Facing Down New Budget Realities Group Editor Marty Kauchak, with files from Chris Lehman, Dim Jones, Jeff Loube and Walter F. Ullrich, reports on their discussions with industry leaders at the 2012 I/ITSEC exploring the opportunities and challenges of the current defense budget environment.
As this issue was being published, the US Congress narrowly embraced a short-term compromise to avoid the immediate impacts of the so-called “fiscal cliff”. The agreement only set up much bigger battles in the coming months as Washington will once again square off over automatic cuts in military and non-entitlement discretionary spending, the budget resolution and an extension of the nation’s ability to continue borrowing.
As clouds of uncertainty remain over the soon-to-be delivered fiscal year 2014 defense budget and military spending in many other nations, simulation and training (S&T) industry leaders are charting courses to avoid these budget shoal waters. The MS&T editorial team reports on insights obtained from industry leaders during the 2012 I/ITSEC on how the community will survive the near-term budget turbulence and strengthen their long-range business models and portfolios.
Challenges and Silver Linings
Community leaders from both sides of the Atlantic pushed aside any outright bleak discussions about the sector’s future.
Indeed, Gene Colabatistto, CAE’s Group President – Military, noted that while he has seen “a lot of delays” in programs and procurements, he has not seen any outright cancellations.
The Montreal-based executive placed the delays in two categories: those due to the systemic situations where major acquisition programs are going through a cyclical contraction following an expansion phase; and those generated by budget uncertainties at the program manager level. Indeed, at the conference CAE was able to formally announce it was on contract to deliver helicopter simulators for the Royal Australian Navy MH-60R Seahawk program, a full 18 months after the Commonwealth of Australia declared its procurement of the rotary aircraft as part of a foreign military sale program. “This is a great example of where the operational needs did not go away, and there was ultimately a lot a pressure on the acquisition community to complete the contracting for the training piece. While acquisition and contracting delays do have an impact on the business, it is better than the alternative of outright cancellations.”
MS&T also caught up with a very busy Jean-Jacques Guittard, Thales’ vice president for Training and Simulation in the Avionics Division. Similarly, Guittard indicated that he is not seeing a catastrophic fall off in S&T business, although some programs are “shifting to the right”. Expressing considerable optimism, he repeatedly emphasized that integrating with the customer as a true partner, and building what is exactly needed by the customer - no less and no more - is a sustainable path forward. “Our Directed-Fidelity(r) process is an end-to-end training analysis that is designed to deliver a targeted training solution by understanding the customer’s key needs, and then builds an optimum live and synthetic training solution.” Guittard stated that this often results in what he referred to as a “medium-fidelity” balanced solution that delivers the optimum transfer-of-training at the lowest cost possible.
While the two executives’ colleagues were also candid and pragmatic about the industry’s challenges, they provided equally compelling reasons why the sector will weather the defense spending downturn. At the top of their list of benefits for investing in learning technologies were the budget efficiencies continuing to be offered by these products.
Ulrich Sasse, the president of the Simulation and Training Division at Rheinmetall Defence, noted that especially in a period of tight budgets, modern simulation technology offers ways of reducing costs while still maintaining a high level of training effectiveness. Sasse’s comments were from his perspective of being a global supplier of simulation-supported training solutions for both civil and military applications.
The company’s spectrum of products encompasses live virtual constructive simulation for ground, air and naval forces, ranging from individual training resources to highly sophisticated networked systems for training major formations. “Moreover, we’re also global leaders in process simulators and maritime simulation. All of our systems can be subsequently expanded to meet the changing needs of our customers. And, owing to our design-to-budget approach, we can offer customers affordable solutions at competitive prices,” Saase added.
Lenny Genna, the president of L-3 Link Simulation & Training, has been consistent when he has discussed “Why simulation?” with MS&T and its sister publication CAT, through the years. During I/ITSEC Genna again pointed out that training technologies continue to provide an opportunity for the military customer to complete their individual and unit tasks safely and in a more cost-effective manner as opposed to using the actual weapons platform for training.
But Genna sees any challenges in this era residing with the services – to invest money early on in training devices and their supporting technologies in order to achieve returns on investments (ROIs). “The services need to do the cost benefits analysis upfront. It may hurt them in the short term, but in the long term they will get their returns on investment,” he said.
New Strategies, Procurement Challenges and Beyond
Henrik Höjer, the president of Saab Training & Simulation, is one of many industry leaders viewing the shifting market through the rapidly unfolding post-Afghanistan and Iraq military strategies of NATO and other nations. The Saab executive noted that as operations in Afghanistan and Iraq are drawing down, the focus for training will broaden to meet the next challenge/threat. “This, combined with an ever-decreasing defense budget and smaller armed forces, means that the need for wider, full-spectrum training will increase if the unseen operational requirements of the future are to be met. We recognize that those unseen threats will require a rapid response where flexibility, efficiency and innovation are key,” he said.
