The new charge, which the company reported as part of fourth-quarter 2020 earnings, means Boeing has now paid more than $5.0 billion out of pocket to pay for the myriad technical problems and production issues that have cropped up since the company won the program in 2011.”
“Under the firm, fixed-price contract signed then, Boeing is responsible for paying for any costs in excess of the contract’s $4.9 billion ceiling.
The latest KC-46 overrun occurred “primarily due to production inefficiencies including impacts of COVID-19 disruption,” the company said.
Steve Trimble of Aviation Week put together a list of KC-46 charges by year, finding that the program documented its largest overrun in 2020 despite seeing charges decrease to only $148 million in 2019.
The company previously attributed $494 million in charges to the ongoing pandemic during the first, second and third quarters of 2020.
The KC-46 is a commercial-derivative plane based on the Boeing 767 airliner. Because it is manufactured on the 767 production line in Everett, Washington, before undergoing military-specific upgrades, any slowdown in commercial plane volume also makes it more expensive to produce the KC-46.
Boeing President and CEO Dave Calhoun said in October he believed the KC-46 had moved past the technical problems that plagued the program over the past few years, and the tanker would prove to be an asset for the company after the pandemic had run its course.
“The tanker has been a drag on us for three or four years in every way you can think of with respect to investors,” he said at the time. “But we are continuing to clear the hurdle with our customers with respect to its performance in their fleet and their need for that tanker.
“That whole relationship, I believe, will begin to transition next year, and opposed to being a drag on our franchise — which it’s been — I believe it will become a strength in our franchise.”
In an message to Boeing employees on Wednesday, Calhoun pointed to some key wins in the defense and space sector, including the first flight of the MQ-25 tanker drone with an aerial refueling store, and the demonstration of the F/A-18 Super Hornet’s ski jump launch capability for the Indian Navy.
Over the past month, Boeing has inked contracts with the U.S. Air Force for the sixth and seventh lots of KC-46 production, raking in $3.8 billion for an additional 27 tankers.
However, during the earnings call, Calhoun noted that analysts should not count on Boeing’s defense business to generate a massive amount of near-term growth in the wake of the pandemic.
“We continue to believe that we’re going to have stable growth, admittedly at the lower end of the single digits. That’s the best guidance that we can talk about because we do believe there is pressure that will ultimately come down as a result of all of the COVID spending here in the United States,” he said.
“But a large part of our business now is international market, and the order activity in those international markets is pushed to the right somewhat — and almost entirely because of COVID-related stuff,” he said. “We still like our position because we have a lot of ongoing programs that the military and of course our defense [spending] bills have been kind to.”
The Air Force plans to buy 179 KC-46 aircraft over the program of record. The first KC-46 was delivered to the service in 2019.”
“It was a striking passage in a Christmas Eve Washington Poststory about a company that helps small businesses get contracts from nearby big corporations. “These small suppliers have been heavily reliant on the health of big companies in their regions,” it read. “If you are in Houston, your business lives and dies with oil and gas. In the Midwest, it’s automotive. Boston caters to medical device companies. Washington is well known for its aerospace and defense.”
Well, it may be well known now, but that’s a relatively recent phenomenon. Defense-contractor headquarters tended to be where the factories were, far away from the decision-makers in D.C. Lockheed and Northrop were in California, for example, and General Dynamics was in St. Louis.
But General Dynamics moved to D.C.’s Virginia suburbs in 1991. “Winning contracts is not just a function of providing the necessary aircraft or submarine,” a St. Louis-based defense industry analyst said when the move was announced. “There also, sorry to say, are politics that get involved in a lot of these decisions. It’s something that’s difficult to quantify, but you know it does have a place in these decisions.”
Lockheed shuttered its California headquarters in 1995 after it merged with Martin Marietta. The deal reflected “Southern California’s dwindling role as a mainstay of the U.S. aerospace industrial complex,” the Los Angeles Times reported at the time. “Lockheed Martin chose Martin Marietta’s home of Bethesda, Md., for its headquarters, formally ending Lockheed’s long domicile in the San Fernando Valley.”
Northrop moved to Falls Church, Va., in 2010. “We think we’ll be able to do a better job for our customers and our company by having our corporate office there,” Northrop chief Wes Bush said back then. “
For the Pentagon, happy days are here again (if they ever left). With a budget totaling more than $1.4 trillion for the next two years, the department is riding high, even as it attempts to set the stage for yet more spending increases in the years to come.
