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a corresponding increase in base sizing because we felt it to be unaffordable. With that as background, I will discuss the need for the 150 surge capacity in relation to planned XM1 production rates.

Our most probable projection of the parameters of a future conflict in Europe is that it will be of short duration and come after a minimum warning time. Because of this, the Army will fight "come as you are"; there will be little time to increase tank production rate or mobilize the production base either before or during the conflict. Surge capacity, then, is a need driven not by wartime considerations but rather by the need to ensure that the Army is in the best tank "come as you are” posture before the war starts. Translated into program terms that means we need enough additional capacity in the XM1 production base to assure that we can meet planned delivery schedules to our [deleted] force package elements.

Two key factors impact on the Army's ability to meet XM1 [deleted] package delivery schedules and thus directly bear upon production base surge capacity requirements. Those factors, in order of importance, are production shortfalls and unprogrammed requirements. To show how these factors relate to surge capacity, consider the example I've illustrated for you.

XM1 production rate options between 60 and 120 tanks per month bound the set of feasible alternatives. For illustrative purposes, a 90 tank per month rate is analyzed.

Consider now production shortfalls. While planned production may be a neat linear 90 per month, in actuality production varies from month to month in response to a variety of factors. Strikes, other work slowdowns, and energy shortages are among those factors. As an example, a recently settled strike at the M60 hull and turret foundry in East Chicago cost the Army two weeks of production. These shortfalls cause us to play "catch up" in tank production which demands a capacity beyond normal rates in order to achieve our planned rate.

Production catch up can be done by working seven days a week, or by adding shifts. The former course can be adopted with limited success, as was the case in the M60 program in 1976. In 1977, however, the same work force was not responsive to a 7-day operation. By far the optimum approach is to add a shift, something that can be done when surge capacity is available. There's no reason to believe that production shortfalls won't be a problem with XM1 as was the case with M60; it is inherent in complex manufacturing processes. Thus without a surge capability we will probably have delays in filling our [deleted] units; a potentially critical operational shortfall.

As for the issue of unprogrammed requirements, since 1970, M60 tank produetion has averaged an unprogrammed requirement of 10 tanks per month for a total of 998 units for non-Army customers. Such requirements have been uavoidable. If some surge capacity is not available in the tank production base, the only means of satisfying these requirements is to siphon production away from the Army; an alternative with serious readiness implications.

To summarize, then, surge capacity is required to ensure our capability to meet unit fill requirements with XM1 on time. Thus surge capacity is directly related to and supports the requirement to prepare for a "come as you are" war. The 150 tank per month capacity we propose meets that requirement.

Surge capacity is not inexpensive. In fact, it drives overall facilitization cost. Because of this it's not prudent to make a decision on surge capacity without a review of the cost implications. We've examined a number of base sizing options, and two are of particular interest; 90 and 150 tank per month options. The 90 per month option costs are based on a Chrysler study submitted in February of this year.

The 150 tank per month costs are quoted from a Chrysler proposal made in December and currently under negotiation. The cost delta between the two points is $157M. This may seem large in absolute terms, but it represents only less than 1% of the total program costs of the XM1. This cost increase of 23% be tween options yields a significantly greater pay off in surge capacity-67. Of course, this only matters if the capacity is needed, but because of the factors previously discussed, the Army views the need as real.

In discussing cost options, M60 production history is again influential. In 1973, when the Middle East War broke out, the M60 base was producing at a rate of 30 tanks per month with no surge. This committee is well aware of what has happened since then. It cost $118M over three years to expand the base to its present production size. If we size to a smaller base again, say 90 tanks per month, and have to expand later, to a larger rate as we did in 1973, we estimate

a major cost increase and over two years to achieve. In view of the XM1 production capacity requirements and the cost effectiveness of fully sizing the base now, as opposed to adding on later, we contend it's prudent to continue with OSD approved actions to size the XM1 base to a 150 tank per month capacity. The XM1 gun issue is a critical recent development in our program. I'll relate to it here, only as it impacts on the overall tank program. Again, General Babers is available to address this issue in more detail.

