The federal deficit is soaring, which is what happens when you cut taxes and spend more. A new report from the nonpartisan Congressional Budget Office lays it out: the deficit for fiscal 2018 will be $895 billion, some $222 billion more than last year’s. And in fiscal 2019? It’s on track to hit $1 trillion. Axios adds context: “This increase was due mostly to the new Republican tax law and Congress’ routine decision to increase spending, which grew by 7% compared to revenue growth of only 1%.” The big question for our readers: what happens to defense spending?
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One-on-One with Leonardo DRS’ Bill Lynn
Bill Lynn, the former deputy U.S. defense secretary, has been CEO of Leonardo DRS for nearly seven years now. The arm of the Italian firm employs 6,000 people in the U.S. and is on track to grow this year, driven recently by winning Army contracts for helicopter defense, night vision goggle and other projects. “We’re continuing on an upward trajectory,” Lynn said. Leonardo DRS is currently competing against teams from Boeing and Saab and Lockheed Martin and KAI to build a new pilot training jet for the U.S. Air Force, called T-X. The multibillion-dollar contract is supposed to be awarded in the coming weeks. Here’s excerpts from a recent conversation.
Q. What’s the differentiator of your T-X trainer proposal?
A. What we think differentiates our proposal is the low-risk nature of it. This is a plane that we have 60 of them flying … in four air forces, 20,000 hours [flying time]. Not only is it flying and training pilots, but it’s training F-35 pilots, which is going to be one of, if not the principle mission of the T-X. It’s also the only one of the offerings that already has an integrated training system. It is an integrated training system — it’s not just an airplane. It’s a plane with a simulator and it’s linked up in a live-virtual-constructive fashion. … The Air Force isn’t looking for programs that are going to run over schedule or budget. I think we offer a very good ability to meet schedules and budgets in a low-risk way.
Q. What’s your reaction to analysts who say Boeing is the favorite?
A. This is a confidential source selection, so anybody who’s opining, by definition, doesn’t know. The track record on predicting who’s going to win prior big procurements isn’t great. I think we have a really great product that’s low risk, but I don’t think anybody knows what’s going on inside the source selection.
Q. How important is capturing this to your plans for the future of Leonardo DRS in the United States? How big of a value is it?
A. It’s very big, but it doesn’t really change our plans because it’s not in them. We’ve built a growth plan based on what we’ve been doing. We think we’ll continue to grow. If we win the T-X, it’s a step change. It would be a major win for us, but our growth isn’t built on it or dependant on it. We’ve had above-market growth for the past four years.
Q. Budget wise right now, what are you predicting post 2019?
A. We’re not even halfway through the two-year agreement. The two-year agreement was very positive, not just the growth in the budget, but the stability in the planning rather than having new assumptions every six months. This has made it easier to invest [and] easier to plan. It’s certainly helped the programs we’re on. I think when we get to the end of this two-year agreement, you’re going to have to see some follow-on agreement. I don’t think going back to a sequester is an option. We’ve had two agreements now … there’s been bipartisan support for both of them in different administrations. I think there would be bipartisan support for agreement. Nobody is really arguing ‘Let’s go back to the sequester.’ It’s always hard to put these agreements together because they’re complicated and there’s a lot of external factors, but I think the desire is there in the political bodies and I think the need is there in the department. That’s gotten us there the last two times, I think it’ll get us there again.
Q. What type of role do you see Leonardo DRS playing in the development of new technologies?
A. In quantum cascade lasers, electric drive, the MFoCS program…I think that’s where we have the cutting-edge technology. We have a good portfolio of technologies that I think we are able to contribute into the mix.
Q. How is the aerospace and defense sector poised for growth?
A. In some of the [Center for a New American Security] studies [that I’ve worked on] the biggest challenge for the sector is how to master the transfer of commercial technologies into the military space. I think here, you’re seeing, frankly, different approaches. We went out and bought Daylight Solutions, a quantum cascade laser [firm], which is really a commercial technology that has been operationalized into defense. And you’re seeing some [defense] companies team with commercial companies. Some are trying to do it in-house.
I don’t think people know exactly what the recipe is yet, but I think the problem set is clear: you’re not going to thrive if you’re not able to draw from that side of the technological leger. That if you were to go with the more Cold-War mentality of developing technology inside the defense space, you’re going to be too limited. It’s not that we don’t still do that, but the balance of how much was done that way and how much is done on the commercial side has shifted more. You have to have channels from that commercial technology into the defense space. If you’re going to be a successful industrial partner, you have to be part of that channel in some way.
Q. How do you see the resistance by some Google employees to working with the Pentagon?
A. Early days. The Google thing was significant in its own right, but it’s small in that sense. There are counter examples, like Amazon is chasing [the] JEDI [cloud contract] very hard. That doesn’t seemed to have kicked up the same issue. I think there are some issues there and it’s maybe less commercial, more millennial. It’s certainly something that you need to think about, but I don’t think it dominates the space; witness the Amazon counterexample.
Air Force Convention Next Week
The theme of the annual Air Force Association’s Air, Space, Cyber conference is “Multi Domain Operations: Leveraging the Full Spectrum.” Expect a lot of the discussion to focus on President Trump’s creation of the Space Force. Deputy Defense Secretary Patrick Shanahan, who is leading the Pentagon team making Space Force policy recommendations, is scheduled to speak on Wednesday, the last day of the conference. Multi-domain ops — essentially making sure everyone in a battle, regardless of service or where they sit, can communicate and share information in real time — has been the top priority of Gen. David Goldfein, the Air Force chief of staff.
Speakers: Military: In addition to the usual Air Force brass, Gen. John Hyten, head of U.S. Strategic Command, and Gen. Terrence O’Shaughnessy, head of U.S. Northern Command and NORAD, Gen Joseph Lengyel, chief of the National Guard Bureau, are scheduled to speak.
Speakers: Industry: Jeff Bezos, Amazon/Blue Origin; Gwynne Shotwell, SpaceX; Rick Ambrose, Lockheed Martin Space; retired Lt. Gen. Charles Davis, L3 Technologies; and Gene Colabatistto, CAE. The full agenda is here.
Japan OKd to Buy Radar Planes
The State Department approved the sale to Japan of up to nine E-2D Advanced Hawkeye airborne early warning and control aircraft, a deal potentially worth up to $3.135 billion.
USAF Orders 4th Batch of Tankers
On Monday, the Air Force placed a $2.9 billion contract for 18 KC-46A tanker aircraft and spare parts, bringing the total on order to 52.