Killelea Def Eco N

Defense Economics: 

Defense Economics Frank Killelea National Security Analysis Department Johns 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

Abstract : 

Abstract This analysis identifies economics factors and conditions that are important to a nation-state’s 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 country’s 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.

Executive Summary (1of 4): 

Executive Summary (1of 4) This analysis identifies economics factors and conditions that are important to a nation-state’s 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 country’s 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 R&D 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.)

Executive Summary Continued (2 of 4): 

Executive Summary Continued (2 of 4) Since last updated: Global defense and R&D 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.

Executive Summary Continued (3 of 4): 

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 R&D 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.

Executive Summary Continued (4 of 4): 

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 (R&D, Acquisition) will like absorb most cuts as military personnel, medical, and O&M 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.

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

Current and Near-Term GEO-POL Overview Unsettled and Challenging Post Cold War Period Unsettled and Dangerous Regional Conflicts Could Involve US Transnational Threats More Prominent Russia’s National Interests Still Uncertain China Perceives Greater Regional Role NATO’s Future Role Unclear – Europe More Introspective US Engaged Countering Transnational Threats Supporting Developing Democracies Will Preempt to Defend Interests Emphasis on Coalition OPS Conflicting National Interests Challenge Coalition Solidarity, Effectiveness

International Defense EconomicsOverview: 

International Defense Economics Overview 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 I&W 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

International Defense Economics (Cont'd)Overview: 

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 R&D Investment Driven by US; Western Europe to Lesser Degree Few Can Afford Few New Sophisticated Combat Systems Being Developed Worldwide Europe Needs to Consolidate R&D 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 Prohibitive New Weapons Costs Increasing Market for Cheaper, Used, and Upgraded Systems Upgrades and Maintenance are Not Cheap; Pool of Used Systems Growing Smaller An Area in Distress and In Need of Realistic Market Analysis

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 International Defense Economics (Cont'd) Overview

Defense EconomicsSummaryGlobal Defense Spending: 

Defense Spending Decline Bottomed in ’98 – Slow Climb Since Military R&D 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 Don’t Need Large Budgets, Expensive Weapons Defense Economics Summary Global Defense Spending

Notional Worldwide Defense Spending Trends: 

Notional Worldwide Defense Spending Trends DEFENSE BUDGETS R&D WEAPONS TRANSFERS 2010 MID-80s CONSTANT 2000 $ TIME $ WEAPON COSTS 2002 VG#7

Defense Spending Economic Factors: 

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.

Defense SpendingKey Economic Data: 

Defense Spending Key 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

Macro-Economic Factors InhibitDefense Budgets: 

Macro-Economic Factors Inhibit Defense Budgets Sustained annual Gross Domestic Product (GDP) growth below 3%, or negative growth Sustained annual inflation rate over 15% External debt equal to or greater than annual gov’t revenues External debt equal to or greater than 50% of GDP Note: Presence of more than one factor increases negative pressure on defense budget. Current year +1 +2 +3 +4 Economic Factors Current defense budget level Less $ More $

Worldwide GDP & Defense Spending Trends: 

Worldwide GDP & Defense Spending Trends 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 140 120 100 80 60 40 20 0 Index: 1986 = 100 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 World Bank Development Indicators Data Bank, 4 Jun 2004 query 1998 1999 DEFENSE SPENDING GDP 2000 2001 2002 VG#11

2002 Economic Data (1of 4): 

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.

2002 Economic Data (2 of 4): 

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.

2002 Economic Data (Cont’d) (3 of 4): 

2002 Economic Data (Cont’d) (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.

2002 Economic Data (Cont’d) (4 of 4): 

2002 Economic Data (Cont’d) (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.

DefenseSpending: 

Defense Spending

Defense Spending Overview: 

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 R&D US, Western Europe, Japan, Russia Produce High Technology Systems; ROW Countries Don’t R&D 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

Defense SpendingSmaller Inventories and Upgrades: 

Defense Spending Smaller 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

Worldwide Defense Budgets – 2002: 

Worldwide Defense Budgets – 2002 Ref: 9800648B_UK.PPT-4 0 10 20 30 40 50 60 70 80 90 100 Defense Budgets in Billions Constant U.S. 2000 Dollars Number of Countries 0 $0.5 1.0 2.0 3.0 4.0 5.0 7.0 10.0 15.0 30.0 >30.0 N. KOREA INDONESIA EGYPT KUWAIT COLOMBIA BELGIUM POLAND NORWAY PAKISTAN SWEDEN SINGAPORE NETHERLANDS SYRIA AUSTRALIA GREECE IRAN BRAZIL TAIWAN CANADA SPAIN ISRAEL TURKEY S. KOREA INDIA S. ARABIA GERMANY RUSSIA ITALY CHINA 61.5 JAPAN 46.7 U.K. 36 FRANCE 33.6 Notes: Includes all countries less the U.S., Sources: “SIPRI Yearbook 2003” and “The Military Balance 2003/2004” 90 14 4 13 6 2 6 3 4 4 9 VG#19

