Archive for the ‘Defense Industry’ Category

Boeing's Delta IV

Well, this will be interesting. Stand by for some alphabet soup.

First, the Defense Contract Audit Agency (DCAA) says Boeing needs to reimburse $72 million it has already received.

Next, DCAA says the Defense Contract Management Agency (DCMA, not to be confused with DCAA) should notify the joint Boeing-Lockheed Martin venture called the United Launch Alliance (ULA) that there are another $199 million in unallowable costs (that are pending reimbursement) that the government won’t pay.  Got all that?

The work in question was done was for the Air Force as far back as 1998.

Given the complexity of monster-sized programs like EELV, the two main contractors, the joint venture, the who-knows-how-many subs, and the multi-year time frame, unpacking this all had to be–to say the least–a challenging audit to close on.

DCMA is now reviewing DCAA’s audit recommendation and a final decision is planned for November.

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The cost-savings and overhead reduction initiative Secretary of Defense Robert Gates is pushing has industry listening, and it only makes sense.  Does the Secretary see his legacy in play?  Perhaps.

After a decade of record-high defense spending, a spending downturn is all but inevitable, barring an impending war with Iran or having to back up Japan or South Korea in a scuffle with the North.

The heart of the matter is an excess in defense industrial capacity which has accumulated as a natural consequence of ten-years worth of increased defense spending.   (more…)

How do you ‘right size’ the solid rocket motor industry, which has some facilities operating at 10 percent of capacity?

Consolidate and close up to 90 percent of capacity it would appear.

The excess capacity regarding solids likely also reflects space in general and space launch in particular.

Somebody got some ‘splainin’ to do.

The WSJ reports $100 billion in defense cuts–about 90 percent in the years beyond FY12 for the purpose of getting the budget under better control.

Concurrently, $50 billion of current year non-defense spending is proposed.

Is it me?

Regarding the proposed cuts to the defense industry, a dilemma remains excess global capacity. That’s why Airbus is considering the USAF tanker deal anew.  But excess capacity almost by definitional means consolidation can (or should) be pursued in order to achieve greater efficiencies.

Then, consolidation leads to a loss of competition.  A loss of competition leads to higher costs.  That’s what happened with EELV, where dreamy assumptions melted in the face of global reality (that is, global reality versus global warming).

The traditional take is for governments, U.S. included, to subsidize industry.

Using the automotive industry, consider the relatively recent cash for clunkers and the GM and Chrysler bailouts.

Regarding the defense industry, AT&L’s Ash Carter provides a totally on-target money quote (emphasis added):

“At the end of the day we are totally dependent on that defense industry. The government doesn’t make our weapons, private industry makes our weapons.”

The goal of acquisition is for the government to get what it needs, when it needs it, and to pay a fair price for the product. Simultaneously, the government should want industry to make a fair profit.

If industry isn’t making a fair profit, they will tend to do other things, which will reduce competition, product selection, and ideas. It all seems pretty straightforward, doesn’t it?

Carter is paraphrased as saying he like as much competition as possible. I bet his real intent is to have as much competition as is useful. There is a point of diminishing, and even negative, returns.