including counter terrorism, we've gotten very good at over the last 10 years. certain of our space initiatives, all of our pager space initiatives going forward. host, navy, air force and army, all of those things enhanced. of course when you do that something else is not going to have that opportunity to be enhanced. something holder part of the legacy. that's what we needed to do. that's what we did. in the outline is how and what we did to try to adjust the budget to the strategy. in the time since when we released our budget plan and today, congress went through its mark. all i want to emphasize is that the package that we submitted is one that was not only strategic

but carefully balanced. we're building the horse we need for the future, made decisions within constraints of the budget control act. we had to. when additions are made to that package in one area, we of necessity have to take something out elsewhere. the rule of the game. that's what it means to be -- you have a budget, a zero sum became. so the package could lead to an unbalanced portfolio. for example, a hallow wean of the force. i want to call out a couple of decisions. i mentioned that we did not believe that compensation could

be expect. health care costs consist of 10% of our budget. we want to give our troops the best at the lowest. in order to deliver high quality health care we need control spiraling costs. so we made modest proposals respecting tri-care and we need those savings to balance and maintain investments. we need them. we understand it's a difficult step to take. we think it's a fair one and right one. we talk about aircraft retirements. we're looking to retire old single purpose aircraft in favor of newer, like the f-35 t new bomber and new tanker. and i mentioned that we had proposed making some of those changes in the tactical air

forces. we need to be able to make those changes. to keep older aircraft on fine would impede the aircraft becoming the force of the future. that would be unfortunate. so as it affects the air force the changes that we made, we think were well advised. and they allow tuesday make the transition to the future in the air force that we seek. that's with respect to tack air. with respect to lift, all of our modeling shows that we have excess intertheaters strategic left. that excess interfeet ter lift is not maintained. can't afford it. we don't need it. we have extra affecting the

c-130s. they have an important use not only to our conin the gaengss but also in defense support to civil authorities. very important role. so they need to be present in adequate numbers for our contingencies. and they need to be in useful locations within the country. to provide appropriate support to civil authorities. where they are is of less concern for national defense. we're prepared to be flexible. the president indicating he was to be somewhat flexible to the number of c-130s though we have excess. over all we need to be able to retire older single purpose aircraft and aircraft in excess of need, that's what makes room

for the new. likewise, with the navy if we hold on to older ships it will come at the expense of the new. we don't want that. we don't want to hold on to shifts because we have to pay to modernize them. pay to man them. pay to operate them and they are not as capable as the new ship would be. so, our ship building plans call for a somewhat larger, the end of our 10-year period, but decidedly more capable navy. that's the plan we would like to follow. >> army and marine corps are two facing the most "titanic" transitions. as the iraq and afghan wars wind down because they have been so deeply and wholeheartedly

committed to those two conflicts. and they are trying to make a transition from this necessary focus on counter insurgency and coin over the last connect cade to a wider specker of capabilities we need for the future. they are the dominant grounds for, full spectrum, best in the world. that's what we want. so we are not going to size the army or the marine corps for long protracted stability operations any longer. we're not going to retain the large rotation forces that we have needed to constantly rotationbury guards. we're not going to maintain it not because we're abandoning coin. we're going to retain that important and hard one,

excellence in coin but we don't need bulk of the floor structure. you can't predict the future. no one wants to get in another rock but the point isn't that we're predicting the future. if we did we would mobilize the reserves and rebuild and have to by definition time to do so f. there were another large long counter insurgency war that needed to be fought. that is not poor structure that needs to be retained in being. that isn't what the army or the marine door want. they need to be able to take down that end strength and make investments in creating the full force of the future. that's what we need do do f. we're prohibited from those reductions in army and marine corps it frus states that opportunity to make the transition from the decade they have been in to the connect dade they need them dpour.

i hope that doesn't happen so. in conclusion. we're in all of our services and all of our activities in national embarked on a strategic transition following the wars in iraq and afghanistan. this is just the beginning, this ship is making a very big turn. we need to follow through on our plan and keep moving toward the future. it's an important nobody to do. transition is going to take time but you can see the outline. president obama scrubbed it very hard. and all of the members of congress that i deal with every day with whom i spoke envision and support exactly the same transition. the same opportunity. and really, the same obligation to the war fighter and the taxpayer. we all see it. we just need to do it.

as we work out the details we look forward to working with each and every one of them and you in this room. on the process every step of the way. i thank you for your attention and for the wonderful work this institution does. [ applause ] >> this allows me to introduce moon program note i forgot to mention. and also to put myself at the front of the question cue. if you'll indulge me a second. first to remind everybody, although secretary will run his own q and a session, there are a.i. rules that is wait for the microphone, identify yourself for the transcript and put your compelling statement in the form

after sus sinkt question. i'll now give you an example of how to do that plxt secretary, you described a process of transition, the ocean liner metaphor you used. obviously the turn that you embarked often is incomplete. i would ask you to both look ahead. also to cast your mind back to both past job and past experience in the 1990's. do you foresee a transition necessary within the defense industry that would parallel what you described and what do you think that would look like? >> i do. it's a very important question. my colleagues in the defense industry are thinking along exactly the same lines. and almost without exception are steering their companies in a similar transition so that they are continuing to serve our needs in the future in a different way than they have in the last 10 years.

