By Marina Malenic
NEW YORK–A top U.S. defense official said yesterday that the Pentagon’s effort to trim overhead and find other savings is not aimed at cutting defense industry profits.
“A profitable defense industry is in the national interest and we recognize that,” said Ashton Carter, the undersecretary of defense for acquisition, technology and logistics. “The idea that you save money by cutting profit is not only illogical, it’s backwards.”
Carter was speaking at a conference here hosted by Credit Suisse and Aviation Week.
Earlier this year, Defense Secretary Robert Gates announced a department-wide “efficiency initiative” aimed at trimming fat accumulated over several years of massive budget growth. During a speech at the Dwight D. Eisenhower Presidential Library in Abilene, Kan., in May, Gates began outlining his strategy to cut overhead and eliminate middle management positions throughout the department to sustain a slower growth rate in its overall budget (Defense Daily, May 11).
Carter said that the department’s goal is to create incentives for industry to be more efficient, not to punish their suppliers. For example, the Pentagon is creating a “superior supplier” program that would reward those firms that perform best on contracts.
“Profit is the way to incentivize productivity,” he said. “That’s the way we are thinking about it.”
Given the “fiscal difficulties of the nation,” Carter said new weapons programs would have to meet affordability standards early in their development timeline. For example, the projected cost for the Ohio-class submarine replacement effort, or SSBN(X), has been reduced from $7 billion to around $6 billion per copy by studying and simplifying the design. Carter said his goal is to drive the price down by at least another billion dollars.
Further, he said the Army’s new ground combat vehicle, a new presidential helicopter program and a long-range strike “family of systems” for the Air Force would all be studied in the same manner before he even allows the programs to get under way.
Carter also reiterated his criticism of Lockheed Martin‘s [LMT] handling of the F-35 Joint Strike Fighter program. He said new cost estimates of $92 million per airplane–up from $60 million at the program’s outset–are “not going to happen” because “there isn’t going to be any more money.”