🔷 Fiasco Year

Fiscal Fiasco

This week, we’re castigating Congress and the fiscal year, that federal government accounting thing you usually hear around this time of year.

What

One of the most fundamental responsibilities of the federal government is to set and pass a budget every year. There are two components to this: the bills and the year.

• The bills: Every year, the US Congress must pass 12 appropriations bills to keep the government running.

• The fiscal year: While the US Congressional sessions match the normal calendar, in 1977, they moved the fiscal year to start October 1st (i.e., this week, FY2025 starts even though it's still 2024).

So What

This is a fiscal fiasco. In the 48 years this structure has been in place, Congress has only managed to pass all required appropriations bills four times on time (1977, 1989, 1995, and 1997). Since it's MLB playoff season, that works out to a .083 batting average for all you baseball fans.

CR

To avoid a costly and disruptive government shutdown, Congress passes what’s known as a continuing resolution. As the name implies, a CR permits the government to continue to spend, obligate, and operate as before. This sounds painless, but it's not.

A CR freezes current program obligation rates and stalls defense contracts and new programs, which is not good when the Pentagon is trying to modernize its force and scale munitions production.

This week, Congress approved a 3-month CR to keep the government open until December 20th, the 136th time they used a CR since 1997—the last time they passed a budget on time. That’s a 27-year losing streak. Even worse is the time of these 136 CRs add up to: out of the past 15 years, almost 5 years has been under a CR.

Because of how a CR works, this 3-month punt forces the Pentagon to overfund programs it no longer needs, blocks hundreds of new capability programs, stalls $4.3B in research and development projects, and delays 135 new construction projects totaling nearly $10B.

What Now

The issue is far from over. Expect a post-election political fervor with a high chance of another CR in December to kick the budget into 2025. The clock is ticking, though.

If the 12 appropriations bills aren’t signed into law by April 30th, the Department of Defense will get hit with a punitive across-the-board $45B budget cut due to the Fiscal Responsibility Act.

In That Number

166

L3Harris launched the production of 166 Viper Shield EW kits for F-16 Block 70/72 aircraft.

TRIVIA

On this day in 1990, Lockheed’s YF-22 made its first flight. This would go on to win the competition and become the F-22 stealth fighter that flies today. What was the YF-22 called initially?

A) Lightning II
B) Raptor
C) Super Eagle
D) Super Hornet

On the Radar

The Air Force buys aircraft by the pound. Not literally, but a recent panel on Collaborative Combat Aircraft (CCA) discussed the historical correlation between aircraft size and cost ($4-6k per pound). Industry is working to get CCA down to $1K per pound (i.e., a 4k pound drone would cost $4m), but the sensors are the elephant in the room.

• The Merge’s Take: You get what you incentivize; there hasn’t been a large demand signal to dramatically reduce the cost of aircraft sensors or a market to support it. This was likely one of the largest cost drivers for the Air Force’s maligned NGAD fighter program. The war in Ukraine has disrupted several cost-capability paradigm niches in the defense industry, and as it continues, it will keep disrupting other segments. Low-cost sensors are likely to be one of them.

Aurora Flight Sciences released a video of its Liberty Lifter concept. It’s part of a DARPA program to build a full-scale X-plane of a Wing-in Ground (WIG) effect cargo seaplane that’s the size of a C-17.

• The Merge’s Take: The amount of X-plane projects DARPA is working on is unprecedented—and they aren’t done yet. DARPA’s newest idea is a drone to airlift 35 tons to explore short-range ship-to-shore aerial drone concepts. Wild times!

“Big Sexy” is gone. The Air Force’s last KC-10 tanker went to the boneyard this week, ending 44 years of service. Known as “Big Sexy,” the KC-10 carried almost 2X the gas of the KC-135 and almost as much cargo as a C-17. They are being replaced by the KC-46.

• The Merge’s Take: The much smaller KC-46 won’t solve the long-standing tanker shortfall the Air Force has, and a new tanker is likely a decade away (and no one is sure what it will be yet). Commercial aerial refueling has a niche but is not a panacea either. The Air Force is now looking at modular pod-like refueling options that can be used on non-tanker aircraft, so it’s probably time to dust off this KC-130 concept and get eyes on it again. And yes, we’re totally biased.

The UAE was designated a Major Defense Partner by the US. This doesn't have a formal legal basis like a NATO ally or a Major Non-NATO Ally (MNNA), but it does underscore the UAE's importance for US national security in the Middle East. The title carries weight for stronger military cooperation and preferential access to US defense technology.

• The Merge’s Take: The MDP title places the UAE in a unique category, previously only held by India, so it’s a big deal. The F-35 rumors are already flying, and they have merit. The UAE almost bought 50 F-35As, but the deal fell apart in 2021.

They Said It
“Sometimes you find these companies, and they say they’re going to use one drop of blood and they’re going to revolutionize the whole world, and then they grow up to be Theranos.”

— C. Mark Brinkley, General Atomics spokesman, chucking a huge spear at CCA competitor Anduril

Knowledge Bombs

• The Navy released the first images of the F-35C carrying stealth anti-ship cruise missiles

• The Marine Corps demoed Link-16 on their XQ-58 Valkyrie’s latest flight test

• The Space Force picked 4 companies for its new Resilient GPS (R-GPS) satellite program

• The Netherlands retired its last F-16 from service

• Kratos is supplying 60 more target drones to the Air Force under a $79m deal

• Australia was approved to buy $400m of AGM-88G extended-range anti-radiation missiles

• Silent Arrow won an Air Force contract to build long-range  one-way cargo drones

• APS (Polish company) unveiled a new low-cost interceptor drone that autonomously tracks and knocks down other drones

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ANSWER
A. The aircraft was given the unofficial name "Lightning II" after Lockheed's P-38 Lightning. The Air Force officially named the production F-22 the Raptor, but the “Lightning II” name would live on—Lockheed Martin’s F-35 received that name in 2006.