Fourth tiers, that has already begun to happen. And major contractors have said that the furloughs were triggered because the Defense Contract Management Agency was furloughed. And so the contract inspectors, some of the technical inspectors, werent there. And also that some of the government facilities had not opened up, some of of the governmentowned contractor operated facilities but even the most of the civilians are back at work and some companies are still gone ahead and furloughed or laid folks off. Why is this the case, that this is where companies are trying to bank savings for the future that they understand that deep defense cuts are companying or driven by what is happening . I think it is a combination of both. But what youre really seeing is the result of uncertainty. With unpredictability and uncertainty in the market, sue more conservative tism. It is a cascade effect. Where you saw it in week one, and you see it at the second tiers in week three and third and fourth tiers in week three and four as we go on. What are some of the nonobvious and still immediate implications of the shutdown . I think there is a whole range of things the department does with industry, with our industry partners, that everything from merger and acquisition activities and reviews, to Small Business activities, Small Business loans, and all of that is is just being delayed. And so you really are having this knockdown effect that will last for some period of time, even if we do get back up and running. I mean one of the things for example and you said it on this case, is the committee on Foreign Investment in the United States where any Foreign Company that wants to buy an American Company has to go to a review. And that office is losed. The department of treasury is the one responsible for that. And they are they have still a skeleton staff. But thats one of those issues where there is legislative, there is only a certain amount of days and you need a work force there to complete it so you can comply with the law. This is ultimately going to get resolved one way or another. It is either going to be a bruising resolution, as if it hasnt been bruising already, but what are sort of the longer term repercussions of this . This is is a time when the department is looking at a 62 billion sequestration cut next year. How much money is this going to cost that cant be afforded . Well i think that the cost has truly been underestimated of the cost both to the shutdown and of the sequester. The combined effects. I dont know what the exact number is but i would say in order to cut a dollar, it probably is costing us 50 to 70 cents. So if you add that number, because were doing it so inefficiently. And it does have a real effect. And that takes away your purchasing power. Which means we buy less equipment, fewer goods and services, which has a direct impact on the Industrial Base. Over the longer term. I think the impact of this, of having everyone in washington describing the problem but nobody in washington working the problem, i think the longer term impact is the quality of the men and women that we retain in the Industrial Base, and the quality of the companies that want to serve this Industrial Base, and in uncertain times. Certainly if i had a son or daughter thinking about entering an industry, im not sure i would say aerospace and defense is a great place to go right now. And it is i mean you guys for example when were you in the department wanted companies to invest more to sort of plan for the future. But essentially, this sort of behavior completely disincentivizes that, doesnt it . I think it makes it much more difficult to explain to your shareholders and your Board Members why youre making investments in such an uncertain and unpredictable market. And especially as we continue to draw down, and we all know what the future number is, it is not going to be bigger, but the uncertainty of that number complicates the situation much more substantially for these companies. And what if anything can d. O. D. Do to mitigate the shut down impact on the industry. I think continue to have a dialogue which the department has done. Continue to tell them, you know, a lot of people, when i was in the office, would come to me, assuming that we knew something that we werent telling them. And i think over time, we convinced them, we dont know any more than you do. We are trying our best to try to point out the complicating side effects that this has on our Industrial Base and our ability to perform the mission that the great men and women in uniform expect us to have, the goods and services to perform. Let me ask you quickly about a merger and acquisition question. You guys have said we dont want mergers among the major players. There is a sense that d. O. D. Has softened that stance, youre not in the department anymore, but has there been any perceptible change in stance as m a gets ready to roll . Not that im aware of. We always said were comfortable with the top tiers. We understand there is restructuring. When i was in the position, we understood there would be restructuring and we take everything on a case by case basis but i havent seen any indication that that position has changed. Thank you very much for joining us. We appreciate it. Coming up, training the new Afghan Air Force. Youre watching this week in defense news. 