Every sector of the defense industrial base has been hit by a decline in contracts first from the military drawdown from lengthy wars in the Middle East and Asia and a second jab from Congress with the Budget Control Act of 2011.
The decline in contract obligations within 11 sectors ranged from a 76 percent decline for land vehicles to the relatively unscathed aircraft portfolio that declined only about 8 percent during the same period, according to a comprehensive study of the industrial base by the Center for Strategic and International Studies.
Photo: Lockheed Martin.
“All sectors of the defense industrial base saw declines in contract obligations as a result of the defense drawdown and/or the Budget Control Act, but the impacts were uneven across different sectors of the industrial base,” said Rhys McCormick, an associate fellow at CSIS who led the study.
Land vehicles suffered the worst of all sectors, with an initial decline of 46 percent in contracts at the outset of the military drawdown period beginning in 2009. The same sector then lost another 56 percent decline since the Budget Control Act of 2011, according to the study.
Most of the other sectors experienced between 15 and 20 percent of contracts obligations disappearing in between 2009 and 2016. Some of the sectors, notably aircraft manufacturing and shipbuilding, initially experienced a growth trend only to plummet after passage of the BCA caps.
Former Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L) Frank Kendall lamented the plummeting research and development accounts underpinning modernization in the various defense industrial sectors.
“The reality is that the Defense Department does not exist for the purpose of taking care of the industrial base,” Kendall said. “It’s the other way around. What the Department of Defense has to do is ensure, to the extent that it can while doing its mission, that there is a healthy industrial base to support it.”
“It is a mistake, fundamentally, to take the industrial base for granted,” Kendall added. “It is not a given that people will be in the business of buying things at the Defense Department.”
With fewer contracts coming down from the Pentagon, a significant number of vendors were pushed out of the defense sector, the study shows. The number of overall vendors doing business with the Pentagon declined almost 20 percent since 2009.
John Luddy, vice president for national security policy at the Aerospace Industries Association (AIA), said “the information [brought to light by the study] is certainly challenging and in some places grim.”
Overall, there were about 17,000 fewer vendors in the defense market in 2016 than there were in 2009. The single largest decline of prime vendors occurred in the land vehicles sector. That decline is attributable to the Army’s recent history of declining modernization and research development budgets coupled with a lack of major vehicle procurement programs.
“The land vehicles sector suffered a serious decline because of sequestration and lost almost a third of its vendors,” McCormick said. “This sector is the most vulnerable of major sectors in the industrial base and will remain so until funding for Army modernization recovers.”
The Trump administration is conducting an industrial base review that is on track for delivery in April, according to Eric Chewning, deputy assistant secretary of defense for manufacturing and industrial base policy. Chewning said his office is working with AIA and the National Defense Industrial Association on an industry outreach effort.
“I expect this won’t just be a one-time exercise,” he said. “To do it right, you’ve got to initially start the dialogue and the frame around what we need to do with the industrial base. There will be a set of recommendations that come out of this and we need to see those recommendations through.”