Bill Lynn, chairman and CEO of Finmeccanica‘s U.S. subsidiary DRS Technologies, sees the United States moving into the “fourth defense industrial base era,” one marked by additional consolidation and globalization.
Lynn, a former deputy defense secretary, said the defense industry is moving down the same path as the U.S. auto industry in the late 1970s and early ’80s, when it was once considered unpatriotic to drive a foreign-made car. Now, Lynn said, the auto industry has globalized so much that much of Japanese cars are made in the United States.
“The nameplate…in the auto industry…has become less important,” Lynn told an audience at the Atlantic Council think tank in downtown Washington, referring to Honda [HMC] representing Japan or Ford Motor Company [F] representing the United States. “International companies have international production bases and I think this is the kind of path the defense industry is going to have to go down.”
With defense spending beginning to decline, Lynn said industry needs to take a frank look at greater consolidation, which he called controversial both inside the Pentagon and in industry. Lynn said if there is consolidation without globalization there will be “trouble” for the Defense Department to get competition for programs. Lynn said only four percent of the Navy’s ships, in tonnage, is actually competed.
With globalization and consolidation, Lynn said there may only be one U.S. supplier, but it’s a supplier with a global supply chain, bringing better technology at a better price.
“Not all the best technology is U.S.,” Lynn said. “If we’re going to compete, we need to take advantage of worldwide technology, not just U.S.”
The domestic defense industry should not fight globalization, Lynn said, because of possible growth in international markets. Accordingly, if major contractors expect to have those international markets open, Lynn said they need to allow some access to their markets in the United States.
Lynn suggested industry worry less about competition in platform areas like jets and focus more on competition in other areas like robotics, vehicles, missiles, electronics and communications. This is not only a fact of life, Lynn said, but where the future is headed.