These areas were selected for further study during Phase 1 to explore  additional organic growth potential
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These areas were selected for further study during Phase 1 to explore additional organic growth potential

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25 Pages
English

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Missiles & Weapons Market in PerspectiveJeff RyderBAE Systems, Inc.January 23, 2008IntroductionUS defense budget outlook1– Scenarios– Drivers• Missiles & Weapons budget outlook2– Missiles, PGW, munitions and ordnance– Market forecast• Trends to reorient capabilities3– Capability gaps– Future scenariosApproach– GEIA: interview based, cross-industry analysis– Defense budget analysis1The defense budget is approaching record-breaking levelsDoD Budget AuthorityCurrent and Constant FY08 $B700WWIIFY08 budget approaching WWII peakKorea600Reagan BuildupVietnam500400300200Current $100Constant $0FY1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008Source: DoD Greenbook2$BThe budget is currently “off cycle” – a return to historical cyclicality would suggest a decline is imminentDoD Budget AuthorityFY08Constant FY08 $B700600500400300200Constant $100Mean Spend 1951-2008Historical Budget Cycle01948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018FYSource: DoD Greenbook3Constant FY08 $B$A number of factors shape the budget outlook – threat perception, politics and economics matter mostPrimary budget-shaping factors:• Threat• Politics• Economics$Factors that pressure the budget: Factors that buoy the budget:• Withdrawal from Iraq • High Optempo• Increase in mandatory spending • Rising Operations & Support (O&S) costs• Popular ...

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Missiles & Weapons Market in Perspective
Jeff Ryder
BAE Systems, Inc.
January 23, 2008Introduction
US defense budget outlook
1
– Scenarios
– Drivers
• Missiles & Weapons budget outlook
2
– Missiles, PGW, munitions and ordnance
– Market forecast
• Trends to reorient capabilities
3
– Capability gaps
– Future scenarios
Approach
– GEIA: interview based, cross-industry analysis
– Defense budget analysis
1The defense budget is approaching record-breaking levels
DoD Budget Authority
Current and Constant FY08 $B
700
WWII
FY08 budget
approaching WWII peak
Korea
600
Reagan Buildup
Vietnam
500
400
300
200
Current $
100
Constant $
0
FY
1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Source: DoD Greenbook
2
$BThe budget is currently “off cycle” – a return to historical
cyclicality would suggest a decline is imminent
DoD Budget Authority
FY08
Constant FY08 $B
700
600
500
400
300
200
Constant $
100
Mean Spend 1951-2008
Historical Budget Cycle
0
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
FY
Source: DoD Greenbook
3
Consta
nt FY08 $B$
A number of factors shape the budget outlook – threat
perception, politics and economics matter most
Primary budget-shaping factors:
• Threat
• Politics
• Economics
$
Factors that pressure the budget: Factors that buoy the budget:
• Withdrawal from Iraq • High Optempo
• Increase in mandatory spending • Rising Operations & Support (O&S) costs
• Popular disapproval of defense spending • Reset requirements
• Investment requirements
4The security environment has become increasingly complex
Global Security Environment
Al Qaeda Attack
Conflict Zone
Ongoing Concern
5A key economic/fiscal factor in the defense forecast is the rapid
growth in mandatory spending accounts
Federal Spending Mandatory Spending
by Major Category 2006-2017 By Account 2006-2017
4,500 CAGR 3,500 CAGR
Mandatory spending growth
Federal Spending CAGR =
4,000
driven by Medicare,
3,000
4.3% FY08-17
Medicaid and Social Security
2.9%
3,500
1.7%
2,500
2.2%
3,000
1.9%
7.9%
2,000
2,500
2,000
1,500
7.8%
5.7%
1,500
1,000
Mandatory Spending
1,000
6.0%
500
500
Social Security
0
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Social Security Medicare
Mandatory Inte re s t Discretionary
Medicaid Income Support
Other Programs
Source: CBO projections, August 2007
6
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Current $B Outlay
s
Current $B Outlay
sFuture spending will likely remain high by historical comparison
US Defense Budget Scenarios vs. Budget Benchmarks
Budget Authority, Constant $FY08
750
700
650
High
600
550
Baseline
500
450
Low
400
350
300
250
FY
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: DoD Greenbook FY08, GEIA, BAE Systems, Inc.
7
$FY08Upwards budget pressure is driven by the inexorable rise in Operations
& Support costs
Spending per Soldier: MilPers vs. O&M
Spending per Soldier: O&S
Budget Authority, Constant $FY08
Budget Authority, Constant $FY08
•O &M drivers
250
250
– High Optempo
CAGR
– Aging fleets
1960s 1970s 1980s 1990s 2000-2008
0.1% 1.0% 1.0% 1.9% 2.3%
200
– Increasing complexity of weapons
200
MilPers $ per Soldier
– Rising fuel costs
O&M $ per Soldier
– Increasing use of industry contractors
150
150
• MilPers drivers
– Force augmentation (+92,000)
100
100
– Healthcare (costs doubled 2000-2005)
– Rate of military retiree and dependents
Without supplemental
50
increased 6.0% per year 2001-2005
50
spendingdi
– Upwards pressure on compensation
due to private-sector benchmarking
0
0
• Risk that O&S costs will erode investment accounts
• The only historical means to curb O&S growth has been to reduce end strength
Source: DOD Greenbook
8
$K Constant FY08
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08
Budget Authority
per Soldier
(Constant $K)
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08Investment spending will decline in real dollars
Investment = Procurement + RDT&E
Budget Authority, Constant $
• Current investment
$250
Supplemental Investment Outlays funding forecast
insufficient to fully fund
$200
current portfolio
• Cost increases,
(historically 15%) could
$150
add a $25B burden
Recapitalization
• May see additional
Wave
Supplemental
$100
Service requests
Investment Boost
• O&S budget intrusion
Base Defense
$50
Investment
• Portfolio trades will
Outlays
continue, placing
$0
premium on program
performance
Fiscal
Year
Source: DoD Greenbook FY08, GEIA
9
Consta
nt $B
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018