Chao: 'This industry knows how to handle downturns'

October 30, 2018 at 2:58 PM

The defense industry might be too cautious to fully take advantage of the improving budget environment, Pierre Chao said today.

Speaking at a Professional Services Council conference, Chao, founding partner at Renaissance Strategic Advisors, said the industry may be too skeptical about the budget boost to prepare for it.

"If you're having your foot on the brake all the way up because you're afraid about when it's going to turn . . . and you're not positioned for that upturn, you're going to leave a percentage of that growth on the table," he said.

"This industry knows how to handle downturns," Chao continued. "Everybody knows how to cut costs . . . and you could do that in your sleep. Ironically enough, I think we have harder issues on up-ramps in terms of capacity."

He also said the Pentagon, which has been touting innovation, will have to clarify what it will give up for lower-cost products.

"Innovation is being used as a shorthand," Chao argued. "It really means I'm looking for something that's lower-cost."

However, he said the government's balancing act -- between cost and meeting certain standards -- will eventually be settled.

"That line gets settled out . . . when there's less money and push comes to shove and you really end up deciding: What is more important? Something cheap or something extremely secure," Chao said. "Because they are at diametrically opposite ends of reality. Period, full stop. There's no way around it. I want something absolutely secure, absolutely known, absolutely trusted -- it will cost me."

"On the core military equipment, we've made that choice, which is why we have a $700 billion budget," he added. "We're going to keep going around on this debate."

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