10-Year Defense Budget Growth (%)1993 → 2002: 

10-Year Defense Budget Growth (%) 1993 → 2002 0 5 10 15 20 25 Number of Countries LIBYA BELARUS CROATIA ZAMBIA TAIWAN ARGENTINA VENEZUELA N. KOREA THAILAND ANGOLA CHAD SIERRA LEONE GUATEMALA URUGUAY PARAGUAY AZERBAIJAN U.K. GERMANY CANADA SWITZERLAND PERU MOZAMBIQUE RWANDA SEYCHELLES ZIMBABWE BRUNEI MONGOLIA ALBANIA KAZAKHSTAN USA RUSSIA SPAIN NETHERLANDS AUSTRALIA BELGIUM AUSTRIA FINLAND SENEGAL EL SALVADOR BULGARIA YEMEN JAPAN PAKISTAN DENMARK NORWAY POLAND SWEDEN EGYPT MOROCCO HUNGARY ROMANIA LEBANON GHANA NICARAGUA MALTA ITALY KUWAIT MALAYSIA CZECH REP. PHILIPPINES BURKINA FASO CAMEROON MADAGASCAR BOLIVIA INDIA BRAZIL COLOMBIA SINGAPORE LETHOSO MALI NAMIBIA NIGERIA TANZANIA ECUADOR ARMENIA LUXEMBOURGE CHINA ALGERIA SUDAN UGANDA NEPAL UKRAINE ETHIOPIA ESTONIA LATVIA LITHUANIA 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 CONSTANT U.S. 2000 $ VG#20 S. KOREA SAUDI ARABIA TURKEY GREECE IRAN ISRAEL SYRIA MEXICO CHILE PORTUGAL OMAN BANGLADESH SRI LANKA IRELAND JORDAN TUNISIA BOTSWANA BURUNDI KENYA PANAMA CAMBODIA CYPRUS SLOVAKIA BAHRAIN

Estimated Worldwide Defense ModernizationFunding – 2002: 

Estimated Worldwide Defense Modernization Funding – 2002 Ref: 9800648B_UK.PPT-4 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” Defense Budgets >30.0 0 10 20 30 40 50 60 70 80 90 100 Number of Countries 0 $0.5 1.0 2.0 3.0 4.0 5.0 7.0 10.0 15.0 30.0 N. KOREA INDONESIA EGYPT KUWAIT COLOMBIA BELGIUM POLAND NORWAY PAKISTAN SWEDEN SINGAPORE NETHERLANDS SYRIAI AUSTRALIA GREECE IRAN BRAZIL TAIWAN CANADA SPAIN ISRAEL TURKEY S. KOREA INDIA S. ARABIA GERMANY RUSSIA ITALY CHINA 61.5 JAPAN 46.7 U.K. 36 FRANCE 33.6 90 14 13 6 2 6 3 4 4 9 4 Defense Funds for Force Modernization @20 and 40% $ @ 20% $0.1 0.2 0.4 0.6 0.8 1.0 1.4 2.0 3.0 6.0 >6.0 $ @ 40% $0.2 0.4 0.8 1.2 1.6 2.0 2.8 4.0 6.0 12.0 >12.0 VG#21

Defense Spending Trends: 

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

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 Defense Spending (Cont'd) Trends

Defense R&D/S&T: 

Defense R&D/S&T

Worldwide Military R&D Spending Overview: 

R&D 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 R&D US, Russia, China* Spending More in 2002 R&D Budgets Compete with Procurement, Personnel, Maintenance and Operational Readiness Accounts Aggregate Worldwide Defense R&D Spending Likely to Increase Near-Term as US, Russia, China* Spend More European R&D Likely to Decrease Somewhat as Major Aircraft Programs (RAFAEL, EUROFIGHTER, A400 Transport) Transition to Production Worldwide Military R&D Spending Overview Note: *China Has Made R&D a Priority; Chinese R&D Funding Figures Are Best Estimates Sources: SIPRI Yearbooks – 2001, 2002, 2003 IISS “The Military Balance 2003-2004”

Estimated Worldwide Military R&D Spending - 2002: 

