canceling the ai welcome to "this week in defense news," i'm vago muradian. the air force's decision to kill the c-27j light transport aircraft has sent shockwaves across the pentagon and industry. we take a look at the impact and we take a sneak peek at the navy league's upcoming and revamped sea, air space conference and exhibition. but, first, the united states appears to have underestimated the speed of china's weapons program. that's the conclusion in a new report how did washington get it wrong and what capabilities is china investing in? here to answer those questions is is the commission's chairman, dennis shay, a government policy attorney who served in the bush administration and was an

adviser to former senator bob dole. sir, welcome to the program. >> thanks, vago. good to be here. >> how did we miss something so important and who's responsibility was it for us to be really updated as to what was going on in china? >> the the ultimate responsibility is the intelligence community. let me talk a little bit about the report. the report relies exclusively on open sources, it does not rely on classified channels, so the report is very clear about that. it also doesn't take a look at what the intelligence community was saying exclusively, it takes a look at what the broader china-watching community, the media, in public affairs, in the government, not just the intelligence community. so even secretary gates acknowledged we got it wrong or were a bit surprised when the j- 20 did its -- >> the chinese stealth fighter. >> fifth generation stealth fighter did a test when he was in beijing visiting. >> it was an awkward moment. >> it was an awkward moment. we also take a look at three other systems besides the j-20

stealth fighter. we take a look at the a sat system. >> the anti-satellite rocket. >> the anti-satellite system, we take a look at the anti-ship ballistic missile, the so- called carrier killer. >> the mission 21. >> exactly. we say there that we're following the developments, but this is the staff report, was following the developments, but we were a little surprised by the fact it got to operational capability, initial operational capability as early as it did. and we also took a look at what the government and others are saying about the diesel electric attack submarine. and we have some caveats. we say people were sort of aware of it, but it was a little unclear coming out of government sources and other public sources whether we're really on top of what was going on. >> you guys make more -- you say obviously china is very, very secretive about these programs and also there's a lot of misinformation. what were all of the factors that went into sort of clouding our vision and ability to see

what china was working on? >> well, for example, on the asat, they have a public posture that they're against the weaponnization of space, they're against the creation, human creation of space debris, so i think some people, not necessarily in the intelligence community, but some people may have bought into that. they have a process called deception and denial which tries to effect perceptions of those outside china. >> and the whole point of that, obviously is to sort of delay acknowledgement of what their capabilities are. >> right. >> how much of the technology that china is developing or china is using, how much of it was developed at home in china, how much of it was bought from europe and elsewhere, including in the united states and then how much it is just outright stolen? >> well, as the staff report -- as the staff report makes clear, once china's military modernization direct function of its economic development.

today they are -- we're witnessing 9%, 10% growth, it's slowing down a little bit today, but with their economic growth they've had -- >> surpassed japan. >> surpassed japan as the second largest economy. with their economic growth, they've had more resources to spend on military modernization and their military budget, including r and d and procurements of foreign weapons systems is second in the world, it's about thrrs 160 billion estimated on an annual basis. so they have money to spend. but they also have a national commitment to move up the technology chain, to have a lot of investments in research, they require foreign companies that come in there to turn over technology. >> they have full access to all that research. >> yeah, as a condition to gaining access to the chinese market. they are part of the global supply chain and they understand that technologies, particularly in the electronics area, for example, have dual use which can be easily be transferred to military application and they're engaged in cyber espionage.

one of the most striking things i've read in the past year or so is a statement by william lin, former secretary -- deputy secretary of defense, chertoff, michael chertoff of homeland security and the former nsa director, saying it's policy for china to engauge in cyber espionage. >> one of the things you notice in our report that led to our under estimation of them is our perception of china to be a h÷h >> that's one of the strong parts of the report is there's an appendix there that says we gotta reassess assumptions. the report makes the report that there are assumptions among some people, some western observers, that china, as you said, had kind of a bloated underperforming industrial -- defense industrial sector. that assumption is not true and people need to understand that

they're quite capable. >> you guys -- you mentioned cyber, but you guys also commissioned a fascinating cyber report. what were your findings of the cyber report? >> we do not just staff research which is the indigenous weapons report, but we also commission outsiders to come in and do reports for us. this is done by north rup grummond and their report is that china's network operations -- the capabilities of their computer network operations have risen to such a degree that they pose a threat to the u.s. military in the event of a conflict. >> what are some specific and most interesting features that you guys found? >> well, i think one of the interesting things about the report is that it puts together all in one place the research institutes, the programs, sponsored by the state that are being used to support computer network operations. >> and the the combat units that are engaged in that? >> yeah. >> sir, thanks very much for your time. we appreciate it. coming up the wider impact of the air force's decision to

cancel the c-27j light transport plane. that's next. you're watching "this week in defense news."

