2024 Air, Space & Cyber: Securing the Industrial Base

The “Securing the Industrial Base” panel at AFA’s 2024 Air, Space & Cyber Conference featured Scott Sendmeyer, acting director, Office of Policy, Analysis, and Transition, Office of the Assistant Secretary of Defense for Industrial Base Policy; Liz McNally, deputy director of commercial operations at the Defense Innovation Unit; Col. Michelle K. Idle, deputy commander of Space Systems Command; and Richard Aboulafia, managing director at AeroDynamic Advisory. The panel, held on September 18, was moderated by Doug Birkey, executive director of AFA’s Mitchell Institute. Watch the video below:

Panel Moderator: Doug Birkey, Executive Director, AFA’s Mitchell Institute for Aerospace Studies:

My name is Doug Birkey. I’m the Executive Director of the Mitchell Institute for Aerospace Studies. Whether we seek to deter adversaries, fight, and win, success really depends on the industrial base. And we’re here to explore where we stand on that front. What are the strengths and weaknesses as we look across the landscape. And that’s why I’m glad to be joined by top experts on this issue.

So please welcome me in joining Scott Sinmeyer, acting Director of Policy, Analysis and Transition at the office of the Assistant Secretary of Defense for Industrial Policy. Liz McNally, Deputy Director of Commercial Operations at Defense Innovation Unit, and then Colonel Michelle Idle, Deputy Commander Space Systems Command. And last but not least, Richard Aboulafia, Managing Director at AeroDynamic Advisory. Thanks again for being here.

So, I want to begin this conversation by establishing some context up front, and I’d really like to hear from all of you on this first question. And it’s about industrial based capacity. We often celebrate the notion of America as the arsenal of democracy, and we talk about World War II and the Cold War, and they’re great stories about what we did. It’s an incredible achievement, but a lot of those fundamentals don’t exist today. And for better or worse, we largely offshored much of our production capacity and capabilities. And I think it’s a big mistake to conflate what was with what is.

In China, on the other hand, has invested vast sums in production. And so the question is really how should the reality of these dynamics impact how we think about the US defense industrial base policy decisions and the stewardship of this sector. We’ve got tremendous depth in a variety of perspectives on the panel, so I’d just like to hear from all of you on it.

Scott Sinmeyer:

Happy to go first, Doug, sorry. So I don’t think you can, as Doug mentioned, you can’t overestimate, you can’t overestimate the challenges that we’re facing today, whether it be the friendshoring on-shoring of our supply chains, the retraining and enlargement of our workforce, the lack of capacity in our manufacturing, or even keeping adversaries out of our defense industrial base. Each of those challenges have to be met.

I can tell you from our offices, we stepped off last March or so looking at those challenges and then figuring out what it was that we needed to do to address it. And one of the outcomes of that was the recently published National Defense Industrial Strategy that came out in January and forthcoming very soon and implementation plan that puts that into the works.

But we tried to look at each of those challenges and many others and identify very discrete actions and priorities that we could lay out for the department, but also who we see as the other stakeholders that involved here, whether it be the industry itself, our allies and partners, interagency. We see each of those as critical to solving those challenges.

And what I would say also about that is we are really trying to change the dynamic of the relationship that the department needs, each of those partners. And in the past it’s been very transactional, but it’s really about changing that to, “Hey, we need to do this together.” And we all play a critical role in solving those challenges that face the defense industrial base.

Richard Aboulafia, Managing Director, AeroDynamic Advisory:

Well, no objections. I guess I’ll go next. From my standpoint, I guess all people look at the industrial base immediately break out their new favorite book, which of course is “Freedom’s Forge” by Arthur Herman. It’s like all the smart kids are carrying it around. It must be good and it is good. It’s a really good book, but the more I read it, the more depressed I got because back then the potential for vertical integration and having control over your supply chain and being able to secure all of your vital sources was about a zillion times better than today.

Heck, when my career began in this industry 1980s, it was a lot easier, a lot better. And now you look at the level of globalization and the challenges there and the level of complexity not just within the platforms, but the subsystems and the sub subsystems and the advanced materials being fed in and the complexity of the commercial economy. And you realize this is not freedom’s forge. This is not cranking out Sherman tanks in Michigan. It really is a million times more complex and being able to manage the supply chains and industrial realities we’re just in a… Things have gotten exponentially more complex.

