It would be hard to find an aerospace and defense (A&D) thought leader more respected than Norm Augustine. During the past half century, he has worked as a research engineer, a senior Pentagon official, a CEO who was instrumental in the industry's great consolidation during the 1990s, a faculty member at Princeton University and chairman of a national Academies' study on U.S. competitiveness. He holds 23 honorary degrees, and his shrewd business judgments and common sense have been studied by managers in many industries. In an interview in his office outside Washington, Augustine spoke with AW&ST Editor-in-Chief Anthony L. Velocci, Jr., Senior Business Editor Joseph C. Anselmo and Business Editor Madhu Unnikrishnan about where the A&D industry is headed and the many challenges it faces.

AW&ST: When you look back on what has happened to the A&D industry since 1990, did consolidation go too far?

Augustine: Is the structure of the aerospace industry today the best of all worlds? The answer is 'no.' When we began restructuring there were 15 relatively significant aerospace companies, and today that's a much smaller number. But I'd rather have a few strong companies than a whole bunch of weak companies. I think the industry is about as good as it can be. As a buyer, I prefer five competitors, but I can live with two. And if I'm a seller, I don't want to compete against a weak company that's desperate for business. Weak companies do irrational things. They'll bid whatever it takes to win and worry about tomorrow later. They'll always win, the responsible companies will always lose, and the buyers will end up with a mess.

Is the plan unveiled by Defense Secretary Robert Gates in early April to reshape the U.S. military a good thing for the aerospace industry?

Only time will tell. We'll see requirements that are less focused on state-of-the-art. The focus will be on the kind of war we're currently fighting rather than more conventional, strategic wars. High-performance aircraft are a very different issue than trying to find nuclear weapons in the hands of terrorists.

Ballistic missile defense is very different from dealing with pirates. Companies will have to be more focused on finding nuclear weapons and land mines and dealing with pirates, and that will require different kinds of engineers, technologies and programs. And that, in turn, will necessitate a different kind of management structure. It's different to manage a few large, very complex programs than to manage a lot of smaller, less sophisticated programs. The secretary also has a more serious problem. We had a procurement holiday and we never made it up. So we've got systems being used in two wars without buying much to replace them. The Defense Dept. is going to face a huge procurement challenge in the years ahead.

Will we see a greater reliance on commercial technology?

Yes, and I think that's good. If the commercial world has items that will work, by all means use them. Any time the Defense Dept. can get a tie-in with someone who is building 100,000 of something, it will save money.