every once in a while the termination of a single program ignites wide-ranging controversy and the air force's decision to kill the c-27j light transport program is one of those decisions. service leaders said budget cuts and u.s. strategy away

from counter insurgency warfare forced them to cap the program at 28 instead of 33 planes. front lines troops could be better with these transports. although australia, canada and other countries are interested in buying the american c-27js, the plane's maker, part of italian defense tight 18 fin mechanica says they won't support them if sold to a foreign military. they will hurt the company's international sales prospects. then the air national guard accused the active duty air force of lying to congress of why it killed the plane, suggesting the decision was made to close guard units and their bases. defense news reporter marcus weiss gerber and industry expert richard offlovei of the teal group are here to tell us what's going on. welcome back to the show. mark, let me start with you. how come such a small program is causing a big concern? >> there's a lot. first off, you have an industry angle where you have a u.s. air force contract and an italian

company trying to break into the market. this is the one program they have and they're losing it. >> that was originally 150 airplanes that got whittled down to 38 and now it's at 21. it was over 100, and it was in the 70s when it was an air force army program. you have the air force/army dynamic. the air force is doing a mission that was historically done by the army and now they, the army was scared when the program was transferred to the air force at the beginning and said if you give this to the air force, they're not -- they're going to cancel this program and they're not going to do this mission and we need this mission done. and then you lastly have the air force and the air national guard. a lot of tension there. the air guard is losing a lot in this budget round or is proposed to lose a lot in this budget round and a lot of air guard units around the country could be without flying missions. >> richard, let me go over to you. why is the air force canceling the aircraft and can this mission be done equally as well with c-130s and c-17s as they say it can. >> i think marcus alluded to

the issue before. basically the air force has always kind of wanted to smash this program with a rock. the history of jointness is to steal another phrase, is basically unblemished by success. this is a perfect example. under the terms of the key west agreement, there's absolutely no clear line between the the air force and army in terms of planes they can operate, but 145 planes in this class was clearly a power grab by the army. >> and the air force has to stop that. >> and the air force had to stop, as they began to regain political power after the tanker procurement scandal and all the other issues that affected them. item number one was to make this a joint program, take control of it and then destroy it and they seem to have succeeded marvelously. >> can the mission be as effectively done? the argument is i've got a lot of c17 transports both battlefield lifters. if this is about getting cargo to the point end, we can do that, they're doing it now. >> they can do it with c-130js.

there is something i believe around only three bases in afghanistan as a hole that can accommodate the c-130j. so it can do the mission. >> let's look at the question of the accusation that the guard is making about the air force. they're basically accusing the air force of having lied to congress which is a very, very powerful charge. what are they saying and how is the ds >> the big thing here is how much is the c-27 going to cost over its lifetime. there are estimates ranging from about 100 -- a little more than $100 million to over $300 million. the air force active duty says that $300 million figure is the figure because of the way it will be based, small numbers, a lot of bases. the air national guard says, no, that's not the case. we can do this for around -- a little more than $100 or so. and where the true number lies we have yet to find out. there are those on the hill who have called for independent

cost analysis of this. probably until that happens, we are not going to really know. >> is this about really bases or is this about airplanes? >> it's a little bit about both. for the guard it's about airplanes. if states don't have a flying mission, it's a prestigious thing to have a flying mission. if they don't have it, you know, it looks funny. >> and also then the base becomes also something that can be closed, especially if it's a joint tenant situation with active duty planes that leave as well. >> right. plus the guard likes having planes like this because it wants to use them for, say, like a hurricane katrina event. >> or homeland defense. >> right. >> let's go to the industrial element here. the plane's maker has made the extraordinary assertion to the u.s. government that if you sell these airplanes to somebody else, i can't support it. my factory depends on selling new airplanes to people. two-part question, where do these airplanes go, if anywhere, are they going to

stay then within the u.s. government. and, richard, quet to you is what does this tell us about -- the future. >> there was talk of selling them internationally. that has pretty much been made since they made those comments. that has pretty much dwindled. they'll probably stay in the u.s. inventory. the coast guard for one has said they would love to have these planes now. whether or not that happens has yet to be seen but people are saying they will likely stay in some part of the u.s. government. >> richard, industrial dynamic? >> i think there was a certain apathy about the industrial dimension when the air force made this decision. at the end of the day they didn't realize this was seen as part of a broader fabric for foreign companies trying to get into the u.s. market being frustrated at that, feeling that the odds were stacked against them for political reasons and whatever else. and also not realizing that this is -- at the end of the day, it's really deaf years a one for month program. decisions like this is absolutely a mortal wound in

many ways. i think there was a certain carelessness, even though they had their own agenda, they didn't think about the broader industrial factors. >> and does the plane have a bright future for mechanica elsewhere as new build or is this pretty much going to be the end of the line for the c- 27j program? >> i think it's the end of the line. if they're really lucky, they stay at one per month. this is a small niche. this program originated in the '60s under the g22 that sold several planes over several decades. you seem to see the same sort of dynamic play out here. it's that market, the last tactical mile. it's a very small niche indeed. >> guys, unfortunately, that's all the time we have for us today. thanks for joining us. a snea