With such enormous sums now locked in, Secretary of Defense (and former Raytheon lobbyist) Mark Esper is already going through a ritual that couldn’t be more familiar to Pentagon watchers. He’s pledged to “reform” the bureaucracy and the spending priorities of the Department of Defense to better address the latest proposed threats du jour, Russia and China. His main focus: paring back the Pentagon’s “Fourth Estate” — an alphabet soup of bureaucracies not under the control of any of the military services that sucks up about 20% of the $700 billion-plus annual budget.
Esper’s promises to streamline the spending machine should be taken with more than the usual grain of salt. Virtually every secretary of defense in living memory has made similar commitments, with little or nothing to show for them in terms of documented savings. Far from eliminating wasteful programs, efforts pursued by those past secretaries and by Congress under similar banners have been effective in only one obvious way: further reducing oversight and civilian control of the Pentagon rather than waste and inefficiency in it.
Examples of gutting oversight under the guise of reform abound, including attempting to eliminate offices focused on closing excess military bases and sidelining officials responsible for testing the safety and effectiveness of weapon systems before their deployment. During the administration of President Bill Clinton, for instance, the slogan of the day — “reinventing government” — ended up, in Pentagon terms, meaning the gutting of contract oversight. In fact, just to repair the damage from that so-called reform and rebuild that workforce took another $3.5 billion. Gordon Adams, former associate director for national security and international affairs at the White House Office of Management and Budget, noted accurately that such efforts often prove little more than a “phony management savings waltz.”
Secretary of Defense Esper has also pledged to eliminate older weapons programs to make way for systems more suited to great power conflict. Past efforts along these lines have meant attempts to retire proven, less expensive systems like the A-10 “Warthog” — the close-air-support aircraft that protects troops in combat — to make way for the over-priced, underperforming F-35 jet fighter and similar projects.
Never mind that a war with either Russia or China — both nuclear-armed states — would be catastrophic. Never mind that more effort should be spent figuring out how to avoid conflict with both of them, rather than spinning out scenarios for fighting them more effectively (or at least more expensively). Prioritizing unlikely scenarios makes for a great payday for contractors, but often sacrifices the ability of the military to actually address current challenges. It takes the focus away from effectively fighting the real asymmetric wars the U.S. has been fighting since World War II. It leaves taxpayers with massive bills for systems that almost invariably turn out to be over cost and behind schedule. Just as an infamous (and nonexistent) “bomber gap” with the Soviet Union was used by the Pentagon and its boosters to increase military spending in the 1950s, the current hype around ultra-high-speed, hypersonic weapons will only lead to sky’s-the-limit expenditures and a new global arms race.
Esper’s efforts may end up failing even on their own narrow terms. Reforming the Pentagon is hard work, not only because it’s one of the world’s largest bureaucracies, but because there are far too many parochial interests that profit from the status quo. Under the circumstances, it matters little if current spending patterns aren’t aligned with any rational notion of what it would take to defend the United States and its allies.
A Revolving-Door World
The Department of Defense regularly claims that it has implemented “efficiencies” to ensure that every penny of your tax dollars is being wisely spent. Such efforts, however, are little more than marketing ploys designed to fend off future calls for cuts in the Pentagon’s still-ballooning budget. Here are just two recent examples of this sadly familiar story.
In September 2018, the Government Accountability Office (GAO) released a report stating that the Department of Defense had provided insufficient evidence that $154 billion in alleged “efficiency savings” from fiscal years 2012 to 2016 had been realized; the department claimed credit for them anyway.
Just this month, the GAO came to a similar conclusion regarding a proposed Pentagon reform plan that was to save $18.4 billion between fiscal years 2017 and 2020. Its report stated that the Pentagon had “provided limited documentation of… progress,” which meant the GAO “could not independently assess and verify” it. Consider that a charitable way of suggesting that the Department of Defense was once again projecting a false image of fiscal discipline, even as it was drowning in hundreds of billions of your tax dollars. The GAO, however, failed to mention one crucial thing: even if those alleged savings had been realized, they would simply have been plowed into other Pentagon programs, not used to reduce the department’s bloated budget.
