Defense Industrialist

The next attack aircraft may take a total rethinking of ground support.

When a senior Air Force official offered me a correction some months ago, a Marine colonel friend of mine suggested that I “tell him to stop bothering you and to get back to trying to kill the A-10.” We may actually now be getting past the jokes. The air and ground crews of A-10Cs are doing such yeoman service against Da’esh that the retirement is clearly on hold. Now the USAF is talking about actually replacing that Cold Warrior the Thunderbolt II, and drafting the requirements for what might come next. That might not be an updated clone of the venerable jet. Last week, at his confirmation hearing before the Senate Armed Services Committee, General David Goldfein (the hopefully incoming chief of staff) offered some thoughts on how he’d like to improve on what he’s got:

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At the end of 2014, the CEO of naval shipbuilder Huntington Ingalls Industries, Mike Petters, delivered an address at the Atlantic Council entitled, “Playing the Long Game”. In it, Petters made the case for the chief executive’s leadership antidote to what he called “the institutionalization of the short-term”:

No. 1: You have to think that you're the longest person—you have the longest horizon—in the room; and that you're gonna have a view that is about creating value in your organization that is longer and farther out than anyone else. No. 2: You have to decide what are the things that you really believe in.”

These remarks came back to mind recently while reading Crash Course: The American Automobile Industry’s Road from Glory to Disaster, by Paul Ingrassia. Crash Course chronicles the now familiar story of how General Motors, Chrysler, and Ford, which in 1970 stood at the very pinnacle of that global industry, dissolved over the course of about one career’s duration into bankruptcy and restructuring at the outset of the Great Recession. Summarizing this story, Ingrassia writes,

The 1970s were the decade that undid Detroit. During the 1980s and 1990s, the Big Three would mount periodic, and sometimes spectacular, comebacks and undergo equally dramatic crises. But never again would Detroit rule the automobile industry unchallenged and unbowed.

What’s most striking about Crash Course is not the depth or special character of external shocks the Big Three suffered. No “black swans” figure in this tale. Indeed, all of what came to undermine the health of the U.S. auto industry—unsustainable labor agreements, convoluted regulation of fuel economy, and foreign competition—were known challenges with predictable effects.

Instead, what’s striking about Ingrassia’s account is the frequency with which the executive leadership of these companies responded to known existential challenges with short-term, expedient solutions that sowed catastrophic long-term effects. Summarizing the lessons learned by the U.S. auto industry’s 40-year decline, Ingrassia writes, “[T]he most fundamental is that problems denied and solutions delayed will result in a painful reckoning. And the longer the denial and delay, the more costly the reckoning.” Or, in Mike Petters’s words, never institutionalize the short-term at the expense of the long game.

It might be said that 2014 marked the year in which the aerospace and defense industry was at the top of its game. According to a recent report by PwC, “The aerospace and defense
industry reported lower revenues and sharply lower profit in 2015 compared with 2014, ending a run of five consecutive years of record revenue and operating profit.” Assuming we have crossed a cyclical peak, what are the existential challenges for which our industry’s executive leaders will be called upon to find a long-game approach?

Analogues to the sources of Detroit’s demise may be instructive:

·       The existential challenge of labor to auto companies was its aggregate of cost, which expanded in scope and escalated at rates that ruined the industry’s productivity and profitability. For today’s A&D industry, the labor challenge concerns the specter of a brain drain, which threatens to foreclose from our companies the scientific and engineering talent needed to advance 21st-century innovations. What is the long-game approach to attracting and retaining talent at great aerospace and defense companies?

·       In auto, the existential challenge of regulation concerned fuel efficiency. The imposition of Corporate Average Fuel Economy standards set perverse incentives for innovation and product development. In A&D, like so many other industries, the central regulatory challenge of the next 40 years is most likely to concern emissions of carbon dioxide. What is A&D’s response to global warming that will not be self-defeating over the long term?

·       Finally, new competitors entering the market with products at prices that appealed to the changing tastes and preferences of U.S. car-buyers proved an existential threat to the Big Three. Beginning now and extending over the next generation, entrants also will confront incumbent A&D companies, but the challenges they pose will tend to concern business model innovations rather than simply product performance and price. What are A&D executives’ long-game plans to change the sclerotic style of incumbents’ business practices?

The career trajectory of a young engineer arriving in Detroit in 1970 would have been marked by a series of dramatic crises and spectacular combacks, culminating, upon his retirement, in the complete undoing of the industry to which he’d committed his professional life. Now is the time for the leaders of our industry to think long, and hard, about the next forty years and consider the kind of reckoning their choices will sow for today’s young engineer upon his or her retirement at mid-century.

Steve Grundman is the M.A. and George Lund Fellow at the Brent Scowcroft Center on International Security. This essay first appeared in Aviation Week and Space Technology.

The future of Big Space depends on the defensibility of big satellites.

