Welcome to this week in defense news. Im vago muradian. 52 years after the first one came on the line the history of military vertical lifts. But first the Bipartisan Committee last week announced a deal that would keep military spending flat and provide 31 billion in defense sequestration relief over the next two years. The deal buys patty murray of washington and her house counterpart paul ryan still faces opposition in both houses. Republicans wanted deeper spending cuts and more debt relief while democrats are angry Unemployment Benefits werent extended. A deal is necessary given the government will again run out of money any january. Here to explain the wider implications of the deal is todd harrison. Todd welcome back. Reporter thank you i dont lets start. What does this deal mean for dod . They are getting partial relief from the sequester cuts in 2014 and 2015. Everything from 2016 and beyond remains in place. I say partial relief because they were set to get cut by 52 billion from what they rested in 2014 or 21 billion from where we are right now under the continuing resolution and what this means is that they will basically be able to stay at the level they are right now, about 47, 498 billion in the annual Defense Budget. So that is better than no deal, but it is far from fully replacing the sequester. So there are parts of it right, if it is a partial sequester, they are going to have to cough up more money arent they . They are. 31, 32 billion less than they planned on getting this year. But that is still 21 billion they have to come up with . Yeah it is Good Congress is doing this now so the proprietors will make changes in the bill before it passes. If they do that, it will stay below the budget cap for 2014. So that is good news. The military Service Chiefs invested quite a lot of time and effort in order to save this talking in very griff terms about what the impact is going to be. Are folks listening to them . Or were there other reasons why we got partial sequester relief . I would love it if we would have a debate about what our future Defense Strategy should be the size of our floor should be in the future and how much we should spend to fund that for us. Thats not been the debate i think what the Service Chiefs has been warning about has largely fallen on deaf ears. The debate has been about others and ultimately what we see in this bill is they did as much as they could to work on those other issues and what was left over was distributed in part to defense. What kind of Big Decisions are going to have to be made and how we are going to make up the sequester money . Is the plan going to hit operations and Maintenance Training as hard as it had . I think the relief they have gotten from sequestration 2014 i think the department will largely use that to offset readiness cuts they would otherwise have to make. I think the other accounts, procurement, and nonreadiness related funding are still going to be targets and still going to have to make a lot of same reductions if forced structure and acquisitions they would have this to make in a full sequester. Almost everything you have heard is every tough call is not a call that can be made or it is catastrophic. At the end of the day does that shift this center of gravity to push guys into making really tough decisions they are going to have to make. I think it does. Move this along making tough decisions. In particular now they have a number in 2014 and 2015 if this deal actually goes through then the 2015 budget requests they are going to have to submit something that fits within this agreed to budget cap. If the white house goes forward with a budget request again that ignores the caps that have come out of this compromise then that blows up the whole process. Dont you have to start making deeper cuts . At the end of the day this didnt really save a lot of money for debt reduction. That is why the sequester cuts from 16 and beyond they remain in place. At this point i think that becomes the new baseline for dod. What about paying benefits . A little bit of movement there . That was a surprise at this bill. Apparently at the last minute they added in a cost of retirement adjustment people who have retired inplace minus 1 . That was kind of a surprise there. It ends up saving about 6 billion over the next six years and the savings will continue after that. I was surprised they got that in there. I think what it shows is there may be a break in the dam on Compensation Reform if they actually get this through. Todd thanks very much for joining us as always. Coming up five decades after its introduction a look at boeings unique chinook heavy lift helicopter. You are watching this week in defense news. Business has been booming for boeings vertical lift division after a decade of war as the u. S. Army refurbishs its helicopter fleet. One in ridley park that makes the ch47 chinook and the other is in mesa, arizona that builds ah64 apache and little bird attack helicopters. The army earlier this year ordered 177 of the newest fmodel chinooks and just this summer boeing delivered the first to canada under an order for 15 aircraft. Apache and little bird upgrades continue and the marine corps ordered another 99 b2 2s. By 2018 business could plunge as existing programs end and no new work emerges around 2030. A gap that will hit helicopter makers hard. We visited shendley park. I asked manager leeann core rhett what she is doing to keep production lines full during the expected production gap i cant that is a great question and a serious one that our work force asks us all the time. These two recent for both the chinook and the v 22 bring us to the end of the current reduction runs. We are taking advantage of this time to make certain we are investing more dollars so that we can bring those additional capabilities. When i look historically, i actually see that this period of time is the greatest opportunity for us as an industry to lean forward and be able to provide more for less for the government customers. If you look historically, im following vietnam the apache and the blackhawk helicopter were developed. After the iran hostage crisis the v22 was developed so that customer could operation a mission in a single period of darkness. I suspect we are going to see those same advancements following this