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. With 600 troops from 15 nations, natos air Training Command in afghanistan is rebuilding the countrys air force so it can support afghan army and police units once the bulk of Multinational Forces leave afghanistan late next year. The new Afghan Air Force has about 6,000 airmen and 100 aircraft, including russian built mi17 transport and mi35 attack helicopters and cessna 208b transport planes but by 2017 the force will expand by 20 to 30 to some 8,000 personnel and 120 aircraft, including used Lockheed Martin c130 transports and new em bra air a29 light attack aircraft. Getting the Fledgling Air force up to speed is the job of the Brigadier General of the u. S. Air force general michelle. I caught up with him with the annual meeting near washington and i asked him why afghanistan needs an air force and what kind of air force it needs. Let me start by saying air force has a long proud history of aviation is 1919, dating back to 1919 and it is a source of national pride. And for countries to be legitimate on the world stage, being able to project power in their borders and being able to influence those external to the borders, air power is essential. And looking at afghanistan, it is an amazing mountainous region and very little infrastructure and the air is allowing them to transcend some of of the natural obstacles. The same reason that they became infatuatedwith air back in 1919 so what the air force provides is an innate capability to be able to support themselves beyond just this military effort. Which goes to your second point. Really we just need to think in terms of context. The reality is were building an 8,000 person air force. And in reality it will only have a finite amount of assets but the right assets for what they need. So we can show we are being goods stewards with a finite time line and hon ter do do just enough to be able to do honor it do just enough to be able to do what they asked to do. And to build an air force they can sustain post machine 2017. Absolutely. And a couple of dimensions. One it starts from the ground up. How do you create the training capabilities that are context lized for the nation so it is sustainable in terms of language. And what is interesting about afghanistan, is we have 5 of the people in afghanistan speak english and 69 are illiterate but we have a requirement for 100 literacy and 50 english. So were helping now and having to work through that level. And sustain ability starts to get the right people and then throughout the life cycle. Let me go through the training of the air force. When folks think about training the afghans, they think of the National Police and the national army. And there have been some challenges there. And most people would observe training from an airmen and air power standpoint is even more sophisticated. How do you train and pick and select folks that dont backfire haz as has been the case of the Ground Troops of some of them that have been trained. The advantage is we got started late. What i mean is we started in 2005 and 2007 we started realizing we needed an air component. By 2009, we solidified the organization. So while we have a lot that we learned from the things that didnt work out with the ground, at the same time, in terms of selection, and in terms of security, you know, the one thing that is different about our mission is every single day were shoulder to shoulder with our very teammates. So we select in terms of how do we get the right people from the education area. We use a series of test batteries to do that. And we also provide training from the ground up organically. Again that runs seven english labs on top of running and building an air force. Were creating the entire life cycle internally learning the army. You feel confident there isnt go going to be for example a gunship and turn it on friendly forces. They only have the mi35 and the reality is is there enough checks an balance and we never fly helicopters alone and it n reality in reality it would be difficult to do that. There is nothing that is perfect. Especially in a different culture like afghanistan. But what they do know and the thing that were spending the most time on and you talked about airmenship is the area of building discipline. When folks think about an air force, they tend to think about the pilots and they also tend to think about the air crews. But an equally important part is the Intelligence Surveillance and reconnaissance, how to synthesize that and how to do targeting packages and the like. What are you guys doing in terms of training this very important but back shop capability, especially in creating that air mindedness that folks at that level need to plan missions. Thats a great question. And as we know, air mindedness really has a dimension where it allows to you transcend the one and two dimension to a third dimension, if you will. It is inherent in versatility. And flexibility. And speed. So that comes from being exposed to exposing them to, you can have a singular effect on the ground but what happens by showing them, when you take varied elements that only air power brings, the synergistic effects that can be achieved between air and ground, integrating everything from imagery, allows you to do that. And there is no other way you can achieve. That it goes back to your first question. Why does afghan need an air force. So they can have the moment profound effect with the most limited amount of resources. What are the capabilities of the Afghan Air Force right now and what you with ill be getting . As of today 58mi17s and we have five closed air sport and we have 6, 208s for resupply. And basically, we have two week, the first two c130s which ultimately will be four. And then a29s start showing up in june. Sir, thank you very much. Absolutely. Up next, how the Worlds Largest training and Simulation Company is facing defense cuts. Stay tuned. 