i'll say a few thing, i said already that the defense industry is second only to our defense industry makes aus great military power. dlfr, a tech nicklogically advanced vibrant and financially successful defense interest is in the national interest. and we want to work towards a defense industry of the future that continues to be as great as the one the president and the past. we, in the main, leave to market forces, the adjustments in the defense industry that will necessarily come as this transition unfolds because economic theories say that's good and that's what we want. we do keep our eye out for things that could be

deleterious. i'll give you comes. one would be the kind of short-term financial perspectives impijing on our industry that came into the housing market. certain aspects of the financial services market. we can't afford to have that happen to our defense industry 0 so we are aligned with the long term investors, in terms of our interest and its long term health prorks duck tiftty growth and so forth. second, we'll be looking as we make changes, for any parts, any skill sets that are now in the defense industry, that if we allowed them to go away, would be very difficult to -- or time consuming or expensive to re-create and which skill sets cannot be found in commercial industry, those we have an

obligation to sustain and i've invite mid partners in industry to identify those opportunities for us. that's an example of something we didn't do in 13 but that is, as we put together the 14 budget, we want to look at those polls and within the reasons of our budget constraint make those kind of investments so. we want to work together with the industry upon which we depend so much so they make the transition with us and that they are here to make the greatest military in the world 10, 20 years from now. i appreciate your question. in here in the room let me say thank you. go back and tell your people. thank you for what you do. we don't take it for granted. we appreciate what you do for national defense. >> amy butler with aviation

week. since 9/11 as you talk about this transition there has been a lot of money poured into isr resources for obvious reason. can you walk us through that the plan is for reconciling the forces of the future give at any fact we fielded so many quick reaction systems that are unique and what not. also, at what point if you haven't already will you start shipping funds from the programs we know of today to ward new sensors or new platforms that can penetrate and such for the future. >> both good questions. the second one first. that you call a shift has begun. actually began a couple years ago. and i'm limited in what we say about our future isr capabilities but trust me that

we're investing in the future. with respect to the ones you are so right that we put together quickly under the pressure of combat which which have been so amazingly successful. they do pose a managerial issue for us after the war because they were not essentially designeds to last. they don't have all of the pe ters to be part of the force. for the mq-1 and mq-9 the air force had to work through a complicated process. we intend to make them an enduring part of the air force's structure but we had to figure out how to do that. it wasn't just the air frame frames, how to train them, where to put the crews. likewise for the liberty fleet.

also a quick reaction type of complete. and we are going to keep a portion of that fleet. there will be things that we built up for the wars in iraq and afghanistan not worth keeping in the floor structure because they will be outdated or they are not suited to more contest test environments. you can fly around and do what you want and it won't be that the -- the case everywhere in the world. that's a big transition. by the way, it has the man to difficult adjustments going on at the same time. >> thank you. ash, great to see you. wayne glass, southern california

here with my students from sunny southern california. i'm sorry we consistent bring our weather with us. as a veteran of the undersecretary acquisition office and, sd for many years i hear themes of old problems that still exist as you meet today's situations. >> we were concerned in my time in the pentagon with the motion of reduction in programs and stretchouts so. in managing the challenge of the future, the mantra of the old days was guard the front gate, stabilize your programs to reach the goals of delivering on time. we tried to manage the number of major systems through the front gate, we tried to manage cost growth by controlling change orders. baselining.

so that's my editorial comment. my question is, in building your budget to what extent are you responsive to these? >> wayne, we absolutely are. to your students i hope you decide to make public policy what your life's about. nice to get up in the morning and be working on things that are bigger than yourself. so i hope -- we need good people. it has a direct effect. i mean, i, particularly with my background, protect well managed programs. if you have a program that's not doing well, that is behind schedule, you are -- there is a presumption against you in this environment. and i say that with all of our program managers in government and my colleagues in industry as well. you need to make it possible for us to continue to have you do what you're doing for us.

and if you're running up the bill by a few% every year we cannot sustain. that uf are resumtively on the block if you are a poor performer. and so you know, some of our well performing programs we are protecting them. not just their existence but making sure that they stay at an efficient rate of reductions. i won't name the stars but we obviously have programs that disappoint us. and frustrate us but we also have programs that perform very well. they deserve protection because they are going to develop more per dollar than the ones that are poorly performing. the worse thing you can do is bring back rates of production to the point where they are economically inefficient.