Esper and his colleagues have argued that it will be different this time. In an August 2nd memo, his principal deputy, David Norquist, stated that “we will begin immediately and move forward aggressively… The review will consider all ideas — no reform is too small, too bold, or too controversial to be considered.”
Even if Esper and Norquist were, however, to propose real changes, they would undoubtedly run into serious interference within the Pentagon, not to mention from their commander-in-chief, President Donald Trump, a man determined to plough ever more taxpayer dollars into the military, and from members of Congress in states counting on jobs generated by the military-industrial complex. Inside the Pentagon, on the other hand, resistance to change will be spearheaded by officials who previously held jobs in the defense industry or hope to do so in the future. We’re talking, of course, about those who have made use of, or will make use of, the infamous “revolving door” between weapons companies and the government. Consider that the essence of the military-industrial complex in action.
Such ties start at the top. During the Trump administration, the post of secretary of defense has been passed from one former defense industry figure to another, as if it were literally reserved only for key officials from major weapons makers. Trump’s first secretary of defense, retired General James (“Mad Dog”) Mattis, came to the Pentagon straight from the board of General Dynamics, a position he returned to shortly after leaving the department. Interim Secretary Patrick Shanahan, who followed him, had been an executive at Boeing, while current Secretary Esper was Raytheon’s former chief in-house lobbyist. The Pentagon’s number three official, John Rood, similarly comes courtesy of Lockheed Martin. And the list only goes on from there.
This has been a systemic problem in Democratic and Republican administrations, but there has been a marked increase in such appointments under Donald Trump. A Bloomberg Government analysis found that roughly half of the Obama administration’s top Pentagon officials had defense contractor experience. In the Trump administration, that number has reached a startling 80%-plus.
That revolving door, of course, swings both ways. Defense executives come into government, where they make decisions that benefit their former colleagues and companies. Then, as retiring government officials, they go to work for defense firms where they can use their carefully developed government contacts to benefit their new (or old) employers. This practice is endemic. A study by the Project On Government Oversight found 645 cases in which the top 20 defense contractors hired former senior government officials, military officers, members of Congress, or senior legislative staff as lobbyists, board members, or senior executives in 2018 alone.
There is, of course, nothing new about any of this. The late Senator William Proxmire (D-WI) pinpointed the problem with the revolving door back in 1969:
“The easy movement of high-ranking military officers into jobs with major defense contractors and the reverse movement of top executives in major defense contractors into high Pentagon jobs is solid evidence of the military-industrial complex in operation. It is a real threat to the public interest because it increases the chances of abuse… How hard a bargain will officers involved in procurement planning or specifications drive when they are one or two years from retirement and have the example to look at over 2,000 fellow officers doing well on the outside after retirement?”
For his part, President Trump has repeatedly bragged about his role in promoting defense-related employment in key states, both from Pentagon budget increases and the sale of arms to repressive regimes like Saudi Arabia. In March, he held a one-hour campaign-style rally for workers at a tank plant in Lima, Ohio, at which he typically suggested that his budget increases had saved their jobs.
As for Congress, when the Army, in a rare move, actually sought to save a modest amount of money by canceling an upgrade of its CH-47 transport helicopter, the Senate struck back, calling for funding that the Pentagon hadn’t even requested in order to proceed with the program. The reason? Protecting jobs at Boeing’s Philadelphia-area factory that was scheduled to carry out the upgrades. Unsurprisingly, Trump seems fine with this congressional initiative (affecting the key battleground state of Pennsylvania), which still needs to survive a House-Senate conference on the defense bill.
The bottom line: Donald Trump is likely to oppose any changes that might have even the smallest impact on employment in states where he needs support in election campaign 2020. Defense industry consultant Loren Thompson summed up the case as follows: “We’re too close to the presidential election and nobody [at the White House] wants to lose votes by killing a program.” And keep in mind that this president is far from alone in taking such a stance. Similar reelection pressures led former President Jimmy Carter to increase Pentagon spending at the end of his term and caused the George H. W. Bush administration to reverse a decision to cancel the troubled V-22 Osprey, a novel part-helicopter, part-airplane that would later be implicated in crashes killing dozens of Marines.
