WASHINGTON — As the US Air Force plans out its fiscal 2017 budget, sources say to expect few deviations from last year's layout.

"Stay the course" appears to be the strategy employed by the service this year, a far cry from the dramatic program cuts and drama of two years ago. It's a choice driven by two factors: the belief that the service has made the right strategic decisions, and knowledge that inside the Pentagon, there is little room left to cut.

In an exclusive interview sit-down with Defense News, Gen. Mark Welsh, Air Force chief of staff, laid out the service's thinking as it formulates the next budget plan.

"I think the big things are that first … the demand signal is going up. Second, resources are not. Third, flexibility is going down," Welsh said. "Those three things mean that we have to set a series of logic-based, decision rules that we follow as we build a budget."

In essence, it's the same struggle Welsh has dealt with since taking office in 2012 — how to balance the needs of ongoing operations versus the needs to upgrade an aging fleet of systems.

"Wherever we can, we have to make the decision to minimize investment in old things and mission capability that we don't absolutely need today, and transfer that investment to modernization for the future because, 10 years from now, the threat and the scenario will be completely different," Welsh argued. "So we've got to figure out how we modernize this force."

Acquisitionwide, that means the service will focus on keeping on track its big, three recapitalization programs: the KC-46A Pegasus tanker, F-35A Joint Strike Fighter and Long Range Strike-Bomber (LRS-B) programs. – on track.

In addition, Welsh highlighted a number of second-tier, "next-generation" acquisition priorities, including the Combat Rescue Helicopter, T-X trainer replacement, JSTARS recapitalization, modernization for the E-3 Sentry AWACS fleet and recapitalization for the EC-130 fleet. – as the "next generation" of programs that need to be supported.

He added AESA radars for older jets and upgrades to the C-130 fleet, which are needed to make sure those planes can fly legally after 2020, as other priorities.

"All of those things are in our budget," Welsh said. "We've prioritized them very clearly in there, but the key to us is just modernizing."

Slight Deviations

While the overall budget plan may look very similar to last year's, there will obviously be slight variations built in.

For instance, a source said some money could come out of the LRS-B program's total without impacting the overall program, largely because the contract has yet to be awarded.

"They'll probably take some money out of the LRS-B program simply because the downselect has been delayed a bit," the source said. "It would not impact the schedule; if the downselect is delayed by a few months, they don't need that money."

Similarly, it would not be a shock if the F-35 buy was reduced by a small amount in order to fund other priorities, although Welsh said there is no formal discussion about an overall cut to the F-35 program, adding: "Anybody who knows about the Department of Defense looking at reducing a buy knows something I don't know."

One area that will likely get plussed up from last year is the space budget. Over the last year, Air Force Space Command head Gen. John Hyten has begun talking openly about the need for defensive and offensive space capabilities, a focus that sources said has the direct blessing of the White House.

One former Pentagon official with knowledge of discussions said to expect "significant investment in things that are primarily defensive in nature, with an ongoing debate within the administration about how aggressive you want to be in turning that into offense."

Much of that, of course, will be in the black budget. On the public side, the former official said to expect the service to continue to fund follow-on programs for the SBSS, SBIRS and AEHF constellations.

Expect a heavy request for munitions in the service's portion of the overseas contingency operations (OCO) fund, as well.

Munitions are "a real problem" for the service, Welsh said, given the rate they are being expended in Iraq and Syria and the lag time between when a new munitions order is placed and when it is filled.

"Typically if you drop a bomb today, it's going to take you two years from now to get the appropriation to replace it, another year or two to actually get it on the shelf," Welsh explained. "Stockpiles are down. What we tend to use to replace those stockpiles of weapons used in combat is OCO funding. ... We plan to use that to increase the munitions account this next year."

A-10 Retirement

Perhaps nothing exemplifies the challenges the Air Force has had budgetarily than the fight to retire the A-10 Warthog, the beloved close-air support platform the service is attempting to retire.

In its fiscal 2014 budget, the Air Force decided to begin retirement of the A-10, claiming it would save more than $4 billion over the next five years and free up personnel as the F-35 comes online. Defenders of the plane, however, accuse the Air Force of trying to kill off a vital piece of air protection for troops on the ground.

Driven in part by the emotional response from those ground forces, the issue exploded in Congress, eventually becoming a pet topic for a small but influential group on the Hill who have so far succeeded in blocking any attempts by the service to retire the Warthog.

Three sources familiar with the budget confirmed that the service plans to include the A-10 retirement in its FY17 budget plan.

