Defense industrial base: plans needed to ensure soft landing.

• Author: Farrell, Lawrence P., Jr.
• Position: PRESIDENT'S PERSPECTIVE

Discussions about the impending collision between military needs and resources mostly occur in the context of service priorities. Bur what about the industrial base? What does a future of possibly declining budgets hold for large prime contractors and thousands of lower tier subs that supply piece parts, assemblies, components and subsystems? And what about service providers and, especially, the ammunition sector?

It is probably not too early to contemplate what sectors of the U.S. defense industrial base should brace for a hard landing after the huge war supplemental budgets begin to wane.

The nation's brief industrial base history is rife with examples of the effects of rapidly decreasing budgets driven by shifting priorities. When priorities change, the tendency is for budgets to shift quickly with little regard for what happens to the sectors that are losing business. Most recently, we witnessed the "procurement holiday" of the 90's, which was preceded by a major drawdown. Some of the more noticeable effects have been consolidations, mergers, industry shrinkage and market exit.

In a June 2007 National Defense article, Bill Holmes and Bob Seraphin documented an 80 percent funding reduction for ammunition between 1985 and 1994. "More than 70 percent of the firms that had participated in the manufacture of munitions exited the field, never to return," the authors pointed out. Little consideration was given to the potential effects of this drop and hardly any planning was done, There was virtually no predictability for the industry, and a majority of the firms had little choice but to leave.

In other areas one also sees attrition of critical skills and design teams as fewer acquisition programs are offered. As a result, the potential for competition decreases and the services face a much-reduced competitive environment for subsequent procurements.

The fiscal and political storm clouds are gathering. Sometime in the next several years--maybe sooner than later--U.S, combat duties in Iraq will begin to power down as we transition more to training and stability operations. Given the economic realities and pull from other national budget accounts, there will be a run on the defense supplemental budget and most likely, too, on the baseline budgets. A substantial amount of procurement dollars has been inserted into supplemental budgets in recent years, especially for reset/recap, ammunition and even major platforms. It would not be unreasonable to...