“We Won’t Get Fooled Again”
What would a genuine Pentagon reform plan look like? There are areas that could easily yield major savings with sufficient political will and persistence. The most obvious of these might be the Pentagon’s employment of more than 600,000 private contractors, many of whom do jobs that could be done by government civilians for less. Cutting that work force to “only” about half a million, for example, could save more than a quarter of a trillion dollars over the next decade, as noted in a recent report by the Center for International Policy’s Sustainable Defense Task Force (of which both authors of this article were members).
Billions more could be saved by eliminating unnecessary military bases. Even the Pentagon claims that it has 20% more facilities than it needs. A more reasonable, restrained defense strategy, including ending America’s twenty-first-century forever wars, would make far more bases redundant, both at home and among the 800 or so now scattered around the planet in an historically unprecedented fashion. Similarly, the president’s obsession with creating an expensive Space Force should be blocked, given that it’s likely only to increase bureaucracy and duplication, while ensuring an arms race above the planet as well as on it.
Real reform would also mean changing how the Pentagon does business (not to speak of the way it makes war). Such savings would naturally start by simply curbing the corruption that comes from personnel in high positions who are guaranteed to put the interests of defense contractors ahead of those of taxpayers and the real needs of American security. (There are also few restrictions on former officials working for foreign governments and almost no public disclosure on the subject.) The Project On Government Oversight found hundreds of Pentagon officials leaving for defense industry jobs, raising obvious questions about whether decisions they made were in the public interest or meant to advance their own future paydays.
Real reform would close the many loopholes in current ethics laws, extend cooling-off periods between when an official leaves government and when he or she can work for an arms contractor, and make far more prominent information about when retired national security officials switch teams from government to industry (or vice versa). Unfortunately, since Esper himself has refused to pledge not to return to the world of the corporate weapons makers after his stint as secretary of defense, this sort of reform will undoubtedly never be part of his “reform” agenda.
One outcome of his initiative, however, will definitely not be money-saving in any way. It will be to boost spending on high-tech systems like missile defense and artificial intelligence on the almost laughable grounds (given the past history of weapons development) that they can provide more military capability for less money. Whether you look at the Navy’s Fordaircraft carriers — the first two costing $13.1 billion and $11.3 billion — or the Air Force’s aerial refueling tanker (which has taken nearly two decades to procure), it’s not hard to see how often vaunted technological revolutions prove staggeringly costly — far, far beyond initial estimates — yet result in smaller, less effective forces. As longtime Pentagon reformer Tom Christie has pointed out, to really change the acquisition system would require building in significantly more discipline. That would mean demonstrating the effective and reliable use of new technology through rigorous field-testing before advancing fragile weapons systems to the production stage, ensuring future maintenance and other headaches for troops in combat.
There is, in addition, a larger issue underlying all this talk of spending reform at the Pentagon. After all, Esper’s “reforms” are visibly designed to align Pentagon spending with the department’s new priority: combatting the security challenges posed by Russia and China. Start with one crucial thing: these challenges have been greatly exaggerated, both in the Trump administration’s national defense strategy and in the report of the industry-led National Defense Strategy Commission. That document, when you analyze its future math, even had the nerve to claim that the Pentagon budget would need to be boosted to nearly $1 trillion annually within the next five years, reports Taxpayers for Common Sense.
Russia has much to answer for — from its assistance to the Syrian army’s ongoing slaughter of civilians to its military meddling in the affairs of Ukraine — but the response to such challenges should not be to spend more on ships, planes, and advanced nuclear weapons, as current Pentagon plans would do. In reality, the economy and military of Russia, a shaky petro-state only passing for a great power, are already overshadowed by those of the U.S. and its NATO allies. Throwing more money at the Pentagon will do nothing to change Russian behavior in a positive fashion. Taking measures that are in the interests of both countries like renewing the New START nuclear reduction treaty and beginning new talks on curbing their massive nuclear arsenals would be extremely valuable in their own right and might also open the door to negotiations on other issues of mutual concern.
China’s challenge to the U.S is significantly more economic than military and, if those two nations wanted to make the planet a safer place, they would cooperate in addressing the threat of climate change, not launch a new arms race. Genuine reform of the Pentagon’s massive budget is urgently needed, but rest assured that Secretary of Defense Esper’s claims about implementing real changes to save taxpayer dollars while making the U.S. military more effective are the equivalent of bestseller-list Pentagon fiction. The motto of Congress, not to speak of the White House and the public, with respect to the Pentagon’s latest claims of fiscal probity should be “we won’t get fooled again.”