The primary findings in the XM1 main armament decision process are twofold. First, the 105 mm gun with improved ammunition is adequate against any currently postulated threat. The gun evaluation reaffirmed our belief that the XM1, as currently configured, will be the best tank in the world. For that reason, we see no basis for changing the initiatives to accelerate XM1/105 mm tank production. As the Chief of Staff affirmed during the posture hearings, the Army's primary objective is to field 7,058 XM1's by 1987. Since either the 105 mm or the 120 mm gun will provide an optimum XM1 for the foreseeable future, respective quantities of each are secondary to the basic issue of accelerated modernization. The second finding in the decision process was that it's prudent to complete U.S. development and test and then initiate procurement of the German 120 mm gun as a hedge against out-year threat developments. That development effort will allow us to make an intelligent production decision on the 120 mm gun. We're currently structuring a development program which will lead to a production decision in FY 81. Given a go-ahead decision, the first XM1/120 mm tank could be fielded in fiscal year 1984.

We feel the FY81/84 milestones represent, from a risk standpoint, a prudent program. I want to make it clear that the Army is solidly behind the 120 mm gun decision, and will move as rapidly as prudence in risk and cost will allow to implement the new program.

The analysis of M60A3 requirements is directly related to the structuring of the XM1 program. These two programs are, in fact, a single modernization entity and have been so treated. As described previously, the XM1 operational objective shows 7,058 tanks to equip the [deleted] force package.

Our second priority modernization objective is to assure that remaining active Army and roundout units receive M60A3's. Like the XM1 force package, the M60A3 package also includes assets for the training base, for maintenance float, and [deleted]-days combat consumption. The total M60A3 operational objective then, is 3,676 tanks. If the XM1 is fielded at the rate of 120 tanks per month, filling the M60A3 operational objective, in coordination with the XM1 initiative, provides the Army with a completely modernized tank fleet for the active Army plus roundout by fiscal year 1987.

We believe that a total modernization effort of this scope, in the timeframe indicated, is necessary to counter the Soviet tank fleet of T72's and T80's that will be operational in the central region of NATO in the same time period.

The procurement option to fill the M60A3 operational objective is based upon two considerations.

First, the M60A3 is an interim system, needed now to counter a modernized threat until the XM1 is fielded. For that reason the M60A3 program is front-end loaded, being completed in early 1984.

The second consideration guiding the development of the M60A3 procurement option was the need to accomplish that program at minimum cost, subject to other constraints, so that all available funds could be applied to the XM1 program. To do that, we've reduced the number of M60A3 new production tanks to the minimum required to sustain a warm production base consistent with modernization requirements until the XM1 line is fully proven. This course of action fully supports your committees' recommendation on this issue. Together with prior purchases, our fiscal 79 and 80 M60A3 production request will complete the M60A3 buy and achieve a total of 1.892 new M60A3's.

By reducing production, we're not saying we would not like more new M60A3 tanks in the near term. Rather, in a fiscally constrained environment, our rationale is we simply cannot afford them at the same time we're pressing to accelerate the fielding of the XM1.

Given the production program described, a conversion program totalling 1,784 tanks is planned to fill the remainder of the operational objective. Converting current M60A1's to M60A3's can be accomplished at less than half of the cost of a new M60A3 tank, so it represents a relatively inexpensive way to provide nearterm readiness.

Based upon last year's request to convert all M60A1's to the M60A3 configuration, additional RDTE funding was provided by the Congress to initiate a program to adapt XM1 technology fire control for the M60A3 conversion tanks as a cost-saving and commonality measure. However, in our new program we've cut the planned number of conversions by over 4,000 tanks and intend to finish them in CY84. The 3-year period required to develop the new fire control system would prevent meeting this near-term readiness goal. Moreover, competitive bidding for those components has significantly reduced projected cost. Therefore, conversion tanks will have the same fire control as production tanks-the ruby red LASER range finder and solid state computer-and still achieve commonality at reduced cost-an objective of the Congress.

