The 2016 Federal Budget has Healthy Increases for R&D and Defense

The 2016 US budget was released in early February by the President. In this budget there are increases in R&D spending in general and the defense budget. For the past several years, since the Budget Control Act (BCA) was passed in 2011, the Defense budget has been decreasing as has the overall spending on R&D in general. The 2016 budget is the start of a turnaround in both Defense related R&D as well as general Science and Technology R&D spending. Whether the proposed budget will pass the scrutiny of congress is another matter.   The military budget has been teetering on the brink of disaster for the past several years. With the emphasis on overseas contingency operations (OCO) and the effects of the BCA and sequestration the military has been forced to review every program and every expense for the past five years. This review has not been necessarily bad. The top-down and bottom-up review has forced each branch of the service to focus on what is important for the future needs of the US foreign and domestic policies.   The following chart shows the level of defense funding for the past several years as well as the projected spending for the next five years. Although the proposed budget for 2016 of $585B is below the 2010-11 level it is a significant increase from 2015. The majority of the Defense budget is for operations, facilities and personnel but there is still a significant portion allocated for procurement and R&D. The 2016 budget provides for $177.5 billion in

procurement and research spending, an increase of $20.4 billion, or 13 percent, over the 2015 budget.     The Pentagon wants to spend $107.7 billion on procurement and $69.8 billion on research and development, with $12.3 billion falling within that for science and technology spending. The biggest investments include $48.8 billion for aircraft, $25.6 billion for shipbuilding, $8.2 billion for ground systems and $11.9 billion for missiles and munitions.

For the Army, there are significant upgrades planned for existing vehicles such as Abrahams, Bradley and Striker vehicles. There is also funding for a Humvee replacement. A lot of the upgrades are for better computer and communications systems. For procurements, the Army is targeting Blackhawk and Apache attack helicopters, Chinook helicopters, WIN-T communication systems, and the MQ-1 Gray Eagle, a dual-purpose weaponized/ISR unmanned aircraft.  Areas in RDT&E specifically identified by the Army include basic research, applied research, advanced technology development, demonstration and validation.   The Air Force will fund R&D in nuclear operations to reduce risks to ground-based strategic defense such as ICBM guidance and propulsion, provide for B-2 fleet defensive management system upgrades related to attack capability and investments in domestic launch systems. They will invest in future capabilities and technologies to support adaptive engine transition program testing and provide critical command and control with better ISR capabilities and maintain its commitment to recapitalize the Air Force to sustain designs and developments for the KC-46 (an aerial refueling and transport vehicle), the F-35 Joint Strike Fighter, the LRS-B (a next generation stealth bomber), and a combat rescue helicopter.   The Navy in recent years has emphasized its desire for more unmanned systems plus next-generation strike aircraft to be interchangeable between manned and unmanned.  An example is the UCLASS, or unmanned carrier-launched airborne surveillance and strike program.  The Marine Corps R&D will focus on amphibious combat vehicles. The Marines have already awarded contracts to two vendors for procurement of additional vehicles.  Also, in the cyber domain, networks such as Naval Enterprise Networks (NGEN) and the Consolidated Afloat Networks and Enterprise Services (CANES) will see more investment as will combat and controls systems for tactical platforms.   All of the branches of the military are also increasing the funding for cyber programs and big data programs. Included is funding for security from cyber attacks from internal and external sources.   Overall the 2016 budget is encouraging for technology companies. With more R&D spending there are more opportunities to sell existing products as well as get funding for innovations and product enhancements. The question is will congress fight the budget since it is well over the BCA cap or will congress realize that the investment is needed for the future of technology growth and modernization of both the military and NASA. Hopefully the later, but we will probably have to wait until at least September 30th to get an answer.   We at CP Technologies are already seeing a much-increased level of quote activity and programs which have been on hold being released.  There is a general feeling in Government procurement that the worst is behind us and that much needed money is being made available.  Based on our first quarter performance, we’re expecting a banner year.  Our systems form the foundation for many military programs so an increase in our business is a leading indicator for the health of the sector.