“When I began covering the U.S. military for the Fort Worth Star-Telegram in Washington 40 years ago, it was to report on the Texas contractors who built what the Pentagon bought. Tens of thousands of the paper’s readers cared a lot about the fate of the weapons rolling off their assembly lines. Cuts in production ordered by the Pentagon or Congress in faraway Washington could take food off their table; boosts could lead to overtime on the line and a fatter paycheck.
Back then, General Dynamics was building the Air Force’s agile F-16 fighter on Fort Worth’s west side. Vought was building the Navy’s A-7 attack plane nearby. And Texas Instruments (TI) was building the revolutionary High-Speed Anti-Radiation Missile—HARM—which could destroy enemy radars. But as the U.S. defense industry entered a post-Cold War contraction, a rash of mergers changed all those name plates. The F-16 ended up being built by Lockheed Martin. Vought was spun off from the LTV Corp., a once-powerful conglomerate, with pieces ending up in the arms of Northrop Grumman. And the HARM missile is no longer produced by TI, but by the Raytheon Corp.
The merger mania that surged as the Cold War wound down—when 51 aerospace and defense companies shrank to five—is making a comeback. The “military-industrial complex” that President (and five-star Army general) Dwight Eisenhower warned us of in 1961 has funneled down to a few “Walmarts of war,” as Daniel Wirls, a professor at the University of California, Santa Cruz, quoted defense researchers calling the surviving contractors in a June 26 Washington Postcolumn. Less competition can drive up costs while dampening innovation. Backers counter that efficiencies, job cuts, primarily, lead to lower costs that can save the Pentagon money—rarely—or let it buy more for the same price—also rare. And the middlemen—the lawyers and financiers who nurture these deals—do just fine, thanks.
Mergers’ merits are murky when it comes to costs and innovation, and haven’t been studied much. It’d be a good move, both for taxpayers and the government, if Congress and the Government Accountability Office took deep dives into the issue to learn enough to make smart decisions. The issue has been debated for decades. Back in 1997, Robert Pitofsky, former chairman of the Federal Trade Commission (FTC), told Congress that the FTC “strongly believes … that competition produces the best goods at the lowest prices and is also most conducive to innovation.”
The latest chapter in Pentagon-contractor consolidation is the June 9 announcement that Raytheon and the defense division of United Technologies Corp. plan to merge. And this announcement comes four years after United Technologies sold its Sikorsky helicopter unit to Lockheed Martin, the Pentagon’s biggest contractor, for $9 billion. The pending merger includes United Technologies’ booming aerospace business—jet engines (including those for the F-35, as well as the F-15, F-16, and F-22) and cockpit electronics—with Raytheon, builder of Tomahawk cruise missiles (acquired when it bought Hughes Aircraft in 1997, which acquired it when it purchased General Dynamics’ missile division in 1992) and ground-fired Patriot air-defense missile systems. The new company—to be known as Raytheon Technologies—would have annual sales of about $74 billion. The companies have set up a website to herald their union.
The Raytheon-United Technologies deal is just the latest in a series of mergers in the defense industry: Over the past year, United Technologies bought Rockwell Collins for $30 billion, defense companies Harris Corp. and L3 Technologies agreed to merge in a $34 billion deal, and Northrop bought rocket-maker Orbital ATK for $9.2 billion.
The Raytheon-United Technologies combo boasts 60,000 engineers and 38,000 patents. Both are generally “platform agnostic,” building pieces for aircraft, tanks, and ships built by others, and they rarely compete with one another for Pentagon contracts. That suggests the federal government won’t object to the deal, which is expected to close in the first half of 2020.
The Justice Department is the federal agency that reviews such mergers, with input from both the Pentagon and the Federal Trade Commission. The Pentagon’s Office of Industrial Policy is primarily focused on the national security impact of such consolidations that might reduce military might, while Justice and the FTC are more concerned with broader antitrust issues that could lead to military-hardware monopolies. Although the Obama Administration’s policy was that it would oppose mergers among the Big 5 defense firms, the Trump Administration hasn’t endorsed that view. (The five contractors doing the most business with the Pentagon in 2018 were Lockheed in the top spot, followed by Raytheon, BAE Systems, Northrop Grumman, and Boeing; United Technologies ranked 11th).