The conversion program will be split between Army depots in Mainz, Germany and Anniston, Alabama. The M60A1 to A3 conversion program at Anniston will begin in fiscal year 1980 and is coordinated with the completion of the M48A5 program to help stabilize the workload at that facility. Both the M60 project managers for tank production and development, Colonel Sawyer and Colonel Butler respectively, are available to discuss these and other M60-related issues in more detail at your behest.

As stated earlier, we've structured the M60A3 program to achieve early deployment and to complete force structure requirements complementary to our force fill of XM1's by fiscal year 1987. Because the M60A3 is an interim system specifically programmed to provide near-term readiness, it's appropriate to dwell for a moment on the distribution of those assets in the near term.

Of the 3,676 total M60A3's, [deleted] will be initially positioned in Europe. Only minimum asset requirements to support the training base and fill POMCUS units will be retained in CONUS. This forward deployment of M60A3 assets is consistent with our near-term readiness goal for that tank. When the M60A3 assets are deployed and included with initial XM1 production, almost all tanks in the hands of our NATO deployed forces in fiscal year 1982, will be modernized assets. That force will include a small slice of M60A2's and will be backed up by a prepositioned war reserve of M60A1's.

Thus, our disposition of M60A3 assets will be heavily weighted toward forward deployment, and you can be assured that those tanks will be in the hands of our tankers in NATO as soon as possible. We believe that our M60A3 program is a prudent option to fill the near-term need until the XM1 is fully deployed. I told you at the outset that we've attempted to develop a program which is practical and affordable. To do that, we've had to make a trade-off in this budget between the M60A3 and XM1 programs. We see as a critical feature in the program, achievement of an XM1 production rate of 120 tanks per month by February 1984. To do that we must accelerate our plans to build the XM1 production base. That acceleration has caused a significant increased in XM1 production base funding requirements for fiscal year 1979. Therefore, to fund that increase, we've cut back M60A3 production from 841 tanks to 480, a level which will maintain a warm base. To compensate the force structure for fewer production tanks, the Army has funded 220 M60A1 to A3 conversions in fiscal year 1979.

The decision to reduce M60A3 production in fiscal year 1979 was not an easy one. The Army still needs tanks. But in an era of constrained funds over the long term, those tanks must be XM1's rather than M60A3's. We feel we can accommodate the reduction to 3,676 M60A3's, provided the XM1 is accelerated We've perforce, made the difficult decisions to implement that strategy within the limits of current funding levels.

Having established M60A3 and XM1 modernization options, the cost effective ness implications of each alternative were analyzed in detail. The old program. as included in the fiscal year 1978 budget request was used as a basis for comparison. That program included a total fleet of 7,875 M60A3's and an XMI program based upon a 60 per month production rate.

Two clear alternatives to that program were evaluated. Both alternatives include the scaled down M60A3 program I've described to you. In Option I, the [deleted] force package was filled at a rate of 90 tanks per month; while Option II, a 120 tank per month alternative was employed. Tank fleet life cycle costs were evaluated in detail. Costs include the acquisition costs for M60A3 and XM1 procurement as well as operation and support costs for the entire fleet through fiscal year 1993. The effectiveness of each tank fleet option was measured as of 1988-in a sustained combat, force-on-force, Europe scenario.

The results show that both options are clearly more cost effective than the old base program. A detailed review of effectiveness results indicates that the level of XM1 production dominates all other considerations. With either the 90 or 120 tank per month option, our additional life cycle cost is 8%; yet in Option II. at 120 tanks per month production, we show an increase in overall force effectiveness of almost [deleted] above the old program option, and about [deleted] above the 90 tanks per month option. We want to fully exploit this leverage provided by an accelerated XM1 program.

On the basis of this analysis, we've established as an Army goal-filling the [deleted] force package with XM1's by fiscal year 1987.

On 10 August, the Secretary of the Army approved the new Army Tank Program and made it the Army's top priority readiness initiative. We immediately took steps to layout that program in our fiscal year 1979 budget request. The new program requires an increase in funds totalling $2.8B over the old program in fiscal years 1979 thru 1983.

