DOD delivers mixed industrial base assessment to Congress

A new Pentagon report essentially labels the health of the U.S. defense manufacturing base a mixed bag, saying the heavy vehicle sector is sound while challenges exist for aircraft and war ship manufacturers.

The Defense Department’s 2011 industrial base assessment, prepared annually for Congress, comes as the Pentagon is working to enact $350 billion in budget cuts over 10 years — and bracing for more.

Industry executives for years have raised concerns about the Pentagon's long-term hardware plans, warning that a lack of new systems in the pipeline will cause their engineers and designers to seek work outside the defense sector.

The Pentagon report sounds a similar tone, especially in the complex fields of designing ever-more technologically complex war planes and ships.

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While the department brands the military aircraft sector as expected to “remain in good shape,” budget cuts will mean new research and development programs are unlikely. And that “means that industry design and development capabilities may be at risk,” the Pentagon told lawmakers.

The department calls the demand for new planes and the need to fix up existing ones after a decade of war “strong.” And firms like Lockheed Martin and Sikorsky are the prime contractors on programs that will have models in production for up to 20 years.

But, the report notes, without new programs to keep workers busy, all military aircraft firms could lose the ability to design new aircraft.

“In general terms, today’s greatest risk to the aviation industrial base is not consolidation, but rather atrophy and the potential for loss of key design and development capabilities,” the Pentagon told Congress. “Military aircraft design and development workload is at a historic low and [R&D] funding is expected to continue to decrease.

Another workforce issue facing the military aviation sector is its aging workforce.

As those workers retire, DOD predicts a “decreased likelihood that a younger engineering workforce will remain in the industry due to the lack of new challenges and interesting things to do.”

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The report raises concerns about the ability of smaller firms that supply subsystems and parts to larger firms to remain in the defense business because there are so few new military planes in the Pentagon pipeline as Congress presses for budget cuts.

The annual study measures the private sector’s ability to design, build and deliver the combat systems the military needs.

The DOD report delivers a similar message about U.S. shipyards such as those owned by General Dynamics and Huntington Ingalls that construct combat and military support vessels.

“While U.S. shipbuilders produce the most capable warships in the world, the number of Navy ships being built each year is very low when compared to the number of ships being produced each year by the leading international shipyards,” the department told lawmakers. “A low volume of production makes it extremely difficult for U.S. shipyards to match the improvements in technology and productivity seen in the international shipyards.”

“Low workloads cause peaks and valleys in workforce requirements for shipyards, which in turn cause shipyards to lay-off and then re-hire workers,” the study said. “Without a stable workforce, it is harder to apply lessons learned from ship to ship and the cost savings associated with serial production decreases.”

The Pentagon told lawmakers that makers of heavy military vehicles like Oshkosh, General Dynamics Land Systems and BAE Systems’s Ground Systems Division — those with wheels and tracks — are performing well.

“Wheeled vehicle component manufacturers are continuing to benefit from the operational requirements of Iraq and Afghanistan,” the report states. “For the most part, combat and tactical vehicle manufactures are meeting financial obligations, and reinvesting in their businesses through research and development, acquisitions and capital expenditures.”

The Pentagon report also sees more growth ahead for unmanned aerial aircraft.

“This area is seeing continued sustained growth,” the report states. Unmanned aircraft “have proven themselves an effective tool for the 21st century warfighter. Interest in [unmanned planes] has grown dramatically during the conflicts in Afghanistan and Iraq. Demand for the capabilities they bring has exceeded the supply.”

That is good news for leaders in this realm, such as Global Hawk-maker Northrop Grumman and General Atomics, manufacturer of the coveted and successful Predator and Repear unmanned combat aircraft.

“Mergers and acquisitions continue in this field and further consolidation within the [unmanned aircraft] industry is expected,” D)D concluded, “as … demand continues to expand and larger programs develop.”


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