The biggest defense manufacturers in the world warned the Pentagon and OMB of "significant job losses in pivotal states" if Congress doesn't come up with stimulus money to cover unforeseen expenses.
By PAUL MCLEARYon July 08, 2020 at 4:16 PM
WASHINGTON: A group of CEOs leading the world's top defense firms sent letters to Pentagon acquisition chief Ellen Lord and and Office of Management and Budget director Russell Vought on Wednesday, citing “significant job losses in pivotal states” if the federal government doesn't step in to assist with COVID-related costs.
Electoral maps have traditionally acted as a tried and tested tool defense contractors use when making pitches to both the Pentagon and Congress, as a way of showing where the jobs sit in different congressional districts.
The letter to Lord was signed by the leaders of Lockheed Martin, General Dynamics, Boeing, Raytheon, and BAE Systems, which represent five of the top seven defense companies in the world. Huntington Ingalls, Textron Inc., and L3Harris Technologies also signed onto the letter, which was obtained by Breaking Defense, requesting the Pentagon's help in pressing for stimulus money in the Senate's next rescue package. The Senate is slated to debate in the coming days.
Lord has previously estimated the Pentagon would have to pay more than “lower double digit billions” to offset costs borne by defense manufacturers in lost work hours, buying PPE equipment and propping up smaller suppliers.
Speaking to reporters at the Pentagon last month, Lord said she's seeing a “three-month slowdown to all programs due to COVID-19,” after the virus shut down defense manufacturing facilities and production lines across the globe.
The vast majority of defense firms have operated at reduced capacity over the past several months, and Lord said the Pentagon continues to see the biggest impacts in the aviation and shipbuilding supply chains.
The CEOs write that US-based supply chains “are simply not able to absorb these significant costs. Without additional funding in the next stimulus package, the resolution of [reimbursement] claims will need to be funded from existing DoD budget topline resources for FY20-22.”
That would cause “significant reductions” in research and procurement budgets, they said, before pivoting to warning about Defense Secretary Mark Esper's top priority: modernizing weapons systems to keep abreast of China and Russia. Placing the burden on the companies to use their own case to meet unplanned emergency costs risks “thwarting the Department's ability to meet the challenges and threats associated with great power competition” they add.
In order to keep the smaller suppliers afloat, companies have pushed contracts forward to give the smaller supplier more work, and in turn, DoD has sped up planned payments to the defense industry, hitting the $2 billion mark in recent weeks.
Speaking at a Brookings Institution event this morning, Lord didn't mention the letter, but talked about moving more production of defense equipment to the United States from overseas. Part of that effort stems from President Trump's “American First” push to build up the domestic manufacturing sector, but Chinese influence in electronic supply chains is also a big concern.
During a visit to the Fincantieri Marinette Marine shipyard in Wisconsin late last month, Trump said “we'll always live by two simple rules: Buy American and hire American.”
Lord phrased the idea differently, saying she prefers to have two sources for equipment, and “we would like one of those, if possible, to be domestic.” That issue has been highlighted in the global pandemic shutdown which wreaked havoc on global supply chains. “We just found that particularly with microelectronics, we have gotten ourselves into a potentially compromised position,” Lord said. “Where we have US intellectual property going offshore for fabrication and packaging leaves us with some vulnerability there. That is unacceptable moving forward.”
During his Wisconsin visit, Trump suggested that one of the considerations for awarding a $795 million contract to the US home of the Italian shipbuilder was its location in a competitive state in the 2020 presidential election. “You notice that's not a supply chain going through China and going through other countries,” he said, adding, “I hear the maneuverability is one of the big factors that you were chosen for the contract. The other is your location in Wisconsin, if you want to know the truth.”
https://breakingdefense.com/2020/07/top-defense-execs-ask-for-help-in-next-covid-stimulus-package