The significant course change in the January 2012 US military strategy and related funding issues similarly were not lost on Brad Feldmann, the president of Cubic Defense Applications. He observed that the general industry environment is becoming more difficult in the face of fiscal and political challenges, including, in the US, a change in strategic focus. “For the military, training and training investment is critical to maintaining capability. The risks of a slide into a ‘hollow force’ are ever present in the face of budget challenges,” he said.
Despite the headwinds, he believes there are ways to manage risks and to prosper: diversification of products and markets, and to maintain a strong customer focus.
As to the future, Feldmann says, “I remain optimistic. We have a superior team and we can come up with very good solutions for our customers”.
Some of the many products from Cubic viewed by the MS&T staff included: the MILES Individual Weapon System and Instrumentable MILES Tactical Vehicle System for the US Army along with the Instrumented- Tactical Engagement Simulation System (I-TESS II) for the US Marine Corps; the Immersive Training Environment [ITE], which provides a 360 degree training experience within a virtual dome; the Mission Rehearsal Planning System (MRPS), a virtual sand table system featuring “touch screen” immersive technologies and highly detailed 3-D terrain and MRPS Lite, designed for use in tactical operations centers, and MRPS Tactical, for use in forward locations.
Some of the messages currently reverberating around the industry include the need to take a hard look at the whole military procurement system, and that in these times of asymmetric combat environments, fielding training solutions quickly and efficiently is critical.
When MS&T asked how a large company like Lockheed Martin might respond to this narrative, Jim Weitzel, vice president of training solutions for Lockheed Martin’s Global Training and Logistics business, provided a reminder of a remarkable company achievement back in 2004. Army and Marine leaders called on US defense companies to find a very quick solution to convoy ambush training that would involve large scale simulators for trucks and HMMWVs. About a dozen companies responded to the requirement, including Lockheed Martin, and the company developed a prototype within two weeks. Funding was realized in 45 days, and 90 days from program inception, Lockheed Martin was awarded a contract to build eight new convoy training systems in just two months. This was the birth of the Virtual Convoy Combat Training system (VCCT).
Similarly, Boeing’s Mark McGraw spared no words on the state of the state of the military acquisition model. The company’s vice president for Training Systems and Government Services, Global Services & Support, said that from a competition standpoint, the move to the technically acceptable, lowest price standard is not being viewed so well anymore, and added, “This is driving people to go for bottom on lowest price and then the customer, when he is getting his service downstream, is not happy with it because it is bare bones.”
Saab’s Höjer also reflected on the acquisition challenge and suggested, “In the past, a procurement cycle could be several years long. Now we should be aiming to reduce this cycle to months. We, as an industry, need to meet these evolving requirements head-on and be prepared to partner with the customer whilst delivering value for money at short notice.”
Höjer spoke with the authority of his company achieving customer relationships in its programs with military forces around the world. Of particular interest, the company’s DTES and C-IED training to the British Army have used a commercial model based around leasing. He continued, “This enables the customer or training provider to request a tailored solution for each unit they train. Saab personnel establish and sustain the training environment and support the delivery of the after action reviews. The unit concentrates on improving and consolidating their performance while Saab deals with the rest.”
Adapting, innovating, and delivering value were themes echoed by Lockheed Martin’s Weitzel. He pointed to the fact that ultimately S&T companies are all about the art and science of “human performance,” and the needs of the warfighter. The welfare of the warfighter goes beyond delivering tools to successfully win battles: it’s about understanding and caring for those we put in harm’s way. “We are the messengers of our industry,” said Weitzel, and emphasized that ultimately technology is enabling, and properly designed and delivered, can keep on delivering cutting edge capability, transfer-of-training, and economic value.
At I/ITSEC, Lockheed Martin profiled the elements of its vast training capabilities that are particularly relevant to the current realties, including Cyber Warfare solutions that simulate large-scale, complex networks and allow realistic testing, training and evaluation of cyber threats. 2-D and 3-D equipment simulations for maintenance training were also evident, as were the burgeoning mobile applications for anytime, anywhere training and platform maintenance. Press releases at the conference also noted that Lockheed Martin had delivered its first Digital Range Training System to the US Army for live fire gunnery qualifications by Abrams, Bradley and Stryker Crews.
Pete Morrison, Bohemia Interactive Simulations’ (BIS) CEO, spoke of the ROIs offered by learning technology through the lens of the burgeoning serious game for training domain. The company is the proprietor of VBS2, which has rapidly become the product of choice within military serious games-for training industry, both for customers and industry end users. VBS2 was in use at more than 40 booths on the conference floor. Morrison pointed out the “the current climate as an opportunity for the serious gaming sector to excel as a low-cost alternative to more costly live training.”
The growth in the serious gaming sector has seen BIS expand its network of offices to Prague, the US, the UK and Australia, to support the US Army and Marine Corps, and other customers. The keys to BIS’s success have been the open architecture of the program, and its marketing under enterprise licensing, which allows a customer to buy the product once, and then use it for as many applications as required, give it to contractors for extension or exploitation, and be a part of the VBS2 user community.