The Army, in recognition of the criticality of the tank initiative, funded $1.3B of that shortfall out of current funding levels by tradeoffs within the Army TOA for the fiscal year 1979 budget formulation process. This increase fully funds the new M60A3 program, makes up significant shortfalls in tank training ammunition, and pays for the accelerated construction of the XM1 production base. However, we need additional appropriations to fully fund the increased tank buy for our NATO-oriented forces as provided by an XM1 rate of 120 tanks per month.

The FY79 budget for XM1 production is now based on a 60 tank per month production rate for the out years. OSD is aware of the Army goal and has left open the issue of higher production for consideration in the fiscal year 1980 programming and budget cycle by approving the acceleration of production base construction which includes the ability to achieve an XM1 production rate of 120 tanks per month by February 1984. Thus XM1 production rate, 60 versus 120, is the sole remaining tank issue between the Army and OSD. The additional funding we need to support this critical initiative totals $1.5B in fiscal years 81, 82, and 83; which will provide an additional 1,491 XM1's, all earmarked for NATO. We solicit your support of this, the Army's most important modernization objective.

To summarize this discussion of the new Army Tank Program, I offer these key points.

First, we've increased both the quantity and delivery rate of the XM1. We now plan to produce enough to fill our [deleted] units by fiscal year 1987. This accelerated XM1 program is the cornerstone, and top priority item, in Army procurement through the mid-1980's.

We've cut back our M60A3 program to minimum essential levels to free up all available resources for application to the XM1. The total modernization program we request, consisting of a cost effective mix of M60A3 and XM1 tanks, will allow us to field a tank fleet that is technologically superior to our Warsaw Pact opponents.

This completes my report to you on the direction of our new Army Tank Program; a direction, in part, motivated by this committee. Thank you Mr. Chairman for this opportunity.

STATEMENT OF MAJ. GEN. DONALD BABERS, PROJECT MANAGER, XM-1 TANK

General BABERS. Sir, I would like to introduce myself. I am Don Babers. I assumed responsibility for the XM-1 tank in July of this past summer. I have three jobs as I see it in execution of the XM-1 program.

The first of those is to develop the XM-1 tank and logistics system. The second is to design and develop a production base to build that tank.

The third mission is to execute the Army's program for a 120millimeter gun.

Concerning the first, we are in the 17th month of a full-scale engineering development phase. Testing during this past 17 months has been on contractor vehicles. They have taken the validation hardware from previous phases, updated it for corrections to problems uncovered during the previous phase and tested the fix. We have just begun the delivery of the full scale engineering developmentFSED-pilots. We have delivered three out of a total of 11. Chrysler is delivering two a month now. Final delivery should be in July.

Testing of those vehicles has not yet begun. We will do so later this month. During the validation phase, we did not have a thermal imaging sight. We do have one now developed for us by Hughes.

We had a concern going into the FSED phase with the performance of this particular thermal imaging sight. So far the performance of that sight in the validating Government laboratories is above that which is required for the performance. The real proof though will be when we get it and the full scale development pilots can start running.

The second task is the production base. In July or August 1977 I received direction to establish a production base for 150 tanks a month on a surge basis. I established a task force to work with the contractor to make sure that he had in his proposals what was required to build those tanks to meet our schedules and nothing more. That effort is ongoing.

As a result of work which has been done so far, we have reduced the estimate from better than $897 million at the time the budget was submitted down to $823.2 million to date. I still have a goal of getting to that target, it is an ambitious target of getting that total facilitation bill for a surge capacity of 150 below $800 million.

The third task deals with the 120-millimeter gun. On January 31, the Secretary of the Army announced his decision to adopt the 120millimeter German gun. At that time, I was given the task of developing a detailed program, scrubbing out the cost, structuring tests to validate those costs and getting into production as quickly as feasible. At the same time, not interrupting the production and the development of the 105-millimeter gun.

Development of that program is just about complete. I am scheduled to present that to the Army Systems Acquisition Review Council later this month.

Sir, that completes my presentation.

[The prepared statement follows:]

PREPARED Statement of MAJ. GEN. DONALD BABERS, XM-1 PROGRAM

PREPARED REMARKS

Mr. Chairman, Members of the Committee. The Army's XM1 tank program is now well into the full scale engineering development phase, the second and final phase before production.

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