Air Force Chief: No Corporate Welfare for Defense Industry

By Sandra I. Erwin
NATIONAL HARBOR, Md. — The U.S. defense industry has unique skills and assets that must be preserved, but the notion that the government should fund programs just to keep companies in business is unrealistic in today’s economic climate, said Gen. Norton Schwartz, Air Force chief of staff.
Top defense executives have issued Cassandra-like warnings about the impact of upcoming cuts to U.S. military spending: The industry is waning, skilled workers are being laid off, there are not enough new programs to keep critical suppliers alive. The list goes on.
James Albaugh, CEO of Boeing’s commercial aviation division, has asserted repeatedly that for the first time in a century, the United States is not designing a next-generation manned military aircraft, and that the Defense Department is allowing those skills to wither away. “Every defense contractor is laying people off,” Albaugh told reporters last week.
But Schwartz is not entirely convinced. Paying companies to keep design teams employed is not a realistic prospect, he said at a Sept. 20 news conference. “My reaction to that is, I don't see that in the cards.” Such level of government intervention in the private sector, he added, “isn't the American way of doing things.”
Schwartz still acknowledged that some sectors of the defense and aerospace industries are “truly national assets” and that the possibility of losing those assets as a result of budget cuts should be a “strategic concern” for the White House and for Congress.
There are “certain parts of the industrial base that the nation needs," Schwartz said. “But we’re not going to pay for something without any return on investment.”
Even though top defense contractors remain financially healthy and, according to analysts, are sitting on $50 billion in cash reserves, senior executives have called for the Pentagon to take action to prop up some sectors of the industry. They want the Obama administration to lay out an “industrial base strategy” that protects selected skills and facilities that would be at risk once Pentagon budget cuts begin to take effect in 2012. Under the debt-ceiling agreement passed by Congress in August, the Pentagon’s budget could be cut by up to $350 billion over the next decade. Although the reductions are moderate in the context of nearly $700 billion a year defense budgets, congressional hawks and contractors fear that deeper cuts lie ahead.
“Industry needs an industrial base strategy that will guide it as it makes long-term planning decisions about plant equipment, technology investment, work force and other issues that affect its core business,” said Marion C. Blakey, president and CEO of the Aerospace Industries Association.
Schwartz said the best way to cope with the coming budget crunch is to find ways to spend money more wisely.
During the past decade of rapid budget growth, he said, “We lost a bit of discipline in our ability to differentiate between what is essential and what is nice to have.” The Air Force has to stop dreaming of Battlestar Galacticas and become more “conscientious” about how funds are spent, he said. There is not going to be enough money to chase “every good idea.”
In a keynote speech to the Air & Space Symposium here, Schwartz called for a change in the culture of free spending that has dominated military weapons programs.
“Future development efforts will have to be less ambitious, because we cannot assume the kind of risk that [were seen in] past acquisition strategies,” he said. Schwartz cited Government Accountability Office audits that concluded that 62 major weapon programs are over budget and behind schedule because of “insufficient scientific knowledge and technical ability.” The Air Force, he said, “cannot afford to advance unproven technologies prematurely … particularly when no genuine operational requirements demand it,” he said. “We must discern between what we truly require and what we merely desire.”
The responsibility for exorbitant cost growth in weapons systems lies both on military buyers and contractors, he said. “We require straight talk from everyone. Government must ensure stable requirements and reliable funding streams, while industry must bid according to realistic estimates, and resist offering to sell more than what is operationally required.”
Government and industry, he said, have common incentives to better manage defense dollars. “The success of industry and the military are now mutually related, perhaps more than they have ever been,” said Schwartz. “There is no time or patience to over promise only then to under deliver. There can be no blank checks either for surplus capability for the government or for windfalls for industry.”
Defense executives, for their part, have launched amajor lobbying offensiveas they seek to persuade lawmakers on the deficit-cutting “super committee” that defense budget cuts put nearly 3 million jobs at risk, at a time when the nation is suffering from high unemployment.
Defense Secretary Leon Panetta has cited the industry’s employment numbers as one reason why he is taking a hard stance against budget cuts. At a Sept. 20  Pentagon news conference, Panetta suggested that most spending cuts in the near term would come from bureaucratic overhead, contracting, personnel reforms and other “efficiencies,” rather than wholesale program terminations or changes in military missions.
Excessive cuts to the defense budget “would impact our economic strength,” Panetta said. Any cancellation of weapons systems, construction projects, or reductions in research projects would “seriously cripple our industrial base.”

Topics: Business Trends, Doing Business with the Government, Procurement

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