convention center in maryland just south of the nation's capital, it's going to be a revamped operation. this year's theme is naval expeditionary forces preserving global economic security and national security and over three days starting on april 16, will feature a host of changes including greater industry participation and harder-hitting discussions. in the spirit of full disclosure, i'm going to moderating one of those discussions. here to tell us about this new show is dale lumay, the navy league's national executive director. dale, welcome to the show. >> thank you. great to be here, sir. >> let's start out with some of the basics. what is the navy league of the united states and what do you guys do? >> the navy league of the united states is a 501c3 nonprofit organization. we were founded in 1902 at the direction of president teddy roosevelt. we support the maritime services and aviating marine corps coast guard and u.s. flag merchant marine and we support them through advocacy, we inform the american public about the need for maritime services and we support the families and the servicemembers

by supporting youth programs, the navy league see cadets, young marines and junior rotc. and one of the ways that we do all of that support, helps us support is the nation's largest maritime expedition, the sea, air space. >> the show obviously has been going on for a very, very long time, very important conference that goes with this side and also the trade show aspect of it. what are some of the differences we'll be seeing this year when we go to the show? >> that's a good question because after last year after last year's show, if you remember right before the show, right before the government shutdown, so woo were having a lot of challenges with that. >> right. >> but this year -- after that show, we took a 360-degree look, talked to our customers, talked to the executive, legislative branch, talked to the corporate people and said what do he we -- what do we need to change. we looked at how we could go about changing that. what we did this year is had a closer interaction with the services, senior-level services and looked at how to expand the dialogue between the services

and industry and once we got engaged with the services we found that there was an increased need to talk over some nontraditional things that are not normally -- we have not normally had at our navy league shows. >> for example. >> some of those topics that the services wanted us to talk about were performance-based logistics. the value of amphibious forces, energy security. uniquely, we have some nontraditional companies this year, google, deloitte. we have a company called imagine creative technology which is focused on helping us understand how the entertainment industry approaches simulation by using nontraditional approaches and helps us figure out how to use our simulators to help teach our aviators. >> to sort of broaden the apperture for everybody associated with the show? >> exactly. >> you guys have some historic partners and naval academy and a bunch of other guys also who partnered with you on this,

correct? >> we sure do. uniquely this year, one of the partners that we've partnered closely with this year is the navel institute and the president ceo of the navel institute, retired admirable keith daley will be a moderator of the panel historical foundat organizations that have helped us, including the navel academy alumni association. >> let me take you to what are the big challenges as far as you're concerned for the sea services. what are those big challenges and what are you doing to help each of those services make their case better? >> i think this year we see that -- the navy league sees -- at least the companies have told us that what's happening this year is that budget sequestration is not a responsible way for the government to kind of figure out our deficit financing problems. of all the exhibitors that are focused at the showing at this expo have said that over the next couple months they're going to have to relook at how they're doing business.

and one of the ways that they're doing that is looking at where they're going to put their return on investment. what we've done is tried to help focus them to say, okay, we're going to be bringing in the senior leaders to help focus those discussions to tell you where you can help put that money. some of those senior leaders from those companies that have been really helpful dr. jack london from caci, he's been very helpful to us, admirable boyle from drs and other companies like that have been very helpful in focusing -- and admirable sutton have been helpful in focusing on where we're going. we're a nonpolitical organization. we don't want to focus on the ideologies, where the government is going. we want to focus on how to maintain our maritime superiority. >> every major company is cutting back its investment and spending on major trade shows. how is that affecting you and how is that going to affect you downstream? >> uniquely, we see today's challenges and tomorrow's opportunities.

it affects us in different ways because time is the most important aspect for executives. a three star friend of mine said he spent three days at the expo last year and it was worth 30 days in the pentagon. what we see is navy league expo growing. we've gone international, we have many international companies. we've retooled and refocused or shower. -- our show. we have miss america coming to talk about remember our service. we're bringing in assistant secretary of the navy juan garcia to talk about hiring, jp morgan chase and usaa and other companies like that, ge, their veteran hiring program, so we for more information about sea, air, space expo visit seaairspace.org. coming up why america must increase its focus on the pacific.

responding to calls from regional allies worried about china's military rise and increasingly aggressive territorial claims, america has assertively sharpened its focus on the pacific. with washington preoccupied with iraq and afghanistan, beijing sped military modern sphwhraition and provocatively declared ownership of the entire resource-rich south china sea, including territory now claimed by or belonging to other nations. unnerved by america's renewed attention, beijing briefly toned down its aggressive rhetoric, but china has returned to form, concocting a crisis with the philippines by dispatching boats to catch fish and dig up coral from a philippine shoal hundreds of miles from the chinese coast. chinese ships blocked philippines ships from blocking the trespassers. when manilla protested, beijing

said time was running out for the philippines, demanding good relations are preserved by giving china what it wants. such bullying proves china has less than benign intentions. it's using economic might to build a military to seize what it wants and coddle a belligerent north korea. as intimate training partners, china and america would be mutually harmed by conflict, but that hasn't deterred beijing from its aggressive course. washington must stand with allies, continue to bolster its regional presence and alliances and increase investment in air and navel power to more effectively pressure china to dealing more peacefully with its neighbors. thanks for joining us for "this week in defense news." i'm vago muradian. you can watch this program online at defensenewstv.com or you can e-mail me. i'll be back next week at the same time. òac9ig/e 5 nh