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. Weve always been on the forefront of innovation. When the world called for speed. When the world called for stealth. Intelligence. Endurance. Affordability. Adaptability. And when the world asked for the future. Staying ahead in a constantly evolving world. Thats the value of performance. Northrop grumman. Canadas cae is the worlds large of the training and Simulation Technology company with 2 billion in revenue last year, and more than 8,000 employees around the globe. Headquartered in montreal, the company is not affected by the u. S. Government shutdown but is working hard to grow its businesses even as defense spending drops in most of the western world. Aau based in Tampa Florida is the prime contractor to train air crews for the kc135 aerial tanker and provide simulation and Training Systems for several Navy Platforms including the mh60r and mh60s helicopters and the new Maritime Patrol aircraft. Half of the companys business is from defense. And the other half is from civil aviation. With a small but growing mining and health care unit. Caes chief executive mark parent was in washington last week and joined me in the studio. It is a financially constrained time for all systems providers and you guys provide the systems but also full training services. So that comes out of operations and maintenance funding and both are being hit. How is your business doing overall and how are you growing as the budgets drop, for example, in the United States and over in europe . Well, for sure, i mean weve seen head winds in defense in general, and we certainly havent been immune as a company to the uncertainties in the budget environment but this is our niche of the company. It is seen as a solution. And it is kind of a budgetary constrained time. And for us, the future of our business, modeling simulation, our core competency, is actually pretty bright and were seeing opportunities open up for us. Where do you see the biggest opportunities . Well, i see opportunities for us in just attacking the fundamental shift that we see in budgets, looking to do more, using modeling simulation. And then we see opportunities happening every day. It is a fascinating time because Gaming Technology has exploded. Yes. And we have tablets and other devices that can be used now as training tools for the rudements that are being able to review, you know, your performance, for example, you get the recording of your landings and review them the night before you go back into the simulator. How do you how does that change the dynamics between how much real training you need and how much you can do on a simulator . Well, we will stick with what the customers are saying. There are reports coming out, there was a recent report by the General Accountability Office here in the states, they wrote a report for the u. S. Navy in particular, just talking about how much simulationbased training they will be doing as part of the curriculum and what is clearly showing, is that they will be using more simulationbased training, as part of the curriculum. And how that translates to us, were to give you an example, were the prime contractor on the m60 romeos and ma60 seahawks for the navy. And on those platforms alone, there are going to be increasing the amount of simulationbased training from 40 of the curriculum, so 40 in the simulators to 50 . Now, that may not sound like much but with 500 or more helicopters, that starts being some interesting business that the a company like cae sees. Do we have a mix . Can we say for example that Flight Training i can get you down to 10 hours of flying training which is very expensive and be able to do an even greater part of it, even from a currency standpoint, that simulator time costs, counts toward flight time which is something that, you know, has always been an issue . Well, for sure. And first of all, let me say we would never advocate to do all of the training using simulation. I dont think that is practical or desirable. Particularly when you are training a war fighter to go into harms way. And i mean clearly, you have to do some live training as well. But what were saying is todays technology, you can do much more, using simulation, to maintain readiness at lower cost. I mean we do this, i will contrast that with lets say our civil business which is 50 of our business, which is training airlines. Which is a regulated business. Today, 100 of the training of an Airline Pilot is done in a simulator. So were far from that, in the military, like i said i dont think we should ever go that way, but nevertheless, i think theyre scoped to increase. What are the break through technologies that have allowed you to get to this new plateau of fidelity . Some of the technology is the one we see being actually spearheaded by other industries. Like you mentioned gaming. In terms of fidelity of the scenarios. Home entertainment industry. Which is driving projector technologies that we can use in those areas. So as a company, we are piggybacking on other industries that drive those technologies, but really differentiating with the content of course that we bring as a core competency. You have to drive the cost down so i can get a full motion simulate ner my living room. Thats what im looking for. Im not sure if my wife likes that idea. The current aircraft ship and the environments are very realistic but the dismounted soldier is much more of a challenge. To prepare people for Counter Insurgency warfare we have been staging elaborate war games with hundre