Liz McNally, Deputy Director of Commercial Operation, Defense Innovation Unit:

Well, with that, maybe I’ll share some small examples of what I think what we’re trying to do to help address what exactly my two colleagues shared. So DIU is the organization within the Defense Department focused on bringing commercial and dual use technologies into enable the warfighter. So that’s sort of the lens that I take to look at the much broader industrial base challenges that we have. But that’s the lens that I have been looking at.

And so I think part of some examples of what we’re trying to do to help address this is looking within that of are there areas where, quite frankly, there’s ones like drones where we took our eye off the ball as we all know, but how are we now addressing that? So we have Blue UAS you may have heard of, but we’re trying to help create cleared lists and continue to grow that capability within the United States as well.

And also looking at other, again, within this commercial dual use, there’s examples where we have been launching our CSOs, our commercial solutions openings in areas where we know we need to build that in the US, whether it’s batteries or I guess more apropos to where we are today, electronic vertical takeoff and lift, those sorts of things where we’re trying to use that as well to really seed that to rebuild that here at home in the United States as well.

So there’s certainly a tremendous amount that we have to do and it’s going to take all of us and many more to address that.

Another one that we’re quite excited, that we’re in the exploratory phase around blue manufacturing and how similar to the Blue UAS, but are we going to as well be able to help identify pre-vetted places, pre-vetted capabilities, we’re going to be able to then more quickly build and do that across industries and between the manufacturers as well as those that designed it.

Colonel Michelle Idle:

Well, I was either going to be first or last, so thank you all. Industrial base us absolutely foundational for fourth generation, which is what we’re charged to do as members of the military. So we do have to get after it, Doug, as you mentioned, to make sure that we have control over what we can to build up that industrial base. We know where our supply chains are coming from. We have the resiliency there. We don’t have single source or vendor lock in certain places.

We at Space Systems Command have a couple of things that we’re going after, and I actually want to thank you for all the different studies. DIU just did a state of the space industrial base, I think it was the fifth one came out this last December, the strategy on industrial base, the national defense industrial base, and the [inaudible 00:07:30]. We’re waiting, it’ll be great. You’re going to tell us what we have to do, that’s easier.

So some of the things that we’re trying to get after, we have an organization called the Space Systems Integration Office, and they’re chartered actually Dr. Leon works directly for Mr. Calvelli who’s the space SAE. So she’s chartered to look across the entire space acquisition enterprise. And under that office we’re getting ready to team up with SQ to take a look at from a space perspective, where are some of our gaps and things that we could do differently with regard to shoring up that space industrial base.

Are we providing this transparency we need to the contractors so that they can be prepared for buying what they need? Are we leveraging our new commercial strategies and actually rolling our commercial partners in and taking advantage of things that they’re developing? Are we building the workforce that we need and not just the scientist and technical folks there, but also the folks that are actually going to put our products together.

And on top of that, even more so is the cybersecurity piece. As we start to build more modular systems and we’re going to put things together, how are they secure? Are we getting after what we want to?

And then finally, some of the universities and then the allies. We had a couple of great wins with our allies lately. We had EPSR just launched on a Norwegian communications satellite out of Vandenberg, and we have two payloads on Japan’s QZSS. We’re starting to figure out how to leverage our allies now we got to make sure we’re leveraging, clearly we’re leveraging their supply chains by using their equipment. How do we keep that ball rolling?

Panel Moderator: Doug Birkey:

I appreciate that level set for all of us, kind of a foundation. I think one of the key elements though is to really define what we’re talking about. And Richard, I want to kick this one your way. Industrial base isn’t just one thing. There are various components of it. There are various tiers to it. Can you lay out the paradigm for us?

Richard Aboulafia:

Yeah, sure. In a couple of minutes or less, I promise. First at the top, you’ve got the charismatic megafauna, the legacy primes, your Lockmarts, your Northrop Grumman, your Bellings. Everyone knows about that. Then of course you’ve got the major subsystems companies, RTX, the GEs, Honeywells, whoever else, and that can be international. That’s the part of the industry that really crosses borders most like Safran, Rolls-Royce, whoever else.

