U.S. has let defense industry demise go too far, local owner says

Credit: DaytonDailyNews

Kettering defense contractor watching White House stance on defense parts outsourcing

Credit: DaytonDailyNews

“To me, it’s always been an issue that we’ve let so much of our industry go.”

When Rick Little met presidential candidate Donald Trump at a campaign stop in Dayton last September, Little brought up his concern about the shrinking U.S. defense industrial base.

“To me, it’s always been an issue that we’ve let so much of our industry go,” said Little, president of Starwin Industries in Kettering that makes parts to keep aging military jets flying.

President Trump, who aggressively campaigned in the Midwest manufacturing belt railing against U.S. trade policy and a loss of U.S. factory jobs, signed an executive order last month to assess the nation’s defense industrial base, including manufacturing capacity and workforce development skill gaps.

White House officials said the assessment, due in 270 days since Trump signed the order, was a “whole-of-government” review involving the departments of Defense, Labor, Commerce, Energy and others to assess the health of manufacturing and the defense industrial base, and the most comprehensive look since the Eisenhower administration.

Since 2001, the U.S. has lost more than 60,000 factories and five million manufacturing jobs, according to Peter Navarro, director of the White House Office of Trade and Manufacturing Policy.

“Certain types of military-grade semiconductors and printed circuit boards have become endangered species,” Navarro told reporters in a recent briefing. “Flat panel displays for aircraft and the processing of rare earth elements have left our shores entirely.”

EXCLUSIVE: Top Air Force general says ‘all programs are at risk’

‘Pulling out of a tailspin’

Now is “exactly the right time” for the defense and manufacturing study after sequestration-imposed spending reductions, said Andrew Hunter, director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies in Washington, D.C.

“We are just now pulling out of a tailspin, nose dive called sequestration which wreaked havoc on defense spending in general, but in particular wreaked havoc on the spending that Department of Defense does with its industrial base,” Hunter said.

Defense contract obligations reached a peak at $442 billion in 2008, which declined to $278 billion in 2015, or a drop of more than a third as judged in constant 2016 dollars, according to Hunter.

“Industry has borne a disproportionate share of the Department of Defense and that is obviously alarming if you care about the industrial base,” he added.

Defense experts cited concerns about finding skilled workers, potential vulnerabilities in the supply chain, and access to raw materials and components.

“We’ve lost some capabilities over the years through going offshore, through bad economies, through a changing industry base,” said Lloyd Fields, chief executive officer of defense contractor BasTech in Vandalia.

RELATED: Military must focus on technology, Wright-Patt top general says

The defense supply chain needs a better understanding of where components come from, said retired Air Force Lt. Gen. C.D. Moore, former commander of the Air Force Life Cycle Management Center at Wright-Patterson Air Force Base.

“One of the biggest risks is if you don’t know where all the components are coming from there is always the risk that either by malicious intent or not somebody could introduce either firmware or software into a system that could compromise the capability of the system,” he said.

The retired three-star general cited cyber security vulnerabilities in the defense industry as a major concern.

Who was hit hardest

Sequestration had a bigger impact in some areas of the defense sector than others, according to CSIS research.

“There are pockets of weakness in the industrial base, but it’s not uniform across all sectors,” Hunter said.

CSIS’s own assessment, still under way, showed “really severe and profound” impacts on Army acquisition of land vehicles, and a “whipsawing” effect in the aviation industry “that probably merits some investigation,” Hunter said.

After a downturn, Congress has upped the budget for the Air Force, he said.

Navy shipbuilding had the most stability on turbulent defense budget waters in recent years, Hunter said.

Commercial supply chains bolster the defense industrial base in some areas, but certain categories, such as building nuclear-powered submarines, are so specialized that there may be only one supplier, he added.

RELATED: AF Secretary in exclusive interview talks about BRAC, security threats

Little said the federal government has heightened regulation and oversight of contracts to curb costs as spending caps have squeezed the defense budget.

Keeping aging weapon systems like the F-16 and F/A-18 fighter jets flying is harder over time. Starwin, where defense contracts account for about half the company’s business, makes radomes that cover the radar in each aircraft. “Things that were common 40 years ago are difficult to find now so it adds to the costs,” Little said.

He is concerned parts manufactured for U.S. weapons in other countries could be withheld, and foreign suppliers or countries may be prompted to act because they disagree with U.S. actions.

“To me, it just shows a vulnerability,” said Little, past chairman of the Dayton Region Manufacturing Association.

Still, Hunter said there is a drawback if the nation relies solely on domestic suppliers in the defense base.

“The other factor is if you cut yourself entirely from international supply chains you’ve sacrificed some real significant capability,” Hunter said. “In the ‘60s, we could rest comfortable in the knowledge that the U.S. was essentially the cutting-edge leader in almost every significant area of defense-related technology in the world. That is not nearly as true today as it used to be. There are areas where other countries have the lead.”

