Finmeccanica N.A. CEO Lays Out Vision For Global Commercial Defense Industrial Base

The Pentagon’s existing acquisition model is all but dead. It must inevitably give way for a new approach, one based on a smaller number of specialized defense firms, greater reliance on commercial companies and technologies, and expanded access to international industries. These were the central contentions made by William Lynn, former Deputy Secretary of Defense and currently Chief Executive Officer of Finmeccanica North America/DRS Technologies, in a speech today at the Atlantic Council.

You may not know it but Finmeccanica, N.A., is a major U.S. defense company with more than 11,000 employees operating in 28 states. Its component companies provide the U.S. government with helicopters for the Coast Guard, advanced power and networking systems for the Littoral Combat Ship, thermal imaging devices for Army and Marine Corps combat vehicles and a wide range of special antennas, receivers and power sources for satellite communications on-the-move.

With a long career in the Department of Defense (DoD), including as director of program analysis and evaluation and Under Secretary of Defense (Comptroller), on Capitol Hill, and in the private sector, Mr. Lynn has watched the Pentagon struggle through repeated budgetary up and down cycles. From this vantage point he is able to point out why this down cycle is different from those that have come before and will require different solutions. First, the defense industry is now highly concentrated, with less than a handful of companies capable of designing and producing armored combat vehicles, tactical fighters, strategic bombers, or major naval combatants. Second, breakthrough devices and systems are increasingly coming from the private sector, rather than being the products of government R&D. Third, the U.S. no longer has a monopoly on advanced technologies nor is its industrial production unmatched in the world.

Consequently, Mr. Lynn argues, DoD will need a new approach to acquisition. It will have to focus less on competition between the large defense prime contractors to produce major platforms and more on competition among the mid and smaller-size firms for payloads, systems and specific niche technologies. This new approach will have to make greater use of commercial technologies and leverage the massive productive capacity of firms that sell primarily into the commercial marketplace. Finally, because commercial production has gone global, DoD will need to think about its industrial base in global terms.

This last point should be self-evident to Pentagon leaders. Their premier acquisition program, the F-35 Joint Strike Fighter, is an international program with eight countries that have pooled their resources to support R&D and are participating in production activities. Without international collaboration and foreign sales, the program might have been unsustainable even by a nation as wealthy as the United States. Moreover, partner countries such as the United Kingdom and Italy have provided a number of critical technologies. The current competition to replace the Air Force’s aging T-38 jet trainer aircraft involves four teams, each of which consists of a major U.S. company teamed with at least one significant foreign partner. One team consists of Finmeccanica’s Alenia Aermacchi North America division in partnership with General Dynamics.

Mr. Lynn identified a number of steps that must be taken to move DoD along the path to a more globally and commercially-centered acquisition system. One of these is to revamp the current export control system in order to focus security on a small number of extremely high value, even game changing technologies. Another step is to open the defense acquisition space to more commercial competitors. In order to do this, Mr. Lynn opined, it will be necessary to reduce the special federal acquisition regulations and pare back the deadly weight of unique DoD accounting and contracting practices. Of course, for such a change to have any meaning, the Pentagon will have to put a halt to its habit of buying commercial items and then demanding that the selling company produce certified cost and pricing data. Finally, U.S. acquisition officials will need to develop a culture of trust that encompasses both commercial U.S. companies and international providers.