period and we are really focused on it and walk with me quickly through each of the products and what sort of opportunities you see both on the u. S. Side but also on the international side. The chinook, how much more length on the program do you see in the United States as well as abroad . I will tell you, being very analytical and reasonable about it, when you look at the history of the chinook as you shared earlier, starting this production life in 1962, we celebrated its 50th anniversary in 2012 with a great opening of this factory. When you look forward what the aircraft still needs is additional lift, additional speed, additional range. And the ability to retain itself as a multimission platform and not reverse back to a cargo carrying only capability. That is where our next generation of the aircraft comes from, in terms of our block two. Which our intention is, we are already investing in those technologies so that the aircrafts then will be able to be modernized for next renovation warfare. What about the apache and the v22 . We are constantly investing in the apache program. We just had a very successful what we call block 3 or emodel rollout, where we have been able to advance all of our flight avionics, and we took that technology to some of our other aircraft. We are continuesing to increase tactical ability, precision engagement as well as range on the apache. What about the v22 . Especially internationally . The v22 is an amazing case story. When you compare it to the chinook and apache, it is in an infancy stages. The amajority have been within afghanistan and iraq. We have been focused very much so on readiness and affordability, because that is not what our own government needs but also our International Customer sets. A lot of the programs that are going to replace these existing aircraft the army hasnt decide odd that yet. The joint multirole vertical lift Requirement Program that is not until 2030. Does the government have to do a couple of things . Current deliveries to stretch production out . Move these programs forward or a combination of both to keep you guys alive for the future . We are not asking our customer to keep us alive. It is on us, in this industry, to continue to demonstrate the benefit that we provide. But ultimately, they are the guys who have the Purse Strings and are going to be ordering the product. Correct. What we need to do is come forward with the capabilities we see are gaps for them to position these aircraft for the future and that is why we have actually increased our investment spending now. When many others have actually decreased their spending. We believe the time is now in order to come out of this environment. The chinook flew from 1961. The apache in 1975. Neither one of these are brand new aircraft. You guys have been looking at what the future looks like and are going to be briefing the army on that. What does the future of these two programs look like if you are going to be designing the replacements for them . These two platforms are just, they are almost impossible to replace, based on the capability. What we continue to find as we look study to study is how we make them better than what they are today. How do we do it for less weight . Bring the additional functionality they want. A chinook today may look like the chinook fro 1962, from 1962, but how it operates and serves the customer it is really an evolutionary product. It looks like it. But almost everything inside from how you guys build it all the systems are entirely new at this point . Thats correct. We understand there is a unique technology that comes with that tandem configuration that we want to continue to take advantage of as we look into the future i dont what is the study you are going to provide to the army seen soon going to say . In terms of what the future looks like . Im not going to share that with you but what i will say is recover i tow craft continues to be an incredibly important piece within the defense of this nation and for our innational customers. Up next, more with boeing helicopter boss leeann coreett in just a moment j we are continuing our conversation with leeann core rhett. Vice president of boeings vertical lift division. Everybody has seen domestic orders drop off. The focus is on international markets. What are the markets that are going to be most important to you Going Forward . And if you could give us an estimate on how many machines you are talking about selling over the next decade . Reporter international is of critical importance to the vertical lift division. 30 of our Business Today is international. We have estimates going greater than 40 . Areas we are focused on continue to be the middle east and asia. Where we see a bit of a decline is in europe and they are facing some of the same fiscal crises we are here in the u. S. But the biggest key to us for Winning International is price. The competition is fierce and we go head to head time and time again. Our career win on apache is a great example of how we brought the best of industry together and leveraged one of our chairmans biggest initiatives with partnering for success with our supply base on board x they are as aggressive with their costs as we are with our sell. We have been down selected on chinook on the india competition and we are also lined up for a Foreign Military sale on apache. Even in those conditions until that contract is signed we still have opportunities to lose, it is important we stay focus and continue to be aggressive and work with our customers community. You have long partnered with Bell Helicopter on the v22. Yes. There are some people who were sort of surprised by that decision. Why did you make that decision and how did that not undermine the b2 2 the v 22, where the tilt Rotor Technology it seems the new compound technology is superior to the tilt rotor. A couple of things. It is really important for me to share this. First and foremost the boeing company has never been more committed to the v22 than we are today. As a matter of fact with our partnership with text tryon bill, it is stronger than ever and we are aggressively working on reducing costs and longterm affordability, both domestically as well as internationally. Jmr is a technical demonstrate tore contract. It is really a very interesting concept where the