that's mortgaging the future. management is an important part. i'm sorry. can you wait 90 second. my predecessor, secretary wolfowitz. >> thanks. once won a tiupon a time had yo and i should probably knowing how difficult it is leave you alone and not harass you. this is a friendly question to ask you to look into the future a little bit. it's famous that when dick cheney was being confirmed as secretary of defense, the word iraq didn't appear once in his hearings. i believe, i'm not sure that can rumsfeld's hearings, but you would have to search very hard to find the word afghanistan, so it's pretty hard to know what's coming next. having said all that, i know you have thought a lot in both this job and your previous ones, about the issue of bioterrorism, and my question is, one, would you rank that as high up in the probabilities? do you think we're doing enough about it, and to what extent is

it a defense department mission or does it belong with other agencies? is it falling between cracks? >> terrific question, and you're reminding me that i actually forgot to say something which was in my list of protections which is counter wmd which bio is one. those also we wanted to protect. with respect to bio, reading into what you said, paul, but if you're concerned about the potential of the biosciences to create threats in the future, not only with existing pathogens, but i think the real revolution lies farther into the future, but certainly so, it is a defense problem. it's going to be a defense problem. they will be used in war. they will be used in terrorism, and any time anything at that scale emerges, people are going to expect us to play a role.

we have a substantial investment in that area. at the moment it tries to balance the legacy stuff, that is naturally occurring pathogens, and looking at the frontier as well. tries to the extent we're able to, and you know you have been part of this, to get our feelers out there in the world so that we're engaged with the community of researchers in this field and to the extent possible with those who in the past created stocks of pathogens or have na know-how to make sure they don't get into trouble and they stay out of trouble and so forth. it's very important. and while we're mentioning the biosciences, another thought that comes to me if you don't mind, the biosciences are going to be the revolutionary sciences

for -- in the next generation, even as information -- i know this is trite and everybody says it, it's actually true, information technology was for the generation just behind us. and in addition to posing new throats, one thing i wanted to say was it has given us tremendous opportunities as well. and we in the department of defense and, paul, i'm sure you know this well, have sadly over the last ten years become pioneers in several fields of health care. tbi, pts, prostheses and so forth, and hard won as that expertise has been, it's there, and it's available for everyone else to use as well. and so if you go to the hospitals and you go to the centers of excellence and so forth, be very proud of what we've managed to do to take care of our own wounded warriors, but

that's progress that everybody can benefit from. sorry. >> aol defense. good morning, sir. >> hi. >> the army, especially the institutional army, has had a very rough time getting their acquisitions done well over the past 12 to 15 years. given the stakes over the next five years, the reset, replacing the m 113s, et cetera, et cetera, how confident are you that the army has fixed itself and that it will do a good job and what are you doing to ensure that happens? >> well, you are right, and i think everybody in the army and everybody associated with the army acquisition would say that they are disappointed in the performance of the last decade, determined to do better. i know this is true of john and ray odierno and heidi shu and

the whole team over there. i'm now out of my previous job it was a big priority of mine and my successor, frank kendall, i know will be working especially with the army to improve their tradecraft in acquisition and also to put together their portfolio of investment for the future, and this is a big change for the army. i said before, the army has -- is making the most difficult and largest transition of all the services just because they've been really up to here in iraq and afghanistan now for ten years, and so in acquisition and in everything else, how they define their mission, how they train their people, how they organize and so forth, odierno and mccue are, you know, taking a really fundamental look at all

of that, and secretary panetta and i have wanted to make sure they had the time and the strategic patience from us to make the changes that they need to, and it will take some time just because of the magnitude of it, but it will be reflected in acquisition as well and it really needs to be because they missed -- there's a lost decade there for the army that i think is widely recognized, and it's sad. >> thank you. jeff schobole with air force times. there's been a problem with the f-22's oxygen system that restricted where it could fly. is the dod confident enough in the aircraft that if another war broke out today, that it could order it into battle? >> i think the answer to that is clearly yes. that's the judgment of the air force.

that was the judgment of the secretary in allowing the deployments to go forward. we did, however, and secretary panetta did this, was very concerned about the obogs issue, wanted to accelerate the fix for that, wanted to make sure while they are training for operations, which they would be used for if need be, that the safety of the pilots, the air crews, was taken into account mostly by making sure several operational things, but importantly by making sure that there was an airfield near enough that they could get to if they began to experience any of the symptoms associated with this problem. so the answer is, yes, the aircraft will be used operationally if need be, but also, yes, we are concerned and have been concerned about the obogs' issue but i think the secretary has taken the

necessary action to get us on the track to fix that. right there with the tie? the tie. he's not used to having a tie on. >> thank you very much. i'm mike birch from the university of southern california with professor glass. my question entails we talked about single-purp purpose aircraft, the a-10 charlie with new avionics and i realize three skaud rons were recently deactivated a couple months ago. is a-10 an aircraft that will serve in the near future or can it be replaced by a suitable replacement aircraft? >> i think the reason why we were able to reduce the number of a-10s is that we can do, unlike 20 years ago, the a-10 job from other aircraft. whereas the a-10 really does

that and does it very well but that's all it does. it's simply a matter of putting the money where you have the most capability, and that's what lies behind the decisions of the a-10. that is an example of what i was talking about. >> thank you, sir. you just mentioned the u.s.'s plan in sending more carrier and bomber to east asia -- asia-pacific region. do you feel that might irritate china? >> could you repeat that? >> do you think that might irritate china and also the other question is on south china sea under the mutual defense treaty that the u.s. with the philippines, the u.s. should come to the aid -- if philippines were under attack, so is there any