[A-List] US imperialism: outsourced 2

["Michael Keaney" <michael.keaney@xxxxxx>]

PHOENIX AIR FORCE
As military forces across the globe struggle with budget cuts, commercial
companies are stepping up to fill training gaps
William B. Scott.
Aviation Week & Space Technology. New York: Aug 4, 2003. Vol. 159, Iss. 5

For years, ex-fighter pilots having an entrepreneurial bent have extolled
the benefits allied nations and the Pentagon could realize by outsourcing
tactical pilot training. Private firms could provide economical "red air" or
adversary fighter services, fly cruise and sea-skimming missile profiles,
carry electronic warfare jamming pods and simulate "enemy" strikers
attacking land- and sea-based targets--all for less money than military
forces spend doing these tasks in-house.

All the startups needed was a fleet of retired U.S. Air Force, Navy or
Marine Corps fighter-bombers, and there were plenty of those sitting in the
Arizona desert--the Pentagon's "boneyard." And that's where the dreams and
good ideas usually hit a wall. The Pentagon had dozens of valid reasons why
high-performance military aircraft couldn't be transferred to a private
company. Yes, a few retired fighters, trainers and strike aircraft were
"bailed" or leased to companies for specific purposes, such as flight
testing, but these were typically limited-time deals for specific purposes.
All had to be "in the best interests of the U.S. government."

Importing fast-jets from other nations--even if they had originally come
from the U.S. under foreign military sales programs--also proved
problematic. Again, a few companies, such as BAE Systems (originally Flight
Systems Inc.) and the National Test Pilot School at Mojave, Calif., were
allowed to bring a handful of F-86s, T-33s, Swedish Drakens and other aging
fighters and trainers into the country for well-defined training and
flight-testing purposes.

Most fledgling training-services companies' business plans died before all
the regulatory and licensing hurdles could be jumped. Typically, their
sources of financing lacked the requisite depth, patience and enthusiasm,
and investors were rarely convinced there was a long-term business case that
made fiscal sense.

Despite often-sincere encouragement from USAF and Navy and allied leaders,
when it came down to signing a contract for commercial high-performance
aircraft services, the customer usually backed down. Budgets were typical
culprits. Regardless of reasons given, someone in the armed services usually
decided the best approach was to continue performing most of the "red air"
adversary, target-towing, missile simulation and other training activities
in-house, using their own aircraft and crews. The rationale was, "this is
flying time for our crews, and we've already paid for them and the aircraft.
We might as well use them rather than pay an outsider to provide the same
services."

But the age of outsourcing advanced tactical training and training support
services may have finally arrived--and with a vengeance. Downsized force
structures, ever-leaner budgets and a profusion of global commitments have
squeezed active-duty and reserve military air components to exhaustion.
Aircrews who were deployed to Afghanistan, Iraq and other hot spots now
return to the U.S. in need of rest and retraining to ensure they are
mission-ready for yet another deployment. None are too enthused about going
to Red Flag, Maple Flag or some other major exercise to fly as simulated
enemy adversaries or "red air." This applies equally to both active-duty and
reserve crews.

SIMILARLY, AIRCRAFT often return in need of maintenance, and many have
consumed engine and airframe lifetime at rates exceeding what the services
had expected. In other words, both people and aircraft are wearing out from
real-word commitments the U.S. has assumed. With few exceptions, there
simply aren't enough pilots and aircraft available to deliver the thousands
of sorties required for adequate domestic and allied training anymore.

The 57th Wing at Nellis AFB, Nev., which runs periodic large-force Red Flag
exercises and oversees the USAF Weapons School, has an estimated annual
requirement for 9,125 adversary sorties. Its 414th Combat Training Sqdn.
serves as red-air aggressors, but has been reduced to a handful of aircraft,
and must be augmented by other units.

