Some industry veterans who attended Aviation Week’s recent Defense Technologies and Requirements (DTAR) conference in Washington must have experienced more than just a mild sense of déjà vu. About 300 attendees heard senior Defense Department officials, such as Pentagon acquisition czar Frank Kendall, discuss the implications of President Obama’s proposed 2013 budget for suppliers.
The presentations were reminiscent of the period just before the start of the Great Consolidation in the early 1990s, when the Soviet Union collapsed. That’s when the captains of aerospace/defense were informed that the inevitable contraction in U.S. military spending would be unable to support all of their businesses, and they might want to consider "getting together."
Faced with the certainty of cuts of $487-billion over the next 10 years and the potential for double that amount, at least theoretically, if sequestration is allowed to kick in January, there was no masking the anxiety that many conference goers showed. To put an exclamation point on the backdrop to DTAR, Kendall stated at the top of the program: “We have no choice but to change the way we do business. Reality is hitting us smack in the face.” As if to drive the point home, he added, “I am desperately hoping sequestration doesn’t happen.”
So do we. But there is at least a 50-50 chance that the automatic cuts that sequestration will trigger will be allowed to take effect, at least initially. Personally, I believe the smart money will be on the likelihood that more rational heads will prevail and the defense enterprise will be spared an additional half a billion dollars in additional cuts.
That is not to say industry should not take Kendall at his word—the Defense Department really is at the point where they need to change the way it does business. And the same goes for defense contractors. If both sides fail to manage the drawdown that is coming—and that includes working closer together than they ever had—the experience could turn out to be even more painful than what the industry endured through the 1990s.