Ukraine conflict sharpens industrial policy debate among top U.S. defense players

By Tony Bertuca / December 5, 2022

SIMI VALLEY -- Senior Pentagon officials and U.S. lawmakers spoke with top industry executives at a high-profile defense conference over the weekend about the need to rethink -- and aggressively fund -- the production of key weapon systems with supply chain vulnerabilities that have been highlighted by the ongoing war in Ukraine.

Pentagon acquisition chief Bill LaPlante, who is a front-line player in the new U.S. effort to expand the domestic and international production of critical munitions, outlined the challenge during a panel discussion at the Reagan National Defense Forum here.

“We've gone out of our way to really minimize any redundancies because, again, that's efficiency,” he said. “But one person's efficiency is another person's vulnerability.”

Those supply chain vulnerabilities, LaPlante said, have been illuminated by the COVID-19 pandemic and the Russian invasion of Ukraine. Addressing production shortfalls and lack of surge capacity facing the Stinger, Javelin and long-range munitions systems have become a top Pentagon priority.

Greg Hayes, the chief executive of Raytheon Technologies, which helps manufacture the Stinger and Javelin, laid out numbers that he said should prompt a sense of urgency.

“The problem is we have consumed so much supply in the first 10 months of the war, we've essentially used up 13 years’ worth of Stinger production and five years’ worth of Javelin production,” he said during a panel. “The question is how are we going to resupply, re-stock the inventories?”

While the Defense Department and Congress are moving billions of dollars to equip Ukraine and replenish U.S. weapons through emergency supplemental spending packages, Pentagon Comptroller Mike McCord said industry is likely to become maxed out unless the United States can invest in expanding production capacity.

McCord, in an interview with Inside Defense, said DOD intends to make such investments in fiscal year 2024 and to continue requesting emergency funding for Ukraine as long as it is needed.

Army Secretary Christin Wormuth highlighted the service’s latest contracts to support Ukraine and replenish U.S. stocks.

“Certainly, we all would like to have greater stockpiles than we had in the last several years,” she said.

Raytheon's Hayes said munitions capacity simply has not been a focus of the U.S. industrial base.

“We spend a lot of money on some very exquisite, large systems and we do not spend as much on the munitions necessary to support those,” he said. “We have not had a priority on fulfilling the war reserves that we need to fight a long-term battle.”

LaPlante, who has been meeting with armaments directors from around the world to discuss strengthening supply chains and increasing weapons production, said Ukraine shows that the situation has become “all hands on deck.”

“We have a great opportunity now because we're being focused by the events of Ukraine,” he said.

LaPlante said DOD and its prime contractors need to take advantage of innovative, digital manufacturing techniques to expand or surge production.

“I think there's a technology opportunity to take modern design techniques, some would call it digital engineering, with high-powered computing and going back and forth with advanced manufacturing, including with small companies and startups and getting into really economies of scale,” he said.

House Armed Services Committee Chairman Adam Smith (D-WA) said in an interview with Inside Defense that he believes the B-21 bomber made by Northrop Grumman is a good example of digital manufacturing.

“That, I think, is the key to munitions,” he said. “How can we come up with manufacturing techniques that can enable us to build these things cheaper and quicker. We can.”

The B-21 program is mostly classified and DOD has said very little about it, despite its Dec. 2 unveiling. But Smith, who helps oversee the program in his capacity as chairman, said the B-21 made use of new composite heating and melding technology that made the manufacturing process cheaper and faster.

“What we can do is we can empower DOD to spend money on that type of manufacturing improvements and give them the flexibility to do it,” he said.

Lockheed Martin CEO Jim Taiclet said during a panel discussion that DOD will need to spend more money on multiyear contracts that will keep production lines humming.

“We're going to need to fund those,” he said. “Resilience isn't without cost. There will be some cost to this. But, I think, it's going to be a cost-benefit trade-off worth looking really hard at.”

Smith, however, said Congress and DOD need to be careful with multiyear contracts and that he would prefer to see new advancements in manufacturing that could lead to a newer, built-in surge capacity.