A January 2001 Defense Science Board report prepared by the Task Force on
Training Superiority and Training Surprise identified a number of Air Force
and Navy training shortfalls. Addressing the deterioration of adversary or
"opposition force" (Opfor) units at Nellis and the Navy's Air Warfare Center
at Naval Air Station Fallon, Nev., the report noted:

-- In 1989, Nellis had four active-duty aggressor squadrons, each with 24
dissimilar aircraft (fighters of different types than "blue-air" or friendly
aircraft). By December 1999, Nellis' stable of aggressors had shrunk to 8-10
dedicated F-16s, "all old and unreliable," the report said.
-- Navy-Fallon went from four active-duty adversary squadrons, each with
more than 20 dissimilar aircraft, in 1994 to "23 old dissimilar aircraft"
limited to 3-g maneuvers and flown by Reserve pilots, plus 15 flyable F-18s
and five F-14s in 1999.
-- Both of these combat training centers can only field "antiquated EW
[electronic warfare] for the Opfor" and have "limited maintenance and
support budgets."
-- "The 1999 cost to upgrade NAS Fallon EW and provide 18 dissimilar Opfor
aircraft (F-16s) [is approximately] $940 million."
The report noted: "The Air Force decided years ago to forgo a substantial
dedicated air opposing force (aggressor squadrons). 'Red' aircraft in [USAF]
Red Flag Exercises are now manned mostly by active-duty pilots who, with
their aircraft, are borrowed from other squadrons. These pilots receive
negative training for the time spent trying to imitate enemy tactics.
Moreover, the aircraft used are not 'dissimilar.' . . . This seriously
degrades the training experience.

" . . . A key element missing from even the most-demanding training programs
. . . is the notion of a dedicated opposing force that provides realistic
simulation of enemy action," the report concluded.

Several commercial firms are offering to fill this widening gap between
military training requirements and the Pentagon's ability to provide it.
Others have tried and largely failed in the past, to be sure. But the
business environment may be substantially different this time. Now, even
big-name aerospace company executives believe the U.S. and allied military
forces are in a position where they will accept--and pay for--outside
training support services, and are jockeying to grab a portion of what may
become billion-dollar contracts.

THREE YEARS AGO, a U.S. Navy vice admiral told Larry (Hoss) Pearson--a
former U.S. Navy Blue Angels flight demonstration team commander, combat
veteran and test pilot--"You should get into foreign military pilot
training, because the Navy is getting out of it. With the downsizing, we're
not going to be able to continue doing it." Pearson is now chairman and CEO
of Advanced Training Systems International (ATSI) Inc., based here at the
former Williams AFB, now called Williams Gateway Airport.

At that time, the Navy was facing a $10-billion budget cut over five years;
$5 billion was to be absorbed by naval aviation. Immediately, three
electronic-warfare training squadrons that provided jamming services for
surface ships were disbanded--50 aircraft and about 500 people, Pearson
estimated. Since then, the number of worldwide adversary units have been cut
severely, and Navy-provided slots for training Kuwaiti, Saudi Arabian,
Spanish, Italian and other foreign pilots also have all but disappeared.

"The Navy is 3,000 pilots short now, and they have an authorization for
10,000. They're 30% undermanned," Pearson said. "And for every foreign pilot
the Navy trains, it loses 1.2 slots for U.S. Navy and Marine Corps students
they could be training. So, the business opportunity for us [ATSI] is
foreign military pilot training. That's a mission that can be privatized."

THE AIR FORCE is in similar shape--far short of its required training
support assets. "The Air Force had eight aggressor squadrons worldwide,"
Pearson said. "It cut them all. USAF still has a requirement for dissimilar
air combat training, and, frankly, has been surviving over the last 10 years
by hosting Navy and Marine Corps [and Canadian] squadrons. But as the ops
and personnel tempos have picked up--especially since Sept. 11
[2001]--nobody wants to go and nobody can afford to fly [as adversaries].
And the fatigue life of their aircraft is taking a hit. In reality, they're
already spending the money [that might go to outsourcing] by using up that
fatigue life."