Last week, Rick Ambrose of Lockheed Martin Space Systems gave the 15th address in the Atlantic Council's Captains of Industry series, our forum for aerospace and defense executives to address the public interests their companies serve and the public policies that affect their markets. Ambrose's talk on “Thriving in the Evolving Space Sector” covered several big ideas, including prospects for colonizing Mars. The impulse to explore and settle is fetching, but in the short term, it’s information from Earth orbit that makes space matter. And how those flows of information are best defended will strongly affect the future structure of the space industry.

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If they could just control enough drones, perhaps F-35s could make war affordable again.

The Danish fighter competition is over, it would seem, as the parliament has officially approved a program for 27 F-35 Lightning IIs. As I noted last week, the purchase price remains indeterminate, so the Danish Defense Ministry may be seriously unprepared for the final bill, if it’s really taking seriously the source-selection team’s calculations. As I wrote earlier this week, it's hard to see how F-35As will cost to procure and fly than F-18Es. In Canada, the Trudeau Government seems sharply opposed to the F-35, strongly preferring the F-18E, and largely on cost. In the long run, though, it’s just possible that pursuit of the Joint Strike Fighter could be a low-cost option for air forces. Seriously—read on.

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The Danish fighter jet procurement decision requires further explanation.  

Up front, the Danish Ministry of Defense seemed to have done it all right. In choosing a replacement for the Royal Danish Air Force’s F-16s, the ministry received bids from Eurofighter for the Typhoon, Boeing for the F-18E and -F Super Hornet, and Lockheed Martin for the F-35 Lightning II Joint Strike Fighter. The members of the selection team set baseline requirements and trade-off criteria in strategic, military, economic, and industrial respects. They hired Deloitte, RAND, Qinetic, and local firm Vorderman Consulting to build formal models addressing costs, capabilities, risks, and industrial benefits. The resulting figures, however, were wholly unexpected. The Danish MoD should provide some further explanation, and not just to the Danish people and parliament. For a transparent outcome to this process may matter in North America as well.

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Differing Army and Marine Corps exercises regarding coastal artillery show the continued value of inter-service rivalry.

At the AUSA’s “Land Power in the Pacific” symposium in Hawaii last month, Admiral Harry Harris of US Pacific Command told an audience that he wants the US Army in the coastal artillery business. Specifically, he wants the Army to deploy its High Mobility Artillery Rocket System (HIMARS) and Paladin 155mm mobile howitzers to support the Navy around the South China Sea. His remarks followed an exercise in the Crow Valley on Luzon, and on the surface, he offers an interesting, team-oriented, and very joint idea. The trouble is that by the time howitzers on Philippine shores are firing at Chinese warships, something will have gone very, very wrong. The Army is not, however, offering to meaningfully change its structure to support this security challenge, and that’s an indication of why inter-service competition remains important for the US Defense Department.

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Learnings on comparative defense-industrial strategy during lunch two NATO defense ministry officials

Last week the Atlantic Council hosted senior defense-industrial officials from Germany and Turkey for discussions about their evolving plans. Taking the time to reread their biographies, we remembered that some of NATO’s member states are clearly finding accomplished people to run military materiel management. But while the backgrounds of these two officials are similarly impressive, their approaches to industrial strategy are very different.

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Like Lockheed’s past efforts, SAIC’s foray into ground vehicles may herald wider competition for defense contracts. 

Having just finished a 300-page dissertation on the MRAP program, I have had some time (years, really) to think about the armored vehicle industry across the world. Back in November, BAE Systems and SAIC were selected by the US Marine Corps to build prototypes of its hoped-for Amphibious Combat Vehicle (ACV) version 1.1. The second of those companies might be considered a surprising choice. I am now thinking that the implications for competition, in not just armored vehicles, but many other sectors of the defense business, are pretty serious.

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Military modularity done right is too valuable to forgo.

Last week was Nordic Week in Washington DC, with a combined state visit by leaders from Finland, Norway, Sweden, Iceland, and Denmark. This week was Sea-Air-Space, the annual confabulation of the Navy League at National Harbor, Maryland. So there’s no better time to discuss the Royal Danish Navy—or better yet, to criticize a criticism about the US Navy, taken too far. On Defense One this week, longtime think-tanker Lawrence Korb wrote about the “The Lessons of the Littoral Combat Ship” (LCS). The lessons are legion, no doubt, but it’s important not to learn the wrong lessons, drawing a general rule about modularity from the mismanagement of a specific program.

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Decisions about competition for the LRV and UH-1N show why McCain’s initiative against USD AT&L really matters.

Senator John McCain of Arizona, chairman of the Senate Armed Services Committee, wants to blow up the Pentagon’s Under Secretariat for Acquisition, Technology, and Logistics (USD AT&L). More specifically, his committee’s writing of the National Defense Authorization Act of 2017 would cleave that office into two new under secretariats, for research and engineering (USD R&E), and management and support (USD M&S). Over the weekend, Aaron Mehta and Joe Gould of Defense News reported that the bill is probably intended to let the military departments handle “basic acquisition programs” while the defense department concentrates on bringing forth big technological innovations. A short thought experiment about two recent acquisition decisions may indicate what profound changes to materiel this change in organizational structure could bring forth.

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