“The key thing to remember about that is it’s always going to be difficult,” he said. “Maybe you’re not going to be need it. There is always going to be a balance between giving the demand signal that encourages the manufacturing and not pissing money away because defense contractors would like you to. There is no simple answer to that. Part of it is building the cheapest scalability possible.”

Sen. Roger Wicker (R-MS), who is projected to be the incoming ranking member on the Senate Armed Services Committee, said during a panel he believes that more could be spent to support the U.S. industrial base, despite a fiscal year 2023 national security budget that is poised to grow by $45 billion beyond what the White House has requested.

“I worry about the fact that we’re not supporting the industrial base to the extent we're not giving them the programs they need to manufacture these ships and weapons and ammunition we need,” he said.

Chief of Naval Operations Adm. Michael Gilday, who appeared on the same panel as Wicker, said the issue is not one of funding but of industrial capacity.

“Right now, on the Hill is the largest shipbuilding budget in the history of the United States Navy at $27.5 billion,” he said. “You cannot throw much more money at the seven shipbuilders that build U.S. warships in the United States of America right now. Their capacity is about at max. Congress is helping us max them out.”

Gilday said he supports the creation of more shipyards to increase capacity.

“I would say the same thing for weapons production,” he said. “If you take a look at our budgets and where we're putting money, we're trying to send a very strong signal to industry that we need consistent, stable production lines for weapons with range and speed for a long time.”

Wicker, responding to Gilday, said he supports him and the Navy but believes the admiral and others at the Pentagon are trying to “put the best face” on inadequate budgets.

Prepping to counter China

China and its ongoing military buildup also loomed over the conference’s defense industrial base conversations.

McCord, the DOD comptroller, said the FY-24 budget will focus on investments that could help Taiwan in much the same way the United States has aided Ukraine.

“What are the things that we can do to make more progress in the coming years . . . so that we don’t find ourselves if there is, for example, a Taiwan scenario, saying, ‘I wish I had made some moves here, here and here,' so in Taiwan they don’t end up a day late and a dollar short,” he said. “The Ukrainians obviously were way outgunned at the start and we’re trying to keep them in the game. What could we do to be proactive there?”

Meanwhile, Alan Estevez, the under secretary of commerce for industry and security, said during a panel that Russian President Vladimir Putin and his choice to invade Ukraine have forced the United States and its allies to begin working to correct existing vulnerabilities to China.

“Companies need to start thinking about how to diversify their supply chains,” he said. “If COVID didn't show that, Ukraine should have in spades. If Putin is doing anything he's helping NATO membership and he's helping people understand the problems in their supply chains, including our European allies, who are all over this right now.”

Gilday said he believes the COVID-19 pandemic and the crisis in Ukraine has eliminated a “degree of opaqueness” between the Pentagon and the defense industry concerning supply chain discussions.

“I see a much stronger relationship, a much stronger relationship with industry, particularly [on] supply chain vulnerabilities,” he said.

Raytheon CEO Hayes said he believes the United States and its support for Ukraine has damaged Russia’s ability to resupply its arsenal of weapons, making Moscow vulnerable in ways that Beijing is not, particularly concerning precision munitions.

The United States, he said, has “so far degraded [Russia’s] ability to rebuild their war stocks that we're not going to be facing the same type of a Russian threat three years for now that we were a year ago,” he said. “The Chinese are far, far ahead of where the Russians are and we, I think, are slightly ahead of where I think the Chinese are today.”

An exception, Hayes said, is in the area of hypersonics where China is viewed as having the lead.

“The capabilities of the Chinese are increasing every single day,” he said.

Defense Secretary Lloyd Austin, who also appeared at the conference, spoke about DOD’s ongoing work to counter China as well as Russia.

“The department is putting its focus, its time and its money where its mouth is, and so we're matching our investments with new operational concepts suited to 21st century deterrence in the Indo-Pacific," he said. “These next few years will set the terms of our competition with the People’s Republic of China, they will shape the future of security in Europe.”