July 1, 2009  

Industry pulse: Disappearing skills

The U.S. is losing its military industrial base

It’s Tanker Time, and the senior senator from Boeing, Patty Murray, D-Wash., is up to her old tricks. Murray introduced legislation in the Senate that is intended to favor Boeing’s “made in America” KC-767 aerial tanker over Northrop Grumman’s “damnable French” KC-30 proposal for the Air Force. The re-compete for this $35 billion program should begin this summer.

Murray’s rationale is that with the U.S. recession and the loss of some 3 million jobs in a matter of months, the tanker should be built by Americans, in America. Setting aside the presumption that Northrop’s Alabamans who would build the KC-X aren’t Americans, Murray also claims that giving the contract to Boeing would preserve our aerospace industrial base.

Murray has a point in general. The problem is that neither she nor her colleagues seem all that concerned about America’s aerospace industrial base beyond the KC-X competition.

Like the automotive industry, the computer chip industry and many others, the Defense Department has been increasingly relying on overseas suppliers. BAE Systems, based in the U.K., was the fifth-largest U.S. defense contractor last year, producing systems and services such as Bradley fighting vehicles, thermal imaging equipment, electronic decoys for fighters, software for the Joint Tactical Radio System, repair and maintenance on the cruiser Bunker Hill and armor protection for Humvees. Italy’s Finmeccanica is a supplier to the military for a Movement Tracking System, Thermal Weapon Sight, a Mast Mounted Sight, generators and radar for the Coast Guard’s HC-130H. It also participates in production of Boeing’s KC-767 and provides logistical support for the KC-135 and Airborne Warning and Control System aircraft. QinetiQ, another British company, through its North American unit, was awarded a contract by the Space and Naval Warfare Systems Center Pacific to support C4ISR programs and is a major contractor to the Defense Advanced Research Projects Agency (DARPA).

The American West was opened with famous names such as Smith & Wesson and Colt. The services now equip their combat troops with guns made in Italy and Germany. During World War II, the U.S. industrial base designed and produced some key fighters and bombers in a matter of months and Boeing’s famed B-29 within a couple of years. Henry Kaiser designed prefabricated Liberty Ships and produced one every 30 days. Today, our shipyards are struggling to stay in business and, because the production rate is so low, it costs billions of dollars for a warship. Merchant ships are produced overseas.

Virtually every major aircraft and ship acquisition program is years behind schedule and billions of dollars over budget. The two versions of the littoral combat ship are based on designs from Scandinavia and Australia, and American ship-building companies still can’t get it right. The San Antonio-class amphibious transport dock ship was 2½ years late becoming operational, and then it still had oil leaks serious enough to lay up in Bahrain to be fixed.

Not only do U.S. defense contractors have increasing difficulty just building the systems right, the cost overruns are driving the Pentagon to choose offshore contractors who can get the job done more quickly and cheaper.

“We are going to price ourselves out of the market,” a DARPA contractor said. Part of the problem is “requirement creep,” but costly unions, declining skill sets, a brain drain and the broad trend by U.S. companies to outsource offshore because of cost-cutting and “strategic, global economies” all contribute to the growing problems with defense programs.

The increasing reliance by the Defense Department on foreign companies goes well beyond the arguments advanced by Boeing supporters in the tanker faceoff. Boeing boosters call for a “Buy American” strategy. European Airbus boosters retort, quite correctly, that Europeans for decades had to rely on U.S. defense contractors for their own procurement programs. Now, they say, with a “global economy,” the U.S. defense market should be open to them.

EADS, Airbus’ parent and the largest European defense contracting company, has made some inroads into U.S. defense procurement with the UH-72 Lakota helicopter (a key win, in the view of EADS North America) and Homeland Security contracts. EADS lost the competition for the Joint Cargo Aircraft (JCA), a small, twin-engine, multimission turbo-prop based on the CASA 235/295. (CASA is an EADS company.) The winner? Italy’s Alenia. No U.S. design was offered because no U.S. company builds an airplane in this category. Raytheon fronted the EADS JCA, while L-3 Communications fronted for Alenia as the systems integrator, much in the same way as Northrop is fronting the KC-30. Ironically, Boeing teamed with Alenia for the JCA offering just like Northrop teamed with EADS on the KC-30, but Boeing dropped off the team after Alenia won the contract.