Still, the commander in chief is fretting about this merger nonetheless. “I am a little concerned about United Technologies and Raytheon because one of the things that I bring up all of the time, we used to have many plane companies,” President Trump told CNBC shortly after the companies announced their plan to join forces. “We used to have many, many. They’ve all merged. Now we have very few. … It is hard to negotiate when you have two companies and sometimes you get one bid.”
The pending Raytheon-United Technologies deal “would fall just below the previous policy’s formal redline but gets about as close to that line as possible,” an analysis of the proposed merger by the nonprofit Center for Strategic and International Studies said. While the Center said government approval is expected, “it is almost inevitable that the new company will be required to divest some defense capabilities, and potentially some commercial ones, that overlap between Raytheon and United Technologies to preserve competition.”
Defense mergers have accelerated recently, in part because of “early guidance from the new U.S. administration” that defense spending would be on the rise, consulting firm Deloitte said in a 2017 report. In fact, 80 percent of professionals in the aerospace, defense, and government services sectors are bullish on mergers. That’s according to a survey released in April by the independent investment banking firm KippsDeSanto in the heart of suburban Virginia’s defense-contracting nirvana. “We have been in a really good budgetary environment,” Managing Director Michael Misantone toldNational Defense in April, citing a “large increase in defense spending” as rocket fuel for military mergers.
Of course, it was only a generation ago that precisely the opposite was true. It was plummeting defense budgets that were making mergers all but inevitable—under orders from the Pentagon itself. Then-Defense Secretary Les Aspin and his deputy, Bill Perry, invited the top officials from the nation’s biggest contractors to a dinner at the Pentagon in 1993 to warn that they all wouldn’t survive the coming budget crunch. “We expect defense companies to go out of business,” Perry, who succeeded Aspin as defense secretary in 1994, said after what came to be called “the Last Supper” in defense-contracting circles. “We will stand by and watch it happen.”
In May, the Government Accountability Office (GAO) noted the dire effect of consolidation. Even though the Pentagon has cut four programs from its must-have list, the GAO said, its remaining 82 major programs had grown in cost by $8 billion, to a cool $1.69 trillion. “Portfolio-wide cost growth has occurred in an environment where awards are often made without full and open competition,” the Congressional watchdog agency added. “Specifically, GAO found that DOD did not compete 67 percent of 183 major contracts currently reported for its 82 major programs.” Nearly half of those contracts—47 percent—went the current Big 5: Lockheed, Boeing, General Dynamics, Northrop, and United Technologies (the numbers are even grimmer for taxpayers if supposedly “competitive” bids lead to only a single bidder).
Between 2008 and 2018, the average cost of a Pentagon weapons system—not including inflation—jumped by 13 percent, the report said. “We have reported that competition is the cornerstone of a sound acquisition process and a critical tool for achieving the best return on investment for taxpayers,” the GAO added. “Generally, a low competition rate can contribute to increased costs of goods and services and decreased buying power.”
We’ve heard similar refrains before. Then-Defense Secretary Ashton Carter said in 2015 that he worried about reaching a point “where we did not have multiple vendors who could compete with one another on many programs.”
The health of the defense-industrial base has been a perennial concern. The latest warning about the Pentagon’s shriveling supplier corps was issued by the Defense Department’s own Office of Manufacturing and Industrial Base Policy on May 13. While big defense-contractor profits remain juicy, many smaller Pentagon suppliers are struggling. And the number of contractors doing defense work is shrinking: 97 percent of the Pentagon’s missiles are built by Lockheed and Raytheon. And 98 percent of the lower-level subcontractors making parts for U.S. munitions are the only source for the military parts they make.
Worse, the Pentagon pipeline for missiles and munitions is plagued with problems, including “material obsolescence and lack of redundant capability, lack of visibility into sub-tier suppliers causing delays in the notification of issues, loss of design and production skill, production gaps and lack of surge capacity planning, and aging infrastructure to manufacture and test the products,” the report warns. “Production gaps for munitions and missiles directly reduce the U.S. capability to deliver kinetic effects against adversaries.” In October, a second report from the Trump Administration said the nation has an increasingly “fragile” defense-industrial base with “entire industries near domestic extinction” and growing reliance on foreign sources.