customers are assessing what is possible in terms of speed, range, caring capability. For the demonstrate tore proportion, we wanted to go and understand other types of technologies that are out there. We understand how great the tilt rotor is. We are all in on that. We want to make certain, based on the requirements as we understand them today, we are fully looking across the spectrum. And the most important thing as we look at our relationship with bell as well as our relationship with is. Score ski, youll see us competing head to head with our teammates and partners, youll see us cooperating. It is important for us to be able to operate in both worlds. Lets go to the better buying power initiative. The pentagons initiative is designed to drive down costs for the pentagon. Numerous executives told me effectively it is reducing profit margin. Some say it takes Profit Margins and cuts them in half. Other states even worse than that. The kind of costs the acceable costs and often lower than what your real costs are. What has been the impact of better buying power on your business . We havent seen that impact on the vertical lift programs. What i would say is we spent a lot of time understanding better buying power and understanding what is critical in terms of providing more for less. I think the two we just signed are great examples where we have come together as industry and said you cant expect to get paid the same price you have in the past. So what are you going do in order to be affordable and still be able to live to wall street and quite frankly that is a combination of factory renovations, it is a combination of increased productivity and inefficiencies as well as the earlier analogy to partner fog success and working with our teammates. The customers in the environment right now it is important for us to partner with them and understand what we can do to help advance their causes. I anticipate sequestration is going to impact our business. There is no way it is not. The customers budgets are being cut and they are still in the throes of figuring out what exactly that means. I think delays to certain programs, new starts, adjustments and quantities for programs that dont have multi tiers, where they may mix up the build of a new aircraft with the older aircraft. People first, customers always. We absolutely have to be partnered with our customer to understand where they are going, and then my boss, chris chadwick, he is really focused on us reinventing ourselves and writtenning innovation in. And that is what we are doing. One of the socalled root cause analyses Frank Kendall has done looked at the helicopter industry and concluded that was an industry where costs and scheduled performance challenges existed. How do you respond to his study . I cant speak to any of my peer companies. I can tell you Development Programs are always hard. The apache was a program we developed on cost on schedule and had a fantastic rollout a couple of years ago and they are now in our low rate initial production. I would also though, highlight we took those messages seriously and we look at what we were doing from an execution perspective, in terms of making certain we understood the requirements, not only to ourselves but to our supply base. And we have had two very recent successes that im actually thrilled about. One was the Canadian Development pregnant. The most complex chinook we have ever built and it was a contract signed in june of 2009, we delivered it nine days ahead of contract schedule on cost this year. Let me ask you a question about consolidation. This is an industry folks will look at it and say there are three big domestic players and a number of international players. Is there enough business to sustain it . I believe there is enough business to sustain us. I believe all of us, within my peer group, are looking not only on a traditional business but on a nontraditional. From a boeing perspective, not only are we looking at the core programs you know and love so well, but also what we are doing to extend that. But we are looking at what we call runway independence. What is the opportunity to move into the adjacent areas that we havent perhaps looked at. Cooperation is really important. We are going to continue to come together at different times in order to meet the customers needs. Leeann, thanks for joining us. It was a pleasure. Coming up. My notebook. We wwhen we realized wed ome left gear behind. Rain we were up the creek without a paddle. I mean, we literally needed paddles campbell had left em in his garage. Thankfully i had my Navy Federal Credit union credit card on me, so we got new paddles and earned cash back. Next time well remember the paddles. Seriously . And forget campbell. 4 million members. 4 million stories. Navy federal credit union. At a time had lost Home Congress could get anything done the joint budget deal was a true bipartisan victory. If passed it would yield 31 billion in sequester relief for the pentagon and a Defense Budget of about 500 billion in 2014 and 2015. Instead of six months continuing resolutions. Sequestration and budget caps, however would remain in place for the years ground. The agreement would also adjust benefits for military retirees, a small but key theft toward performing personnel cost. The ryan murray plan doesnt solve the nations debt but it is an important step in building dialogue toward that goal. We need a National Debate about what the nation can afford. For the pentagon it gives clarity to future spending, its buying power will shrink as personnel costs continue to rise. The commission assembled to review military pay and benefits is actually considering increasing compensation rather than controlling its rye. So those who might assume the worst has passed and the hard but necessary decisions are wrong. Failing to recognize declining spending trends in time to properly plan for them. Thanks for joining us. For this week in defense news im vago muradian. A very special thank you to everybody at boeings vertical lift division. Ill be back next week at the same time. Until then, have a great week. The first hard deadline for the Affordable Healthcare Act only a week away. Anyone buying coverage on the exchanges has until december 23 to sign up if they want coverage to start on january 1. Republicans we