Government Services industry review Q1-2008; RSM EquiCo Capital Markets

Key Topic: The Defense Department's Reset Program

Since the onset of major military operations in Afghanistan and Iraq, in-theater systems and equipment have been deteriorating at rates far exceeding normal peacetime levels. The Army maintains that increased operating tempos and harsh conditions in the theater are causing its equipment to wear out prematurely. In general, the Army's major systems and equipment are operating at rates that exceed sometimes by factors of five or six their average operating rates in peacetime.

In response, the Defense Department has instituted and funded programs specifically to combat the deterioration and loss of these systems and equipment. From 2003 through April 2008, the Army alone will have spent over $55 billion to compensate for deterioration and loss of in-theater systems and equipment as shown above. Furthermore, department-wide spendingmay be as high as $92 billion over the same time period based on Congressional Budget Office estimates. Read complete report.