In most cases, those technology leaders represent U.S. allies, he said.

Dayton’s defense industry

The Dayton area defense industry is recovering and “showing signs of strengthening” after the Great Recession and spending caps imposed under sequestration, according to David A. Burke, president of the Dayton Area Defense Contractors Association.

The defense industry has always had boom and bust cycles, experts said. But the region appears “to be past the low point and on the rise,” Burke said in an email.

“There were tough times during the low point of the recession and cuts, with some industry consolidation and contraction,” he wrote. “There are 10 to 20 (percent) fewer defense contractors in the region now, and the last base realignment and closure did not bring as many jobs as projected. But, research and development budgets have remained stable with modest growth, helping the community innovate and opening some opportunities for expansion.”

One shortcoming, Burke said, is “the marked increase of lowest price technically acceptable contract competitions” that have “reduced quality and innovation in many areas.” The industry is working to improve the situation, he said.

U.S. Rep. Mike Turner, R-Dayton and a member of the House Armed Services Committee, said Dayton was a “critical defense hub” for the country. Turner, chairman of the House Tactical Air and Land Forces Subcommittee, has Wright-Patterson Air Force Base in his congressional district.

“I’ve worked for years with Wright-Patterson Air Force Base and the surrounding communities to ensure we are bolstering our nation’s defense capacity,” he said in a statement to this newspaper. “I welcome this study on a national level to see how our country’s broader defense needs can be fulfilled most effectively. The first step towards rebuilding readiness should be quickly repealing the sequester of defense, which I will continue to advocate for in Congress.”

More local spending

In recent years, the Air Force has touted higher spending on local small businesses that has lifted area firms.

RELATED: Air Force redirects more money to small businesses

In one example, Air Force Research Laboratory obligations paid over several years to Ohio companies grew from $400.2 million in fiscal year 2013 to $552.6 million last year, according to the Dayton Development Coalition.

Much of that work is in the Dayton region.

AFRL is headquartered at Wright-Patterson, the largest single-site employer in Ohio with more than 27,000 employees and an estimated $4.3 billion economic impact.

RELATED: Wright-Patt economic impact on region up to $4.3 billion a year

Area defense contractors that work with the AFRL have maintained or grown their workforce, said John Ingham, Dayton Development Coalition vice president of aerospace programs.

“I believe if the defense budget is maintained or increased that will translate into additional jobs specifically in small businesses” that support aeronautical research and development, he said.

The area, a leading aerospace hub, has the fourth highest number of engineers per capita in the United States, he noted.

“… This region is ideally positioned to grow with increasing research and development dollars within the (Department of Defense) budget because of the brain power we have here,” he said.

The number of private sector civilian aerospace and defense workers in a 16-county region in and around the Dayton, Springfield and the Middletown-Hamilton area grew overall in a decade, according to a Wright State University Applied Policy Research Institute analysis.

In 2005, the region had 17,296 jobs in the category that grew to 18,751 jobs a decade later, the analysis showed. Projections estimate the number of jobs will reach 21,982 by 2025.

Among federal defense and government workers, the numbers showed growth initially, followed by a slight decline over the next decade.

The institute analysis estimated 26,727 federal civilian and military jobs in 2005 and 27,908 jobs a decade later. It projected 27,481 federal jobs in the region by 2025.

RELATED: Ohio leaders say funding will help protect Wright-Patt

Workforce gaps

Finding skilled workers in some specialties can be difficult, industry experts said.

Recruiting and hiring a software engineer with a top secret security clearance can take nearly two years at one local defense firm, a top company leader says, who noted waiting on the high-level security clearance alone can take more than 500 days.

There is such a demand hiring a software engineer quickly would mean hiring from another company, creating a gap somewhere else, said Scott Coale, executive vice president of defense services at Modern Technology Solutions, Inc., which conducts defense modeling and analysis at its Beavercreek office.

“We compete with Amazon, we compete with Microsoft” to attract those skilled workers, said Coale, a retired colonel and former vice commander of the Air Force Research Laboratory at Wright-Patterson.

“I think that’s our biggest challenge here locally is to find that skilled workforce.”

RELATED: How can Ohio keep federal, military jobs?

Moore, a member of the Wright State University Board of Trustees, said area colleges and universities focus on preparing workers for manufacturing and small businesses in the defense industry.

The industry has worked locally with universities and community-based science, technology, engineering and math education initiatives to attempt to fill STEM jobs, Burke said.

But the region needs more graduates with security clearance credentials to meet demand, some said.

“We are not graduating enough students in science and engineering eligible to obtain security clearances,” Burke said.

Unmatched coverage

The Dayton Daily News is committed to in-depth coverage of defense and manufacturing, two key drivers of the Miami Valley economy. For more military news, like Dayton Daily News reporter Barrie Barber’s DDN Facebook page and follow him on twitter at @barriebarber.

About the Author