain, Greece,
  Netherlands, Switzerland, Belgium, Sweden,
  Germany, etc.
• Retiring Older Systems Early to Reduce
  Maintenance Costs UK, Canada, Belgium, etc.
• Retiring Systems Because Cant Afford to Upgrade
  Them
• Canceling, Reducing, Delaying Planned
  Acquisitions Argentina, Brazil, Singapore, UK,
  Sweden, Norway, Greece, Egypt, Turkey, etc.
• Upgrading Rather Than Buying New Systems Italy,
  Israel, India, Denmark, Finland, Greece, Germany,
  India, Turkey, Saudi Arabia, China, Germany,
  Algeria, Australia
• Buying Used Systems India, Pakistan, Algeria,
  Australia, Austria, Brazil, Canada, Chile, China,
  Czech Republic, Egypt, Greece, Indonesia, Israel,
  Saudi Arabia, Malaysia, etc.

Sources The World Bank World Development
Indicators 2004 IMF International Financial
Statistics Yearbook 2002 IMF Government
Finance Statistics Yearbook 2002 Various
Editions of Defense News and The Washington Post
67
Defense Economics SummaryImpact on US Military
Spending

• Increasing Competition for Defense Share of US
  Revenues
• Balancing the Budget (FY 04 Deficit est. 413B)
• Servicing and Paying Down Debt (FY04 Debt 7.4T
  Interest Payment 159B)
• Paying for Tax Cuts
• Increasing Cost of Retiring Baby-Boomers Medical
  and Social Security Expenses
• Homeland Defense
• Infrastructure
• HEW
• Increasing Competition for Modernization Share of
  Defense Budget
• Rising Personnel Pay, Benefits, Health Care Costs
• Cost Estimates for 10-20 Thousand Troop Increase
  Range from 1.2 2B Per Yr
• Afghanistan, Iraq, Other Peacekeeping Ops
• Increasing OM

Source Washington Post OPED A Bad Way to Cut
the Debt, Michael Kinsley, 2 Jul 04
68
Defense Economics SummaryImpact on US Military
Spending

• Increasing Competition for Defense Share of US
  Revenues
• Balancing the Budget (FY 04 Deficit est. 413B)
• Servicing and Paying Down Debt (FY04 Debt 7.4T
  Interest Payment 159B)
• Paying for Tax Cuts
• Increasing Cost of Retiring Baby-Boomers Medical
  and Social Security Expenses
• Homeland Defense
• Infrastructure
• HEW
• Increasing Competition for Modernization Share of
  Defense Budget
• Rising Personnel Pay, Benefits, Health Care Costs
• Cost Estimates for 10-20 Thousand Troop Increase
  Range from 1.2 2B Per Yr
• Afghanistan, Iraq, Other Peacekeeping Ops
• Increasing OM

Source Washington Post OPED A Bad Way to Cut
the Debt, Michael Kinsley, 2 Jul 04
69
Trends ImplicationsSpending Trends Have Wide
Impact

• Fewer Producers of High-End Systems and Fewer New
  Systems Produced
• More Cross-Border/International Cooperation,
  Sharing of RD, Production and Acquisitions
• Wider Access to Technologies
• Increased Emphasis on Affordability Strategies,
  Technologies that Reduce Development,
  Manufacturing Costs
• Small Market for Costly New Systems
• Big Market for Less Capable, More Affordable
  Combat Systems
• Increasing Competition for Foreign Sales
• Emphasis on Dual-Use Technologies, COTS, System
  Upgrades
• Escalating Weapons Costs Affect Military Forces,
  Capabilities
• Future Conventional Threats Include Fewer
  High-Tech, Many Low-Medium Tech Systems

70
Threats
71
Worldwide Threat OverviewSmaller Forces with
Mixed Inventories

• 75 of Todays Threats Are Older Systems
• Potential Adversaries Will Replace Some With More
  Capable Systems
• Technology Inserts During System Upgrades
  Complicate Threats, Extend Life 10-15 Years
• Wide Variety of Modern Weapon Systems Available
  for Those that Can Afford Them
• Economic Factors Preclude One-for-One
  Replacements, Lead to Smaller Forces

72
Worldwide Threat Overview (Cont'd)Smaller Forces
with Mixed Inventories

• Year 2010 Threat Composition
• 85 with Pre-1995 IOCs 1960-1980 Technologies
• 15 with Post-1995 IOCs 1980-1995 Technologies
• Coastal Countries that Consider the US a Threat
  Will Acquire Capabilities to Attack Forces in
  Littoral Waters
• Asymmetric Threats are In Play More Affordable
  Can Complicate, Slow US Mission Accomplishment