“There are currently only two domestic suppliers for solid rocket motors used in the majority of DoD missile systems, with a single foreign supplier making up the balance,” the report said. More than 80 percent of the Pentagon’s armored vehicles are built by a single manufacturer in a single plant. There is only a single company producing chaff, the foil-like fibers U.S. warplanes eject to distract incoming missiles.
And don’t count on mergers to spur innovation. Innovation requires the levers of competition to work. Competition drives the perpetual quest to get more bang for the buck by harnessing new technologies. The Pentagon acknowledged as much in 1998 when it succeeded in stopping Lockheed’s move to buy Northrop Grumman. But the shrinking number of contractors is leading to less competition, and therefore less innovation.
“Any shrinking in the number of these enterprises ought to be a matter of concern for the defense agencies and for government antitrust agencies,” William Kovacic, a professor at George Washington University Law School and former head of the Federal Trade Commission, said in the wake of the Raytheon-UTC announcement.
This merger trend isn’t likely to end well, at least for U.S. taxpayers and the military they support. “If the trend to smaller and smaller numbers of weapon system prime contractors continues, one can foresee a future in which the department has at most two or three very large suppliers for all the major weapons systems that we acquire,” Frank Kendall said in 2015, while serving as the undersecretary of defense for acquisition, technology and logistics. “The Department would not consider this to be a positive development, and the American public should not either.”
“Lockheed Martin Corp., the world’s largest defense contractor, plans to design a missile defense component that can take out multiple warheads
Earlier this year, Navy Vice Adm. James Syring, director of the Missile Defense Agency, announced plans to oversee the purchase of the so-called Redesigned Kill Vehicle. Syring talked about it during a Feb. 2 briefing on the agency’s $8.13 billion budget request for 2016.
The announcement comes a few months after Navy Adm. James Winnefeld, the former vice chairman of the Joint Chiefs of Staff, talked about the need to advance the Ground-Based Midcourse Defense System so interceptors are capable of striking multiple incoming targets.
“It boils down to how many missiles we can knock down versus how many the threat can launch,” Winnefeld said during a May 19 speech at the Center for Strategic and International Studies in Washington, D.C.
“If, for example, because of system improvements, we only have to shoot half the number of interceptors per incoming warhead that we see, then we can handle twice the number of inbound warheads,” he said. “That’s why we’re taking a lot of time and effort to improve the capability and reliability of our entire system.”
Lockheed appears to be have teamed with some of the other defense contractors charged with developing the Ground-based Midcourse Defense system.
Boeing Co., the world’s largest aerospace company, is the program’s prime contractor; Dulles, Virginia-based Orbital Sciences Corp. builds the interceptor; and Waltham, Massachusetts-based Raytheon Co. makes the kill vehicle.
For the GMD program alone, the Pentagon requested $1.6 billion. The funding, if approved by Congress, would be used to conduct more flight tests and redesign parts of the system. It would also go toward upgrading and expanding the number of interceptors from 30 to 44, including an eventual 40 at the Army’s Fort Greely in Alaska and four at the Air Force’s Vandenberg Air Force Base in California.
Lawmakers in recent years have raised doubts about the technology, which hit targets in only 8 of 15 attempts through mid-July 2013; the high cost of testing, which runs more than $215 million per exercise; and the fact that many of the interceptors aren’t operational.
Syring has acknowledged the system faced a more demanding development schedule that resulted in interceptors being deployed before testing was complete. Indeed, when a three-stage booster launched from Vandenberg and intercepted a dummy warhead last summer, it was the first successful test in five years.
“I was in the room watching it and you can imagine what it felt like to watch that thing have an extremely successful intercept,” Winnefeld said. “It was a very good shot in the arm for that program. Based on the success of that shot, we were able to resume production of eight planned GBIs in the new and improved configuration,” he said, referring to the Capability Enhancement II, or CE-II, design.
There are a total of eight improved CE-2 interceptors, Winnefeld said. A non-intercept flight is set for later this summer, he said. An intercept test involving a CE-2 Block 1 that incorporates obsolescent changes and a new booster avionics package is scheduled for the end of the year, he said.
“That’s going to be our first intercept of a true ICBM-range target,” he said of the latter. “Should that intercept be successful, the plan is to deliver 10 CE-2 Block 1 GBIs over the next year to achieve our goal of 44 GBIs by the end of 2017.”