Estimated Worldwide Military R&D Spending - 2002 0 1 2 3 4 5 6 7 8 9 10 R&D Spending in Constant 2000 U.S. Dollars Number of Countries $50M 100M 200M 500M 1.0B 2.0B 5.0B PAKISTAN SWITZERLAND NORWAY NETHERLANDS POLAND UKRAINE ISRAEL ARGENTINA GREECE SPAIN AUSTRALIA S. AFRICA CANADA SINGAPORE BRAZIL TAIWAN SWEDEN ITALY INDIA IRAN FRANCE S. KOREA GERMANY CHINA JAPAN RUSSIA U.K. Notes: Includes only countries spending >$50 million Sources: SIPRI Yearbooks – 2001, 2002, 2003 Defense News, 2 Feb 04 Ref: 9800648_UK.PPT-7 U.S. @ $50.6B 66.3B in 2004

Worldwide Military R&D Spending: 

Worldwide Military R&D Spending Billions of US Constant 2000$ *1995$ **1994$ ***1996$ ****1997$ Source: SIPRI “Yearbook 2001, 2003” IISS “The Military Balance” 2003-2004 Various Defense News Editions

Worldwide R&D Sophisticated Systems Costly: 

Worldwide R&D 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 R&D 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.

Worldwide R&D (Cont'd)Sophisticated Systems Costly: 

Worldwide R&D (Cont'd) Sophisticated Systems Costly Most ROW Countries Can’t 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

Worldwide R&D (Cont'd)Sophisticated Systems Costly: 

Worldwide R&D (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

Worldwide High Technology Weapon Design andDevelopment Capabilities: 

Worldwide High Technology Weapon Design and Development Capabilities 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. Ref: 0400346_UK.ai

Worldwide Military R&D Trends: 

Worldwide Military R&D Trends Without a Clear Technologically Advanced Threat, or a Market for Costly High Tech Systems, R&D 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 R&D Resources

Worldwide Military R&D Trends (Cont'd): 

Worldwide Military R&D 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

Foreign Science & Technology Overview: 

Foreign Science & Technology Overview Technology “Haves” and “Have Nots” Persist Technology Increasingly Dual Use Technology’s Economic Impact More Important Than Military’s Nations and Industries Will Sell Technology for Political and Economic Reasons Credible Asymmetric Threats Can Offset Some Technological Advantage

Foreign S&TAreas of Interest: 

Foreign S&T Areas 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 ISR and Target Acquisition Systems to Counter Terrorists Explosive Ordnance Disposal

Foreign S&T (Cont'd)  Areas of Interest: 

Foreign S&T (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

Foreign S&T TrendsCommercial Technologies Available to All: 

Foreign S&T Trends Commercial 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

Weapons Costs: 

Weapons Costs

Weapon System CostsFew Can Afford to Develop or Buy: 

Weapon System Costs Few 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

Weapon System CostsFew Can Afford to Develop or Buy: 

Weapon System Costs Few 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

Weapon System CostsFew Can Afford to Develop or Buy: 

Weapon System Costs Few 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

Ball Park Weapons Cost Data: 

Ball Park Weapons Cost Data

F/A-22 Program: 

F/A-22 Program 1980 85 90 95 2000 2005              Number of Aircraft Program Costs $B 260 240 200 180 140 80 50 30 220 160 120 100 60 40 20 750 #a/c Number a/c  a/c cost  Program Cost  Program $ $38B $72B 277 218 $100M a/c Cost $179M $257M (GAO) Unit Cost $M Note: Program chg to F/A-22 in 2002 DoD Estimate #a/c Sources: Multiple 

F/A-22 Program Acquisition Numbers: 

F/A-22 Program Acquisition Numbers 0 100 200 300 400 500 600 700 800 1981 85 90 95 2000 2005 750 277 218 381 762 180 226 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 Number Aircraft YEAR 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 DOD’s Readiness to Make F-22 Production Decision”, 15 Mar 04

Weapon Systems Cost TrendsNew Systems Cost More: 

Weapon Systems Cost Trends New Systems Cost More Trends Upward Most Prominent Microeconomic Force Affecting Defense Industries is The Rapidly Rising Cost of Weapons R&D 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

WorldwideArms Transfers: 

Worldwide Arms Transfers

Worldwide Arms TransfersOverview: 

Worldwide Arms Transfers Overview 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

Worldwide Arms TransfersMore Flexible Financing: 

Worldwide Arms Transfers More 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

Worldwide Arms TransfersOffsets: 

Worldwide Arms Transfers Offsets 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

Worldwide Arms TransfersOffsets: 

Worldwide Arms Transfers Offsets 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

Worldwide Arms Transfer TrendsNearing Bottom ??: 

Worldwide Arms Transfer Trends Nearing 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”

Notional Arms Export Market: 

Notional Arms Export Market 5% 10 20 40 60 100 Market Access 5.0 4.0 2.5 2.0 1.4 1.2 .8 .4 .2 3.0 1.8 1.6 1.0 .6 0 Combat Aircraft $M Tanks $M Naval Combatants $M