Then you’ve got the newcomers, and that’s a fascinating new addition to the taxonomy we used to look at. It was like, “Wow, well, I guess we’ve got General Atomics. They’ve joined over the last couple of decades,” and a decade later, “Oh, General Atomics joined, Barrier Sentry must be coming down and now you’ve got this amazing proliferation, a fascinating companies like our hosts and certainly Anderil and Palantir and whoever else that are really, I hope contributing a lot.

They’re bringing a lot of new investor capital, which is very welcome. That’s certainly good news. Hopefully innovation and maybe even new approaches to manufacturing, I hope, but a lot of risk too.

And then there’s everything else, the second and third tier suppliers, and I’m sort of looking warily and nervously because that’s really where the problem is. That’s the limiting factor, and it’s not a fault of their own. There are many dynamics in play right now that it really impacted these folks at so many different levels, particularly castings and forgings, titanium milled product, all this other stuff. You look at the megatrends, this is the first simultaneous civil and military aerospace uptick we’ve seen since my career began. That’s a complicating factor. We’ve just been through the horror that was the pandemic and the factory shutdowns. You’ve got some real debt issues in these smaller companies. And then on top of that, they tend to be a bit more capital intensive than others.

So when we look at the industrial base, and I expect many of you know this, it’s really in that second and third tier that you’ve got the limiting factors.

Panel Moderator: Doug Birkey:

I really appreciate that. Scott, I want to turn to you. Secretary Rumsfeld famously said, “You go to war with the military you’ve got,” and really the reason behind that is by the time the department starts thinking about requirements, puts together a budget, goes to Congress, Congress passes it, then you send the funds out and something rolls off production line, that’s like five years. It’s crazy.

In 2020s, that was really set up to be the decade for everybody to get healthy. Certainly the Air Force and the Space Force were pivoted that way. A lot of risk taken in prior decades, and yet now we’ve got defense caps that are limiting our ability to execute much of that plan. And so this notion of stability is getting interrupted, and we’re on a marathon here, not a sprint to get healthy. How do you work this challenge? It’s very difficult.

Scott Sinmeyer:

You hit the nail on the head. Although Secretary Rumsfeld’s comment wasn’t welcomed necessarily, he wasn’t wrong. The department’s responsible for providing capability at speed and cost to our warfighters to meet our national security challenges. And we’ve identified continuously both at our level, but also we hear from industry. The coin that we often hear from is, “We can meet your demand, give us the contract.” Well, that means we’ve got to have budget to do that. And we’ve really been pressing at our level trying to flatten out that trough and peak of that predictability of what the demands are and how do we flatten that out? How do we maintain capacity, especially at the sub-tier levels, whether that’s introducing more that rely on their commercial base revenue vice defense, and then they can reenter the defense market when needed.

But at the same time, as I mentioned in the strategy earlier, we’re really looking at trying to find more flexible acquisition pathways that allow us to enable entrants to enter and leave the market very easily.

How do we attract them? How do we lower qualification costs? How do we potentially reduce the requirements on them in terms of what the specifications are, what the qualification standards are, what the cybersecurity requirements are for them to be able to support that?

And then we also heard the idea of trying to attract greater investment into the defense industrial base. So next week even our ASD is having a roundtable with a bunch of venture capital private equity, and they’re looking for opportunities to try and help us prime that pump when it comes to innovation and how we can speed those new capabilities to the warfighter much more quickly.

Panel Moderator: Doug Birkey:

No, I appreciate that. Michelle, I want to turn to you. If you’re really to ask any person on the street, we’re a bright spot in the aerospace production sector might be an innovation. They’re probably going to talk about space. Just look what happened in recent days with the first commercial space walk. It’s very, very public right now and we see tons of activity, whether they be established firms that have been with us for decades or new starts and new entrants that are a lot of energy.

If you were to look at the industrial base that you want in five years, give us a picture. What would you like to see for the attributes and the players?