Welsh did not specifically acknowledge that the A-10 retirement remains in the budget, but his words hint to his thinking: "Go back to our starting on a strategic-planning process — the story is consistent," he said. "It has to be. You can't keep changing the right answer. If the analysis still applies, if the priorities are still the same from the combatant commanders, and the operational analysis supports the priorities, then the answers probably won't change."

That consistency is key for the service's credibility, said Mackenzie Eaglen of the American Enterprise Institute.

The politics on the A-10 are set, Eaglen said, pointing to the fact that Senate Armed Services Chairman Sen. John McCain has championed the plane. In fact, she adds, the politics will likely be worse for the Air Force in a presidential election year, given how much of a "national level election issue" the A-10 became during the 2014 midterm.

So if the service knows it will lose the A-10 fight again this year — and Eaglen says that's the easy money to take — why fight the fight? It's about showing consistency, especially as the service has yet to regain credibility on the Hill after the fights around the Global Hawk and U-2 systems earlier in the decade, with the Air Force deciding to cut first one, then the other.

"They have to put it in the '17 budget request, because they need to have it in the '18 request, and they can't be seen as flip-floppers," she said. "They have to be consistent in asking for it again so when they come back in '18 perhaps something will have changed, either in the politics, budget or the reality of the capability argument."

Asked whether those politics are frustrating for him, Welsh demurred, saying the discussions "aren't contentious," but rather a natural part of the way budgeting is done.

"I don't think anybody on the political side of our government really wants a service chief to start factoring in politics into all of their best military advice," he noted. "We give best military advice to the White House, the Congress discusses things and makes a decision, and we move on."

CR Impact

For all the planning the service is doing, one reality hangs above its head: A familiar-looking budget may be thrust onto the service in the form of a continuing resolution (CR).

The stopgap funding measure funds the government at the previous year's level. That typically results in the services being locked into the previous year's production levels, with a pause on new starts. The Pentagon can go through the Office of Management and Budget to Congress and ask for special dispensation on certain programs, so long as the department can find the funds elsewhere and win congressional approval for its reprogramming requests.

Speaking in an exclusive TV interview with Defense News, Frank Kendall, the Pentagon acquisition head, called the idea of a yearlong CR "devastating," saying it impacts the ability to ramp up production rates on key programs.

"It would be a devastating thing for the department," Kendall said. "I understand that it is an easier route in some ways politically, but the consequences of that are very severe."

There is "nothing good" about operating under a CR, Welsh said, noting the inability to do long-term strategic budgeting under the capped levels.

"It creates a lot of work, a lot of churn and a lot of confusion for everybody involved, by the way, not just for the Air Force," he said. "It's just not a great way to do business, so nobody is a fan of CRs. Nobody."

Welsh said there are about 50 new starts that would be halted under a CR. About 75 percent of those are small ACAT III programs, but some larger programs, including plans to upgrade the B-2 bomber fleets' communications gear and a planned replacement for the UH-1N Hueys, would be frozen.

An Air Force spokeswoman added that under a CR, planned ramp-ups in procurement for programs such as the KC-46, F-35, C-130J and Expendable Evolved Launch Vehicle launches would be capped at FY15 levels.

Welsh also called out the CR as directly impacting the service's ability to replenish munitions, saying that "unless there's some specific provisions made in the CR that's produced by the Congress, [it] will limit our ability to do that."

In recent years, the Air Force has prioritized technology made the call that modernization of technology is a priority, and attempted to handle budget shortfalls with personnel cuts.

The chief did not lay out exactly what would be on the chopping block under a CR, but one source with knowledge of the budget discussions said that if sequestration returns, the modernization accounts would not be spared this time.

"The Air Force has reached its limit in what it can downsize. It can't shrink any more," the source said. "So if forced to live with sequester below that, they're going to give up some modernization."

Welsh hinted that people will be a priority in this budget cycle, saying: "We're going to prioritize delivering trained and ready airman to the joint fight, because fundamentally that is our job. You can't afford to not maximize your success in today's fight thinking about something down the road. That's the first thing we'll do."

That ties back into his comments about politics. Just as the A-10 and other retirements are controversial on the Hill, getting programs through a continuing resolution creates its own political problems.

"The demand has gone higher, and the resources have, especially if we go to CR, gone down," Welsh acknowledged. "So the pressure will mount, the decisions will get harder and they'll be more contentious. But the discussion that happens needs to be as unemotional as we can make it, as logically based as we can and as operationally well-supported as we can. That's our role."

Email: amehta@defensenews.com

Twitter: @AaronMehta

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

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