Thoughts on corporate strategies in the military aircraft industry
Last week, I provided a guest lecture at the Eisenhower School for National Security and Resource Strategy, that graduate college of the National Defense University formerly known as the Industrial College of the Armed Forces. The school was founded in 1924 as the Army Industrial College, on a recommendation from Bernard Baruch, the noted financier and chairman of the former War Industries Board. In 2012, it was renamed after its most famous graduate, Dwight D. (1933). For almost a century, the school has been intended as the brain trust for matters of logistics, resourcing, industrial mobilization, and military-economic policy. The issue posed to me was how corporate strategy in the business has evolved over the past five years.
I had the opportunity to talk about the answer with a group of about 20 graduate students who are spending the spring semester analyzing the military aircraft industry. This business of corporate strategy is a rather important question for military forces, as it indicates what buyers should expect from their suppliers over time. To answer it, I posed three further questions, drawn from that most basic marketing framework of Kenichi Ohmae. I repeat the substance of my remarks here, in longer form, and with the ex post benefit of a lively discussion with the students.
First, what do the customers in the armed forces need militarily? Consider that the United States and its allies basically have three types of enemies: (1) China, (2) Rogue States, and (3) Guerrillas with Kalashnikovs. One might describe Russia as a one-point-five type of enemy, but only because we may actually be close to Peak Russia in economic terms. The big change over the past five years has been the “rebalancing,” the shift in preparatory activities towards categories (1) and (1.5) from category (3). That’s evident amongst almost all NATO countries, with the possible and partial exception of Canada.
It’s not that problems (2) and (3) are lesser-included problems. It’s just that the US and other countries and their arms industries have been working on them for some time, and the issues they continue to pose are not as technologically stressful as those in case (1). The US Air Force, that is, can get that light-attack plane any time it warms to the idea, and from at least two suppliers. However, when preparing to fight China, the differences from the other problem sets are stark: the twin tyrannies of distance and numbers. The Pacific Ocean is a big place, and as Acting Navy Secretary Sean Stackley once put it, “the Chinese threat is not countable.” Where that’s not driving strategic choices, it should be.
Second, what can the companies offer technologically? There are at least eight categories of technology that may matter greatly for the future of military aviation, and partciulary for dealing with problem sets (1) and (1.5). In no particular order, these are
- Directed energy, which offers the promise of endlessly reloadable, speed-of-light weapons. Countermeasures against the like of lasers are very difficult. So is energy on spot, but if lasers ever could really be made to work, the dominance of airpower in combat might wane considerably. If based on ships with enough power, these would be a great way to repeatedly zap hordes of J-whatevers coming over the beach from the west. Get one on a drone, and it might zap a North Korean ballistic missile on liftoff. The only problem is that we’ve been told for about fifty years that these wunderwaffen are right around the corner.
- Railguns may also offer great speed, but they pose huge power requirements and guidance issues. Again, we’ve been told for about fifty years that they’re right around the corner.
- Hypersonics are in the same speed category, but still pose huge guidance issues. And for about fifty years… never mind.
- Stealth has overshadowed aerial combat since 1991, even if it doesn’t yet fully rule the market. That adoption has been so slow is a remarkable comment on the speed of military-technical revolutions. Boeing (perhaps naturally) argues that stealth really won’t ever fully take over aircraft design. Over the long haul, most of the stealthiness of an aircraft is baked in at construction, once its outer mold line is set. Moore’s Law, on the other hand, seems to have a few cycles left, and even then, computing advances will continue with more efficient software and parallel processing. At some point in the near future, low observability may hit its peak importance, as sensors leverage more and more information from all those disturbed molecules around their quarries.
- Autonomy is the big promise of the much-ballyhooed Third Offset Strategy. The hope is that lots of swarming, intelligent, friendly robots can offset those vast enemy numbers—if they don’t turn on us, get completely cyber-ruined, or actually make a greater impact for the Chinese. On that last point, it’s not as though DJI is headquartered in Chicago.
- Navigation without satellites should be a bigger interest than it seems. I recall how back in Naval ROTC in the 1980s, the chief quartermaster teaching us navigation averred that we should never rely on satellites, because “the Soviets would nuke them as soon as the balloon goes up.” On the one hand, that hasn’t happened in the past thirty years of multiple wars. One the other hand, absolutely everything falls apart without GPS, and that should be a little scary.
- More efficient engines offer to roll back that problem of distance—ceteris paribus, and very roughly, 25 percent greater efficiency in the engine means 25 percent greater range for the airplane. In the US, each of the military departments has its own idea: the Air Force has its Adaptive Versatile Engine Technology (ADVENT), the Navy its Variable Cycle Advanced Technology (VCAT), and the Army its Advanced Affordable Turbine Engine (AATE) program. Given the challenge of the engineering problem, and the speed with which new turbine developments have been fielded in the past few decades, we may be waiting a while.
- Verticality offers some promise to free aircraft from the basing constraints of airfields and carriers. At least three proven technologies from three well-known companies are vying for attention from customers: tiltrotors (Bell), coaxials (Sikorsky), and compounding (Airbus). This will be an interesting competition to watch, as the several aircraft manufacturers emphasize the advantages their solutions bring in range (Bell), tactical flexibility (Sikorsky), and cost (Airbus).
I recently discussed issue (1). I will shortly have a column on the challenges of issues (2) and (3). For now, just note that only the last two areas of technology discussed above really are about aeronautical engineering. Everything else requires work on weapons and control systems and sensors. Fairly, that is neither a revelation nor a shocking development. Aeronautics is a more than century-old business, and its technologies are rather mature. Drawing out each new increment of improvement has been requiring herculean development efforts. Just look at the dynamics of competition between Boeing, Airbus, and their lesser competitors to understand why that’s not supremely profitable.