Colonel Michelle Idle:

I think you hit the nail on the head there again. So space is an amazing place. If you go back over the last two decades, it’s been growth almost every single year. 8% I think in 2022, 6.5 in 2023, there’s an estimate that the space and economy will actually triple by 2035, which is like tomorrow, right? Because already 2024. And that’s an unbelievable amount of money.

Also been noted that the biggest investors in the space industry are not the space companies. They’re actually the Fortune 500 companies. And so that tells you a lot about the health, I think of the sector, and that’s all good news from where I sit from an industrial based standpoint. Those companies are putting some money in because they’re leveraging that technology and they’re taking it to go do other things.

I always think back to where do we get Tang from? It was at NASA. Maybe not the best analogy, but we’ve got things we can dual use or leverage in other places. So that’s a really exciting thing about space.

So in five years, I’m going to pair it some of the stuff I just heard, right? Bureaucracy, we hear from companies they really want to be in this, but we’ve made it hard. So in five years have we made it easier? And industry’s going to tell us if we get that right or not. Are we providing the right financial tools to help them get into the market and stay in the market, get through that valley of death? Again, they’re going to tell us that we should be able to tell Have we improved the resiliency of our supply chains? Are there places where we do have single vendors or are we vendor locked? Are we relying on our allies again for parts that they actually already have?

Same thing for the defense industry. Have I maybe cut back on the exquisite one-offs that I’m building because industry is already doing it, and how am I leveraging what they’re getting after.

Recruiting and retention, again, those are numbers I ought to be able to go after. How do we get people excited to work in space? Maybe we don’t have to if we keep doing commercial spacewalks, maybe that needs to be a job perk people need to negotiate when they take a job. I’ll take it if I can do that, but I think there’s some very clear markers that we can go after to say, “Yes, we’re doing better.” And if we don’t do better, we’re not going to be ready for that fight.

Panel Moderator: Doug Birkey:

Now, sign me up for the spacewalk. Don’t forget me.

Scott Sinmeyer:

Me too.

Panel Moderator: Doug Birkey:

Liz, I want to turn to you. In the past in the industrial age, you would have big kind of bow waves of modernization. We bought tons of KC-135 and then they flew for decades and decades and they’re still flying. And there were some spotty upgrades occasionally over time, but largely it’s the asset that we bought in the ’50s and ’60s.

Now that we’re in the information age, the notion of tech refresh has to be way more sustained, regularized and agile, and you are really in charge with working with those players and trying to bring them aboard. Talk to us about that challenge and how we’re trying to evolve the system.

Liz McNally:

Yeah, absolutely. It’s a great question. I think at DIU, we’re quite proud of the fact 87% of the companies that we have prototyped contracts with are non-traditional, 38% first-time DoD with DoD as well, just to give a sense of who we’re working with.

And I think there’s a number of different things that we have to do to get after it. So the way DIU works is we work with a mission partner, Michelle and her organization as example is a mission partner we work with and we craft a problem statement that we then put, we open up a CSO for companies to apply to.

And one of the things in terms of how we craft that problem statement is so that there is built-in flexibility to it. Because we know to your point that we can’t lock things in. We need them to be agile. We need interoperable, modular, open source. All of the buzzwords that quite frankly is how the commercial industry works. We build that into the prototype contracts so that we’re able to continue to iterate as we go with them. So I think that’s one big part of it and it’s a fundamentally different way of looking at and working with.

Another example, I was talking about batteries before, but just to further that and how we do this more at scale and more efficiently. So one of the things that we realized as we started getting deeper into batteries a number of years ago, the military buys a lot of batteries, but a lot of them are very specific in terms of what battery is needed for every single thing. Well, at the same time, the commercial sector is having all of these advances in batteries, but for the military to really take advantage of that, we have to build a more standardized approach to how we use batteries in the military because these commercial providers aren’t going to continue to buy the one-eaches. And then those one-eaches are also extremely expensive because we’re buying one-eaches.

So, there’s an effort that we have been working on, which is around how do you build a family of standardized batteries? Well then that also requires working with all the different program offices and what have you to make sure that those work, but we have to think in a different way, quite frankly, so that we’re going to be able to bring the cost down, take advantage of what’s going on in the commercial sector.