AgustaWestland of Italy teamed with Lockheed Martin to win the contract for the fleet of presidential helicopters, beating out a true American offering by United Technology’s Sikorsky, the provider of Marine One for as long as can be remembered. This procurement became a perfect example of “requirement creep,” with costs soaring beyond that of Air Force One, the Boeing 747, which is now moving toward replacement. The AgustaWestland chopper became so expensive that President Barack Obama singled it out for a procurement run amok.

Engineer shortage

A huge challenge facing the U.S. military — and the private sector, for that matter — industrial base is the lack of engineers. The DARPA contractor said the agency has a terrible time finding aerospace engineers. The older ones remain in their current jobs as retirement and pensions peek over the horizon. Young engineers can make more money, drive fancier cars and live the high life designing computer games, and they don’t work nearly as hard as aerospace engineers.

“Back in the days of Donald Douglas, Jack Northrop and Bill Boeing, engineers loved their work,” the contractor said. “They had passion. The young engineers today don’t have passion.” Because this contractor engages in top-secret development and has to comply with International Traffic in Arms Regulations, its engineers must be American citizens. Yet when seeking engineers and going to the top aerospace engineering schools and programs, it finds that foreign nationals dominate the programs. Worse yet, in the view of this contractor, most of the new foreign national engineers obtain their American education and return to their home countries — in some cases to countries that may not be considered America’s best friends.

U.S. defense and commercial companies that outsource engineers and technology to foreign companies in the name of cost-cutting, the global economy or strategic partnerships not only are accelerating the brain drain and creating new commercial competitors, the threat to the U.S defense industrial base and reliable procurement sourcing is real and growing, the DARPA contractor said. Companies outsourcing to countries such as China, Russia and India, including Boeing and Airbus in the commercial sectors, say there are mechanisms in place to protect intellectual property, but the DARPA contractor and others openly scoff at such assurances. Neither Russia nor China has a history of protecting intellectual property, both have active spying operations and, in any event, there is nothing to guarantee key engineers who quit will honor intellectual property rights.

“We are training their engineers,” the DARPA contractor said, a complaint echoed by Boeing’s SPEEA engineers union when the company outsourced so much work on the 787. Boeing has been training Russian engineers in the U.S. and has its own Moscow Design Center. A similar one is in China, and Boeing recently opened another engineering facility in India. The complaint not only fell on deaf ears at Boeing but also among the politicians who now profess to be worried over the “threat” to the aerospace industrial base if the KC-X contract goes to Northrop.

Airbus has 11 engineering centers throughout the world, including in Russia. While these, like Boeing’s, are commercial centers, skeptics believe intellectual property will be transferred by locals to military programs when opportunities arise. Airbus CEO Tom Enders says protections are in place and, in any event, commercial technology doesn’t transfer to military — it’s typically the other way around.

It took the U.S. industrial base seven years from President John F. Kennedy’s call to put a man on the moon to the moment Neil Armstrong took one giant leap for mankind and six years to develop the Polaris nuclear submarine under the direction of the brilliant if tyrannical Hyman Rickover. It’s true the systems today are more technologically advanced, but is the leap in technology greater from the 1990s to the 2000s than from the 1950s to the 1960s? Or is it something else?

“We don’t have the expertise anymore,” the DARPA contractor says. “Universities are more focused on research than on engineers to build things. This has sucked resources from industry.”

Indeed, in Washington state, where Boeing is headquartered, the governor recently called for a new effort on research and development at the state’s aerospace engineering programs, while saying technical training at junior colleges is sufficient.

If the members of Congress are truly worried about Pentagon outsourcing to foreign companies and the preservation of the industrial base, the issue is far worse than one airplane (the KC-767) that represents only about 3 percent of Boeing’s annual commercial delivery rate. The issue goes to the very root of American technology, engineering and production capabilities.

Scott Hamilton is a consultant with Leeham Co. (www.leeham.net.)