In the last two years, ATSI has managed to accomplish what many had
predicted was nearly impossible:

-- Purchased, refurbished and imported 13 McDonnell Douglas A-4 Skyhawks
from Israel. The aircraft had been retired from active service and were
stored in the mideastern desert. None have radars installed and have
essentially been "demilitarized."
-- Hired more than 100 former military tactical pilots and instructors,
maintenance personnel and administrators, then established an organization
that can cost-effectively maintain and fly all 13 A-4s. Pilots include
several former Navy Top Gun and USAF Weapons School commanders and
instructors, many with more than 1,000 hr. of A-4 flight time.
-- Set up a training facility and curriculum to upgrade foreign pilots
through a lead-in fighter course that largely mirrors those run by the Navy
and USAF. Although each course is tailored to a particular customer's
requirements, it generally includes about a year of ground and flight
training that covers everything from formation flying to advanced weapons
and tactics (see p. 47). The first class of United Arab Emirates pilots will
graduate in August, and a second is underway. These pilots are tagged to fly
the UAE's new fleet of Block 60 F-16s.
-- Secured multiple contracts for "tactical air services" and training
support, which range from serving as "red air" adversaries and EW jammers to
simulating cruise missiles. The company has provided numerous A-4s and crews
as aggressors/adversaries for aircraft carrier group exercises, the USAF
Weapons School and even Predator unmanned air vehicle operator training at
Nellis AFB. Since September, ATSI has had up to seven A-4s in Canada, flying
"red-air" missions for CF-18 squadron training and, in May, supporting the
multinational Maple Flag large-force exercise (see p. 48).
-- Conducted contract research, development, test and evaluation (RDT&E) for
customers. However, this has become almost a sideline to the rapidly growing
pilot training and training support business lines.
-- Will be profitable by year-end.

Many potential training-support customers want fast-jets equipped with
radars to properly simulate threat aircraft. None of the current ATSI
single-seat A-4Ns and dual-cockpit TA-4Js are radar-equipped. However, the
company is in the process of buying 17 T/A-4Ks from New Zealand, and all
have APG-66 radars and "glass" cockpits with digital displays. The radar is
a slightly degraded version of what was in USAF's original A- and B-model
F-16s.

The company has been approached by several large U.S. and European aerospace
firms that foresee a boom in training-related services. Some are willing to
become equity partners and invest heavily to help ATSI jump to the next
level of capability. But ATSI executives are cautious about growing too big,
too fast.
"What we're trying to do here is not a trivial task. It's very
capital-intensive, and not that easy to go get some airplanes and start
training people," explained Jon (Orbit) McBride, ATSI's president and chief
operating officer. "The licensing, negotiations and contracting take years.
It took us almost a year to get [State Dept.] licenses to import airplanes
from overseas, and a year to get [the contracts] to start refurbishing
airplanes." McBride is a former NASA shuttle Challenger astronaut, combat
pilot and test pilot. He also worked as a venture capital fund manager for
10 years, and has a good understanding of what it takes to build a
successful company.

PEARSON AND MCBRIDE see a bright future for ATSI and competitors that are
sure to jump on the training-for-hire bandwagon.

"I think there's [considerable] demand out there," McBride said. "This is a
classical 'build-it-and-they-will-come' business, and we stepped out a few
years ago under that premise. Everybody was hearing there was going to be a
shortfall in military training--not enough airplanes to service fleet and
air force training--and it's come true. I've been in the military, and know
that there's a tendency to ignore the doomsayers who say the sky is falling
when it comes to training. But it's now 4-5 years since we first heard
[those predictions], and it's happening. There isn't enough tactical
training support.

"And this isn't just an American shortfall," he added. "Critical shortages
in training assets, pilot training and tactical air services [exist] all
over the world. I foresee in the next 2-3 years--if we do things
strategically, logically and cleverly--that we'll have an East Coast
operation that mirrors the one here, maybe one in the Mediterranean region
and one in Eastern Europe. If you extrapolate this model forward, you can
see 100-200 airplanes operating at 3-4 different sites. It just has to be
well-understood and managed well.

"It's a complicated puzzle to make this work," McBride said. "[A fleet of
A-4s] is an expensive form of inventory, unless you keep it busy all the
time. What we need now is business stability, and that means our core
business--flight training on a daily basis. The real danger is in trying to
do everything."