So those are a few different examples of, I think, how we’re trying to get after it.

Panel Moderator: Doug Birkey:

No, that’s so important. Really appreciate that.

Scott, I want to talk about elasticity. We all have read headlines largely prompted by Ukraine where people are mystified that you can’t just hit a switch and all of a sudden get mass quantities of things instantly, and it’s obviously complex, but some people don’t think so. How do we get back to an industrial base and how do we craft one where there is more elasticity knowing that it will always be complex, but are there things we can do better to really help give us that surge capacity in the time of need?

Scott Sinmeyer:

Yeah, there’s a lot of things actually, and I’ll start by saying is we got to understand the defense industrial base better, and the department and many of our commercial contracts out there are looking at those data analytics and trying to fully map down through our supply chains to fully understand and to find out where we have capacity at, where are we at those single-source problem, those choke points, and how do we alleviate those?

So that was the first step that we also, in conjunction with the strategy, we really started looking hard at the defense industrial base from a mapping the supply chain. And there’s a pretty comprehensive effort ongoing throughout the department to try and figure out what’s the requirement for us, what’s the requirement for the commercial vendors that do that of supply chain mapping.

Then also industry itself, what requirements do we need to levy on them to fully understand? Because the deeper you get, the more gray, the less confidence we have in our data and understanding what it really looks like. So that’s the first part is to understand it, to know where we need to kind of reinforce it or back it up.

I think the other part is we’ve seen just in our initial scrub of the data analytics, it’s somewhere between a 20 and 40% reduction in the defense industrial base in the last five to 10 years, depending on which data set you’re looking at and how far down in the supply chain.

But, yeah, some were lost because of merger and acquisition and some went out of business, but most of them just left and they’re no longer providing things to the defense industrial base. So that latent capacity that’s out there, we got to know where it’s at, when we need to leverage it and make sure that they have been pre-qualified, are prepared to qualify at time of need.

And then lastly, I would say, and it’s the other part, my sister organization in policy analysis, Transition and Industrial Base Resilience is how do we invest and where do we invest vise where industry is investing? And right now we’re looking way up in the supply chains. What are the raw materials and processing that’s needed by the DIB that is predominantly right now provided by our adversaries? China has a monopoly on the market on many of the strategic critical materials, especially when it comes to processing.

So how do we bring that capability back, at least to be able to provide it at time of need or at time of crisis? Do we need to fully go domestic on that? Absolutely not. There’s a need both for our economy and for us to be good stewards of taxpayers dollars, low cost, but at the same time, we can’t be at their mercy at time of need. So that’s the other part is really looking at those investments.

A couple examples, 75 million recently looking into a munitions campus that would allow small and unqualified vendors to come and use the expertise of the Department of Industry and be able to do those qualification studies and requirements needed that they can’t afford to do on their own. The capital expenditure is just too great.

The other one is over $275 million being invested in the last two years in, like I said before, mining processing capability in the defense industrial base to reinforce it.

Panel Moderator: Doug Birkey:

Yeah, that’s really important. So Michelle, I want to turn to you. When we talk about the space environment right now, you talk about something evolving fast, given it’s now domain under threat. We were having to re-architect almost everything up there, and so there are tremendous near-term pressures that we’ve got to respond to yesterday.

Yet, on the other hand, we’re looking at missions that are very, very hard and we need to begin now because we might need something in 10, 15 years. I’ll put cislunar space out there. That is really tough stuff and we’re not going to have a solution tomorrow, but we better begin. How do you look at balancing these near-term pressures versus longer-term given cash is tight and we only have so many manpower folks?

Colonel Michelle Idle:

So that’s a great question. Some of you may have heard yesterday when Air Marshal Godfrey talked a little bit about our Space Futures Command. So that’s actually one of the ways that we’re going to be getting after that. Space Futures Command is chartered to help us build out what that objective force actually looks like, and they’re going to help us define what our near and long-term requirements actually are from the concepts and technology.

So where we’re doing some of that experimentation and figuring out, is this a tech that’s going to going to be able to leverage as we move forward to the Space Warfighting and Analysis Center, which is going to actually build out that force and model it for us and say, “Hey, Space Force and the rest of the space acquisition enterprise, this is where you need to be investing as far as capability going forward.” And they’ll war game that out.