BIS’s wide-ranging, expanding portfolio includes projects to improve the terrain model for the US Marine Corps, and implementation of physics-based destructible buildings. “Research is being directed at optimizing the gaming engine, reducing latency and increasing player capacity,” Morrison said. BIS also recently announced the sale of VBS2 to the Swedish Defence Force, which will be underwriting developments in command and control, and the conversion of the adaptation of the existing terrain model to represent the variable properties of snow-covered ground.
Below the integrator and original manufacturer levels, Scalable Display Technologies is a third-tier company riding a wave of technology and business successes. With an approximate 40 percent share of its revenue in the military market, Andrew Jamison, the company’s CEO, is not surprised by Scalable Display’s successes during the last several quarters. He noted the price thresholds for technology, knowledge and other resources are changing the market dynamics – making new or upgraded flight training devices an attractive option for the military customer in this resource constrained era. “What I am seeing is an expansion of the market. While the price points have come down the quality has remained high,” he reflected.
The company’s portfolio of software calibration products for visual displays is helping to expand the technology envelope with an increasing number of companies. “One of the many exciting things that just happened is we co-developed with NVIDEA its new API (application programming interface). This allows us to use our scalable mesh file and put it on the graphics card,” Jamison pointed out.
Indeed, at the conference Scalable Display had 40 partners, including 12 image generator providers, which used the company’s calibration products in more than 12 displays.
Scalable Display’s products and services are used by integrators or OEMs in more than 12 major defense programs including the Littoral Combat Ship, ships of the USS Ticonderoga (CG-47) Aegis class and others.
Evolving Business Models and Portfolios
While a decreasing number of new weapons platforms will enter service through this decade, opportunities will remain for hardware and software, training services and other S&T investments through the programs’ life cycle.
CAE is on industry teams for a number of front-line, new and legacy weapons platforms around the world. A short list of programs in the air, ground and maritime domains supported by the company with training products or services, include the P-8, the C-130 family of aircraft, MH-60S and MH-60R helicopters, the C-5 and KC-135, the M346, the Abrams and Bradley ground vehicles, and the Halifax class frigate.
The P-8 is also a major program at Boeing. Indeed, McGraw said the P-8 “is at or near the top of the list of leading programs.” [Editor’s note: see accompanying article on the P-8 training system in this issue’s Seen and Heard department.]
The Boeing training team also supports other programs around the globe including the US Army’s AH-64E Apache Block III. “We delivered the first trainer to Fort Riley. We delivered it before the first aircraft arrived – another benefit of having the OEM do your training, especially for a new program like that,” McGraw added.
Link’s Genna reiterated that a key to his company’s program portfolio is diversification. “Our business remains made up of many programs. It takes a lot of effort to capture these contracts and then keep the programs moving forward, but the good news is it allows us to ‘weather the storm’ better and provide our customers better value due to our great exposure across all the services at any one time. We have 60 to 70 different programs with different customers we are able to support.”
The Link executive also recalled that part of his company’s business strategy was to enter the civil sector in 2012. “That sector is not feeling the same pressure as the military industry. We see opportunities there and we’re expecting growth,” he emphasized. And Link is also diversifying its market share with international business. “Across the three business areas I anticipate 30 percent of our business this year to be outside of the US,” Genna predicted.
One company strengthening its focus on the military market is Thales. While the news of the sale of the firm’s civil fixed-wing simulation and training operations to L-3 Communications last year was widely noted, Thales remains a very large corporation with some 67,000 employees in 56 countries, and 13 billion Euro ($(US) 17.3 billion) in annual sales. Given its wide product capabilities in defense, security, transportation, aerospace and space markets and the relatively small size the civil S&T business represented, Thales decision to consolidate its training and simulation product offerings would appear to be appropriate, although it did retain the civil helicopter components. The range of helicopter simulation capabilities was profiled in the Thales Reality H Helicopter Full Flight Simulator display, where the new Hexaline six-axis linear motion system simulator motion base was unveiled.
High value helicopter mission and tactical training systems remains an area of specialty for Thales and the product capability ranges from ground school applications to pre-deployment training. Thales is also a provider of Combat Training Centers, with simulation devices ranging from armored vehicle gunnery and driving trainers to small arms and live training. All can be linked together in a digitized battlespace environment. Synthetic Environments for Mission Training was an area of emphasis on the Thales stand.
Over the Horizon
Two US Air Force training development programs represent the potential for new industry business opportunities through the end of this decade.
While, the aircrew training system is in competition for the Air Force’s Boeing’s KC-46 tanker program, Boeing’s McGraw pointed out the tanker’s maintenance training system will enter competition next year. “Similar to the KC-46 ATS competition, the KC-46A MTS represents one of the few large maintenance training opportunities going forward,” he said.
Once the long gestating T-X jet trainer program moves beyond research, development, technology and experimentation phase funding, it also holds promise for increased S&T industry business. “This will be the biggest program out there, from both the ground based system training side, but the aircraft side as well,” McGraw added.