Third, how has the style of individual competitors been evolving strategically? What is most remarkable is how they have not been. Review the advertising, the marketing literature, the trade show presences, and the press releases, and you will mostly find that each of the major competitors has continued to pursue what it has long had. They are keen to add better sensors, more robust navigation, more efficient engines, and whatever else they can plug into their existing designs—where those designs are architecturally open to improvement. As I have just addressed the rotorcraft manufacturers, we can stick to the fixed-wing folks to illustrate the issue:
- Lockheed emphasizes stealth and speed and networks, which are very F-35 answers. If it fits within the mold-line of the Joint Strike Fighter, they’ll have a look at it, to ensure that it doesn’t compromise that tightly architected design for low-observability. Lockheed’s people cheerfully note that the F-35 can be a bomb truck like any other after Day Two, when the war will presumably be going well. The company just isn’t likely to rely on or talk up potential improvements that must hang under the wings.
- Northrop Grumman emphasizes stealth and range, which are very B-21 answers. They may actually be more than just bomber-type answers. John Stillion’s excellent study at the CSBA on Trends in Air-to-Air Combat contains much speculation as to why an airplane like the B-21 might be an intriguing long-range fighter, with vast ammunition stores. There will, after all, be much space in those huge weapons bays.
- Boeing emphasizes cost and networking, mostly without the stealth part, which are very F-18E/F/G answers. Like those of Eurofighter GmBH, its marketing people talk up the potential for infrared search-and-track (IRST), perhaps because hanging a huge IRST pod off a stealth fighter rather compromises the operating concept.
- General Atomics emphasizes cost and autonomy, which are very MQ-9 answers. It’s both notable and not very remarkable that no one else really emphasizes those together. Indeed, other than GA, no firm amongst these four is profoundly incentivized at this point to push autonomous aircraft.
Indeed, none of the big companies are deviating from their long-held marketing positions. This is because the investment requirements are huge, the clock cycle of development in aeronautics has been comparatively slow, and each has a big and potentially stable program to hold its commercial interest. The net-net from all this activity has been evolution before revolution, and a doubling down on sunk investments. To some people thinking about some of these companies, those may seem like stranded investments, because the world is always on the verge of the Next New Thing. Then again, we’ve been hearing that for about twenty years. In the late 1990s, the Super Hornet may have looked like an odd bet for both McDonnell Douglas (Boeing) and the Navy, but it’s only now that the line may or may not be winding down operations.
What does this all mean? Begin by accepting that these are very rational approaches for the companies and their shareholders. They also present stark but workable choices to the customers, if the air arms buying these companies’ airplanes accept that monopolistic competition has qualitative advantages.
- Lockheed Martin has the least room for maneuver in its strategy, as the commercial trajectory of the F-35 may be as set as its fundamental design. On the other hand, if your great idea fits on a C-130, by all means bring it to Bethesda. That alone provides considerable space for innovation, which I will discuss below.
- Northrop Grumman will be able to say little about its bomber; it can’t even disclose a price estimate at this point. While that’s great for industrial and operational security, it really cramps options for corporate strategy, and especially marketing strategy. Getting that program right might consume the greater part of managerial attention for a decade or more. That could dent Northrop’s ability to innovate elsewhere, and its interest in other strategic ventures. On the other hand, steady cash flows from the B-21 program would do just the opposite.
- Boeing, apart from some intriguing concepts out of the Phantom Works, has stuck with a highly evolved version of its twin-engine, centerline-thrust solution since the 1980s. The good news is that the costs are well-known, and that the fighter-bomber’s fighting abilities can’t be too much challenged with external stores. In its marketing pitches, Boeing exploits that potential for modularity with mockups showing every imaginable existing weapon hanging under a Super Hornet. That’s great, but what’s absent in the corporate strategy is a longer-term plan for what eventually comes after the F-18E/F/G Block III. As it is for Lockheed Martin, the “sixth-generation” of fighter aircraft seems so far off as to not merit great investment.
- That gets to General Atomics. Still the least beloved institutionally, that company has the greatest incentive to try to revolutionize aerial warfare (again), perhaps this time with a laser on a drone. We’ve seen that poster more than a few times at the booth, and the Blue Brothers have shown us before that they’re wiling to invest in ideas so crazy they might just work.
All this means that innovation is alive and well, and (note to Professor Carter) particularly outside northern California. The potential scope of that innovation has some squishy boundaries where commercial interests conflict with potentially good ideas. However, the commercial interests of the several companies involved in fixed-wing and rotary-wing aircraft development diverge sufficiently that each has a unique field in which to attempt to maximize the potential for its already well-developed airplane.
If there is anything for governments to guard against, it is the potential for vertical restraint. This is the economic phenomenon in which companies which control marketing channels can interfere with the flow of good ideas from upstart companies, at least when they fail to benefit the big boys downstream. This market failure can prevent entrepreneurs from offering improvements to existing systems, or radical new ideas outside the system, that must still show interoperability with the bulk of the warfighting asset base. As divergent as the commercial interests of the several aircraft manufacturers really are, the former is a manageable problem; someone may very well want your complementary über-gizmo. The problem comes with really radical but still promising technologies that may challenge the equities of both the military and its established suppliers. They may yet be unlikely, but for those long shots, there is at least General Atomics.
James Hasik is a senior fellow at the Scowcroft Center for Strategy and Security. He thanks Professor Sorin Lungu and the students of his aircraft industry seminar for the opportunity to discuss the confluence of military and corporate strategy at the Eisenhower School.