And so we’re going to have some folks, really smart folks that are going to be able to inform our decisions about how we’re investing.

We’re also leveraging a tool called the Systems Warfighting and Acquisition Navigator, SWAN, and SWAN is actually built to help us close our mission threads from tip to tail there. What do I really need to execute that campaign and what am I missing? What are my gaps? And it’s going to tell us again, where do we need to do that investment, that’s going to help us balance that limited funding that we have to actually get after the things that we need for that fight.

You heard the secretary talk about 2027, General Miller’s charged us with what kit we can deliver by 2026, but we know we can’t lose sight of what’s next. Anything we develop for that upcoming fight is going to be built on for the longer term. So there’s a step there, but we also know we’ve got to be working in parallel for the longer term pieces.

With regard to cislunar. That is very much a research and development place. I don’t know what we’re going to get out of that yet, but we are going to go there. We know we’re going to go there. If we don’t go as a Department of Defense, commercial is going to go there, industry’s going to get there, they’re going to check it out. And we need to, because otherwise China’s going to go first. What we can get out of there from a space domain awareness, a communication, a P&T type perspective, we just don’t know yet. And all that will help, I think, drive some innovation in our industrial base as we try to tackle that next frontier.

So those are some of the things that we’re trying to do to make sure that we’re looking ahead and balancing again, that limited funding that we do have.

Panel Moderator: Doug Birkey:

Yeah, it’s exciting. Challenging but exciting.

So, Liz, question for you. Okay, so anybody that’s dealt with the government, it is scary. The bureaucracy, the red tape is a little difficult. The speed of cash can be difficult. How do you work with new entrants and innovators that you’re trying to on-ramp? How do you encourage them and help them get through that because daunting?

Liz McNally:

It is daunting for sure. Yeah, and by way of background, I am wearing Air Force Blue today, but I was in the Army for eight years and then was in the private sector for 15 and recently rejoined five months ago. So I feel like I it in my bones as well as I come back in as well.

No, I think we’re, in addition to working with the companies as I was talking about that are already on contract with us, a huge part of what DIU is doing in conjunction with AFWERX and SpaceWERX and many other innovation organizations across the department, it’s how are we really being that on-ramp for companies? Because going back to what you’re saying, balancing the near-term and the longer-term, we still need to attract in new talent, new companies as well to want to work with the department, especially given the pace of what’s going on on the commercial side.

So, I think we’re doing everything from, we have a regional network of individuals across the country who are working with universities, with early-stage startups, with innovation labs and ecosystems, all of that. We have on-ramp hubs, so physical hubs as well across the country where companies can come in and work with us, provide coaching, mentorship, transition, support, all of those different things. There’s always tremendous more to do, but that is a huge effort that we have and that we’re hearing and talking to both within the department, with Congress, et cetera, to make the department easier and accessible to work with. So that’s sort of going on to generate the supply, if you will.

And then as I was mentioning, our CSO process as an example as well, I think we’re really proud of the work that we have been doing using that process to make it as easy as possible to start working with the Department of Defense.

So that CSO process, it’s quick, you apply and you just need a five-page white paper or a twenty-page slide deck, and it’s really meant to lower the barriers to entry for a company. And that’s how you get the stats that we have gotten.

Now, there’s still a lot of work and we’re continuing to be more sophisticated as well, working in close conjunction with the services as well to ensure that if and when those prototypes are successful, there is a program office or a budget or something else on the other hand to catch them. And that’s a journey I think that we’re all on together.

Panel Moderator: Doug Birkey:

No, that’s great.

So Richard, you gave us a great rundown, kind of the paradigm to think about when we talk about the industrial base, but you really hit the challenge of the suppliers and now I want to pull that thread more. COVID was a very, very difficult time for these folks to get through. There’s this massive surge in demand right now. It’s just very tough sledding for, in many cases, with our mom-and-pop shops. Can you help explain that a little bit more?

