Perceptions of Defense Sector Undermine Financial Health.

• Author: Book, Elizabeth G.

Under ever-growing scrutiny from Wall Street, the defense sector needs to improve its financial health by speeding up the glacial pace of reform and investment, executives from government and industry told a recent conference in Washington, D.C.

"We need to reduce cycle times, slash bureaucracies and restore the operational and financial strength to our defense industrial base ... to enable that base to better respond to the needs of the armed services," said Darleen Druyun, principal deputy assistant secretary of the Air Force for acquisition and management. Druyun made her comments at the Defense Reform 2001 conference and exhibition, sponsored by the American Association of Aeronautics and Astronautics (AIAA).

The time to act is now, said Vance Coffman, chief executive officer of Lockheed Martin Corporation, headquartered in Bethesda, Md. "The tectonic plates within the defense community are shifting. We know that there will be decisions made within the next few months that could well determine nor just the health of the defense industry, but also the ability of the United States armed services ... to carry out their missions well into the next century," Coffman said.

Future decisions on force modernization and weapon systems procurement by Defense Secretary Donald H. Rumsfeld will have a dramatic effect on the financial viability of the defense industrial, officials said at the conference.

Changes to the current defense acquisition processes were not mentioned as priorities in the Bush budget proposal, but they were discussed in-depth at the conference as potential solutions to the stagnant defense market. "The current system of financing and paying for weapons systems is inefficient and wasteful," Druyun said.

According to Harry Stonecipher, president and chief operating officer of Boeing, headquartered in Seattle, Wash., an inefficient procurement environment has rendered defense a "no-growth" industry.

"The defense industry has a growth rate of 4 percent to 6 percent a year. Essentially, we are trapped in a no-growth industry, which we prefer, because it indicates peace," he said. In order to modernize the military and make the defense industry more vibrant, Stonecipher recommended the adoption of public-private partnerships, "halting the turbulence" of the acquisition process, implementing best-value procurement, and streamlining export control policies.

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