73
Year 2010 Military Systems
AIRCRAFT MIG-21/23 F-4/F-5 A-4/A-7 MIRAGE F-1
SHIPS FFG-7 KASHIN FF KONI FFL FF-1056 OSA
PTG KRESTA I/II CG
SUBS FOXTROT ROMEO 209 TYPES
MSLS STYX HARPOON EXOCET BL 1
30
AIRCRAFT MIG-25/29 Su-24/25/27 F-14/15 F-16/18 MIR
AGE 2000 HAWK 100/200
SHIPS KHUKRI FFL KRIVAK FF LEANDER FF BDSWORD
FF SOVMNYY
SUBS UPHOLDER KILO SS MSLS SS-N-22 B1
35
AIRCRAFT MIRAGE 2000-5 Su-30/35 GRIPPEN
SHIPS NEUSTMYY FF JIANGHU III FF LUHU DD HALIFAX
FF FLYVEFISHLEN FFL DELHI DDG SAAR V
FFL LAFAYETTE FF LOREAL FFL
SUBS 209 SS TYPE COLLINS SS AGOSTA B SS KILO FO SS
MSLS EXOCET BI-II C801/C802 SS-N-22 BL
2 HARPOON UPGRADES SS-NX-25
20
AIRCRAFT F/A-18 E/F RAFAEL EFA FSX (JA)
SHIPS MALAY FF KONGU DDG (JA) KDX DD (SK) YS 2000
MSLS SS-N-26 SS-N-27
10
LEGEND
TECHNOLOGY DEVELOPMENT PRODUCTION OPERATIONAL UPGR
ADE EXTENDED OPERATIONAL LIFE
AIRCRAFT F-22 MFI XF-10 SU-37
SHIPS HORIZON FF NEW GEN FF COMMON FF
5
(U) NOTE PERCENTAGE () IS ESTIMATED YEAR 2010
COMPOSITION.
Ref 9800648_UK.PPT-4
74
Year 2025 2030 Military Systems
1950
1960
1970
1980
1995
2000
2005
2010
2015
2020
2025
2030
2040
1990
5
TECH-NOLOGY
DEVELOP
PRODUCE
OPERATIONAL
UPGRADE
EXTENDED OPERATIONAL LIFE
A/C MIG-21/23 F-4/-5 A-4/-7 MIRAGE F-1
SHIPS MIG 21/23 F-4/-5 A-4/-7 MIRAGE F-1
SUBS FOXTROT ROMEO 209 TYPES
MISSILES STYX HARPOON EXOCET BL 1
20
A/C MIG-25/23 Su-24/25/27 F-14/15 F-16/18 MIRAGE
2000
SUBS UPHOLDER KILO SS
MISSILES SS-N-22 BL 1
SHIPS KHUKRI FFL KRIVAK FF LEANDER FF BDSWORD
FF SOVMNYY DDG
40
A/C MIRAGE 2000 Su-30/35 HAWK 100/20
SHIPS NEUSTMYY FF DELHI DDG JIANGHU III FF SAAR
V FFL LHU DD LAFAYETTE FF HALIFAX FF LOREAL
FF FLYVEFISHLEN FFL
SUBS 209 SS TYPE COLLINS SS AGOSTA SS KILO FO SS
MISSILES EXOCET BL-II C801/C802 SS-N-22
BL-II SS-N-25 HARPOON UPGRADES
20
A/C F/A-18 E/F GRIPPEN RAFAEL EFA FSX (JA)
SHIPS MALAY FF KONGU DDG(JA) KDX DD (SX) YS-2000
MISSILES SS-N-26 SS-N-27
SUBS
10
SHIPS HORIZON NEW GEN FF COMMON FF DD(X) LCS
A/C F-22 MFI XF-10
5
?? ???? ??
NOTE REFLECTS EST. YEAR 2025-2030 COMPOSITION
75
Threat Summary

• Mixed Technology Forces in 2010
• Wide Variety of Modern Weapon Systems Including
  WMD Available
• Smaller Conventional Forces
• Asymmetric Threats In Play

76
Asymmetric WarfareTarget Vulnerabilities

• Exploits an Adversarys Strategic, Tactical,
  Technical Vulnerabilities by Innovative,
  Unexpected, and/or Less Costly Means in Order to
  Deter Action, Deny Access and/or Delay Mission
  Accomplishment
• An Attractive Option for National, Sub-National
  and Transnational Groups to Employ Against
  Stronger Adversaries

Source Institute for National Strategic
Studies, National Defense University 1998
Strategic Assessment Engaging Power for Peace
77
Asymmetric WarfareApplications

• Exploits National Will, Public Aversion to
  Casualties
• Targets Coalition Cohesiveness
• Employs IW for Perception Management
• Threatens US Homeland, Nationals, Allies
• Attacks National Infrastructure, Civil
  Facilities, Population
• Employs Low Cost, Low Technology Solutions to
  Counter High Cost, High Technology Threats

78
Asymmetric Warfare (Cont'd)Applications

• Selectively Acquires, Uses, Threatens to Use
  Niche High Tech Sensors, Weapon Systems, i.e.,
• WMD and Delivery Systems
• Cyberweapons to Disrupt C4ISR Systems
• IW Countermeasures
• Fights in Environment Less Favorable to US
  Capabilities

79
Asymmetric ThreatsExamples

• Naval, Land and Anti-Helo Mines
• Cheap Aircraft with Explosives or Precision
  Guided Munitions
• UAVs Equipped with Explosives
• Terrorists with Small Arms, Rockets, Explosives,
  Chemical/Biological Agents
• Remotely Controlled Explosive Devices
• Swimmers with Limpet Mines, Explosive Charges
• Pier-Side Attacks

80
Asymmetric Threats (Cont'd)Examples

• Chemical, Biological Warheads for Coastal Cruise
  Missiles, Anti-Ship Cruise Missiles (ASCMs),
  Theater Ballistic Missiles (TBMs), Artillery,
  Mines, Bombs
• Urban Warfare
• Information Warfare
• Cyberwarfare
• Satellite Interference, Denial
• Etc.

81
2002 Defense Budgets(US 2000 Dollars)
2B - 20B
500M - 5B - 1B - 2B
10B - VG70