Defense Industry Calls for Incentives, New Programs

National Harbor: Officials from the major defense and aerospace firms urged the government to fund new programs or to provide incentives to spur innovation that would allow them to keep design teams working. Translation: spend money on research projects or provide tax breaks for firms that spend their own money.

That idea, presented by two panels of industry executives today at the Air Force Association’s annual conference here, was rejected by Gen. Norton Schwartz, Air Force chief of staff, during a later session with reporters.

“I don’t see that in the cards,” Schwartz said when asked if the Air Force would be willing to fund non-specific research. “That’s not the American way to do things,” he said.

While acknowledging that there are things the defense and aerospace industry does that are “national assets” and cannot be allowed to “attrit,” Schwartz said, “we’re not going to pay for something with no return.”

But Fred Downey, vice president for national security issues at the Aerospace Industry Association, said the Pentagon holds a “distorted view of the market place.” It still believes the defense industry works in a free-market environment when it really has only one customer, “and that customer also is the regulator.”

The industry reps noted that they already were experiencing lean times because there have been so few new military programs, the acquisition process takes so long to get anything from conception to production, and the systems they are building are lasting much longer than expected.

“In many ways, we’re victims of our own success,” Mike Valero, vice president for surveillance and navigation systems at Lockheed Martin, said about the longer-lasting systems.

The officials complained that the lengthy acquisition process and increasing complexity drive up the cost of new systems, which leads to termination or smaller buys.

Schwartz, in his speech to the AFA audience, said the services must reduce their requirements in new systems, but also demanded industry produce what it promises. “There is no trade space, or time, or patience to over-promise, only then to under deliver,” he said.

Valero indicated the aerospace industry may be facing major consolidation similar to what happened in the 1990s after the collapse of the Soviet Union led to deep cuts in defense spending and hundreds of firms collapsed into the current five or six major primes, including Lockheed, Northrop Grumman, Boeing, General Dynamics and Raytheon.

Some of the surviving firms hope to diversify by buying non-defense companies engaged in fields considered to be expanding, such as health care, information technology and services.

But James Dodd, Boeing vice president for advanced military aircraft, said there are drawbacks to that approach: “shifting away from production to services doesn’t generate the right work force.”