WorldwideDefenseIndustries: 

Worldwide Defense Industries

Defense IndustriesOverview: 

Defense Industries Overview 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 Gov’t Owned/Controlled Companies Most State Owned When Cold War Ended More Public or Private Today

Selected Worldwide Defense Industries – 2004Nationalized vs. Privatized: 

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

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 Gov’t Owned/Controlled Companies Protectionism vs. Free Trade Tech Transfer Does Less Competition Mean Less Innovation Reducing Unit Costs Defense Industries In Transition

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 Gov’t Owned/Controlled Companies Protectionism vs. Free Trade Tech Transfer Does Less Competition Mean Less Innovation Reducing Unit Costs Defense Industries In Transition

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 Gov’t Owned/Controlled Companies Protectionism vs. Free Trade Tech Transfer Does Less Competition Mean Less Innovation Reducing Unit Costs Defense Industries In Transition

Worldwide Defense Industry Trends: 

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

Defense Economics Summary: 

Defense Economics Summary

Defense Economics SummaryImpact on Military Capabilities: 

Defense Economics Summary Impact on Military Capabilities Sustained (2+ yrs) Combinations of Following Economic Conditions Will Pressure Defense Spending Downward GDP Growth Less Population Growth <3% 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 Can’t 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

Defense Economics SummaryImpact on US Military Spending: 

Defense Economics Summary Impact 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 O&M Source: Washington Post OPED “A Bad Way to Cut the Debt”, Michael Kinsley, 2 Jul 04

Defense Economics SummaryImpact on US Military Spending: 

Defense Economics Summary Impact 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 O&M Source: Washington Post OPED “A Bad Way to Cut the Debt”, Michael Kinsley, 2 Jul 04

Trends ImplicationsSpending Trends Have Wide Impact: 

Trends Implications Spending Trends Have Wide Impact Fewer Producers of High-End Systems and Fewer New Systems Produced More Cross-Border/International Cooperation, Sharing of R&D, 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 Adversaries Can Leverage Small Defense Budgets with Less Costly Asymmetric Threats, i.e., IW, TBMs, C/B Weapons, Mines, CCMs, Small Boats, Terrorism, Insurgencies and Urban Warfare, etc., to Complicate, Impede US Military Ops

Threats: 

Threats

Worldwide Threat OverviewSmaller Forces with Mixed Inventories: 

Worldwide Threat Overview Smaller Forces with Mixed Inventories 75% of Today’s 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

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

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

Year 2010 Military Systems: 

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 MIRAGE 2000 HAWK 100/200 SHIPS KHUKRI FFL KRIVAK FF LEANDER FF B’DSWORD FF SOV*MNYY SUBS UPHOLDER KILO SS MSLS SS-N-22 B1 35% AIRCRAFT MIRAGE 2000-5 Su-30/35 GRIPPEN SHIPS NEUST*MYY 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% 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. TECHNOLOGY DEVELOPMENT PRODUCTION OPERATIONAL UPGRADE EXTENDED OPERATIONAL LIFE LEGEND Ref: 9800648_UK.PPT-4

Year 2025 – 2030 Military Systems: 

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 A/C F-22 MFI XF-10 SHIPS HORIZON NEW GEN FF COMMON FF DD(X) LCS Year 2025 – 2030 Military Systems 1950 1960 1970 1980 1995 2000 2005 2010 2015 2020 2025 2030 2040 TECH- NOLOGY DEVELOP PRODUCE OPERATIONAL 1990 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 5% 20% A/C MIG-25/23 Su-24/25/27 F-14/15 F-16/18 MIRAGE 2000 SHIPS KHUKRI FFL KRIVAK FF LEANDER FF BDSWORD FF SOV’MNYY DDG SUBS UPHOLDER KILO SS MISSILES SS-N-22 BL 1 40% A/C MIRAGE 2000 Su-30/35 HAWK 100/20 SHIPS NEUST’MYY 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% 10% 5% NOTE: % REFLECTS EST. YEAR 2025-2030 COMPOSITION SUBS ?? ?? ?? ??

Threat Summary: 

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

Asymmetric WarfareTarget Vulnerabilities: 

Asymmetric Warfare Target Vulnerabilities Exploits an Adversary’s 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”

Asymmetric WarfareApplications : 

Asymmetric Warfare Applications 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

Asymmetric Warfare (Cont'd)Applications: 

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

Asymmetric ThreatsExamples: 

Asymmetric Threats Examples 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

Asymmetric Threats (Cont'd)Examples: 

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.

2002 Defense Budgets(US 2000 Dollars): 

2002 Defense Budgets (US 2000 Dollars) <$500M $500M − <$1B $1B − $2B $2B − <$5B $5B − <$10B $10B − <$20B >$20B VG#70