Richard Aboulafia:

Yeah, I spent a couple of weeks in the American Midwest recently visiting a whole bunch of those, and you really hear how hard it’s been. Looking back, a lot of them have spent a great deal of working capital doing the production ramp on the commercial world in the 2010s, and then came the Boeing 737 Max shut down, seizing. Then came the factory closures and the whole system seizing up as a consequence of the pandemic. And everyone thought, “Oh, this’ll take years before we have a recovery.” So they fired everybody, loaded up on debt and sold off everything that they could sell off, and now they’re trying to find the working capital to come back.

Meanwhile, the primes of the commercial world, out of the benevolence of their heart have decided to make payment terms between 120 days and worse. There’s one company, I won’t mention it, but it’s big and it’s exhibiting, and they have moved to 180 days. That’s half a year for a lot of these small second and third tier companies, again, capital intensive, trying to get back and retain talent and get the working capital need to do these ambitious production ramps. This is really awful. This is God-awful.

I would argue that one of the most successful levers that DoD pulled during the pandemic was the accelerated payment programs. I speak to so many people who run these mom-and-pop and bigger, 50 a hundred million dollar operations who were just… They light a candle for that. It really, really helped save the day.

And think about where we are now. We’re in an inflate, well, we’ve come out of an inflationary environment, interest rates are coming down, but you know what? Debt service loans are still pretty high and people still have lots of debt and they haven’t been able to make the investments they need to do the production ramp. So, we’re really not out of the woods by any means. It’s been a long, long road, and again, we’re not quite there yet.

Panel Moderator: Doug Birkey:

I appreciate that. And again, it just goes back to this point where all of a sudden we want more airplanes, civil aerospace wants more airplanes. It’s not the final assembly line that’s necessarily the challenge. It’s these suppliers and it’s speed of money.

Richard Aboulafia:

Exactly.

Panel Moderator: Doug Birkey:

Think about interest rates right now and the cost of cash and significant.

Scott and Liz, can you guys explain a little bit the supplier issue from your perspectives?

Liz McNally:

Sure. I think a few things with regard to the non-traditional from the supplier perspective. Number one, again, going back to the non-traditionals in particular, as we start to work with them, helping them build visibility of not just their supply chain underneath, but also their investors. We’re working with a lot of venture-backed companies as well.

So first it’s even just building diligence and helping them have the transparency and understanding of all of that. So we’re really thinking all the way in where is the money and where are the supplies coming from with regard to that.

Two other areas that we’re thinking more about as well from the supply chain perspective is what are the other macroeconomic forces, especially as you think about whether it’s critical minerals or other critical parts that you’re going to need to use with this, and really thinking in terms of as geopolitics change, as regulations, all of those change, what are the impacts of that on these companies as we start to think of it?

And then the other maybe brighter spot that we’re really building to. I think there’s a lot of excitement within DIU and others. I’ve talked to many different people even just here today with regard to this blue manufacturing vision that we’re really starting to still sketch out in terms of how we’re going to be able to help there.

But I think a lot of, I was also at Reindustrialize in June in Detroit, I don’t know if any of you were there, but there’s so much innovation happening within manufacturing as well. So I do think as we continue to think about whether it’s parts or the manufacturing of the future, it’s not building more of what we have. How are we taking advantage of all of the changes happening in manufacturing as well, both within for defense, but also on the commercial side and thinking about manufacturing in a totally different way.

And again, how are we thinking about having these pre-vetted and cleared facilities that will be able to then be that scale? And I was telling Michelle, I was at SpaceX last week as well, Jamie, just as an example, but you think about a lot of different companies, they’re just one of an example, but I think they’ve also then had many others and their philosophy has permeated as well, but thinking about manufacturing differently.

So I do think that as we continue to address all of these issues, it’s understanding what the state is today, but thinking that how we’re going to get there is not what we have today, we’re going to build it in a very different way.

Doug Birkey:

Appreciate that. Scott?

Scott Sinmeyer:

Yeah, I’ll dovetail on some of those, and I think some of my answers in my previous answers also kind of addressed some of these, but a few other things is especially when it comes to the nontraditional and small business, one of our other sister organizations in industry base policy is the Office of Small Business Programs. So really trying to identify and then enable those small businesses to become participants in the DIB is critical to that.

The other side of it, I’d say is we’re doing a lot of work and a lot of this is actually done by the services in terms of developing the workforce, the amount of programs that the department itself is running right now to try and develop out that workforce to support the manufacturing. I’m sure all of you have seen the submarine, industrial base commercials. It is having an impact. We are running welding programs of advanced welding to get that type of capability where we have those gaps back into the industrial base, but also understanding that we want to make sure that we’re providing mobility in the industrial base, and that’s in terms of either, we need to be able to move the work to the worker, or we got to move the worker to the work.

And thinking about it in new ways that we haven’t thought about in the past, especially in the subs, really, really… Everyone thinks, “Oh, well, we got to build them on the coast.” Well, if SpaceX can build a rocket in multiple places across the country and move it to Texas to launch, we can build submarines in multiple places across the country and move it to the coastlines to launch the submarines.

The last thing I’ll add is I mentioned earlier some flexible acquisition pathways similar to DIU. We recently opened up an other transaction authority called the Defense Industrial Base Consortium. Similar sort of thing, easy entry. You can bring proposals in low requirement to submit those proposals. We evaluate them, oftentimes just put them on the shelf when funding becomes available. And so it’s an easy way for them to bring innovation or capabilities that they aren’t currently involved with into the defense industrial base.

Doug Birkey:

That’s awesome. And you can’t watch a Major League baseball game right now without seeing one of those submarine commercials. And we’ve done it before. World War II, they were built in Manitowoc, Wisconsin, floated through downtown Chicago through the lock system and down the Mississippi. This can be done in various ways. In many ways it’s back to the future and it’s exciting to hear you talk about that.

I hope we get that kind of energy on air and space production because it’s pretty bleak in many ways, and we need that attention and public awareness. So hats off to the submarine guys who are doing that. We need it on our side.

So last question here, kind of lightning round for everybody. If we were to meet at this conference in five years, what do you think some of the top goals are that we should have met, and what are the indicators we should be watching between now and then to know whether we’re getting there?

Scott, let’s start with you.

Scott Sinmeyer:

Sure. I would start by saying we have a larger defense industrial base just writ large, that 20 to 40% that’s departed, they’ve returned, or at least we understand where that capacity exists in the defense industrial base.

For me personally, I would say I hope to have to be rewriting a strategy because we’ve accomplished many of the things that we just published back in January and we laid out a comprehensive plan of how we got there. And now we’re trying to face new challenges that we’re not able to face right now, or we’re trying to reinforce what we’ve already done and really bulk up that ecosystem of the defense industrial base.

Richard Aboulafia:

I’ll pick up on a point that was raised, I believe earlier in the panel about geopolitical risk because obviously that’s the big variable here. And there are certainly parts of the defense industrial base that are, shall we say, more challenged in ramping up because of that, such as a titanium milled product, castings and forages related to that. That’s a real issue.

But everything else, I kind of believe that, yeah, we are simply going to be able to meet the challenge and we’re going to have less of a feeling of crisis. And what are the indicators to watch for? Let’s get to 156 F-35s per year, can’t we do this one simple thing, and a bunch of other stuff, 8 B-21s a month. Let’s just watch the traditional indicators of output, 15 flawless KC-46s, whatever it takes. It would be really great, and I think we’ll get there.

Liz McNally:

Five years from now, one thing that I think a lot about, and I served in uniform when Secretary Rumsfeld made that famous quote, but I also remember the urgency with which the military changed during the Iraq war and the MRAPs or what have you, and what I’m really hoping that over the next five years we’re able to harness that urgency without the war actually happening. How are we able to harness the wartime urgency that we all know that when the war is there, that urgency happens and it all takes off? And how are all of us, with all of you and everyone else, able to create that urgency and move with that urgency and speed to deter?

Colonel Michelle Idle:

So I’ll jump on that one. What have we learned from Ukraine with regard to use of commercial technology? So for us in five years, again, what are we doing differently? Have we fully implemented our commercial space strategies? Are we taking advantage of what industry is doing? Do we have that stronger workforce? There’s going to be some pretty clear indicators that we’re moving forward, and I think everybody in our industry is motivated to do that. We just got to make sure we get out of our own way.

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