High-Powered Panel Tackles Industrial Issues

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High-Powered Panel Tackles Industrial Issues With all the controversy and speculation on the potential impact of current space policy on the industrial base, the National Space Symposium put the question to a high-powered panel of industry and government leaders. The Industrial Base Mega Session, moderated by Space Foundation Board of Directors Chairman Dr. William F. Ballhaus Jr. , featured:

  • The Honorable Marion C. Blakely, president & chief executive officer, Aerospace Industries Association (AIA)
  • Dr. David M. DiCarlo, sector vice president, Space Systems Division, Northrop Grumman Aerospace Systems
  • Roger A. Krone, president, Network & Space Systems, The Boeing Company
  • Brett Lambert, deputy assistant secretary of defense for industrial policy, Department of Defense
  • Joanne M. Maguire, executive vice president, Lockheed Martin Space Systems Company
  • James Maser, president, Pratt & Whitney Rocketdyne
  • Richard W. McKinney, deputy under secretary of the Air Force for space programs, United States Air Force

Each member provided insight into the issue:

Blakely: Last year AIA released a report called “Tipping Point,” that argued that the national security space industrial base is imperiled. The “tipping point” is where critical space capabilities will be lost. Of most concern is lack of consensus in Washington on the need to protect these capabilities. AIA recommends multi-year acquisition, and is pleased with the Air Force’s announcement of EASE, which it feels is important for efficiency savings. AIA is also pleased with the DoD/DNI space security strategy, which aims to energize the industrial base that supports space security. AIA would like to work with government to provide industry input critical to implementation.

DiCarlo: To maintain leadership, we must invest in people, and retain and motivate those with skills unique to the space industry — critical skills that are engineering-intensive and forward-thinking. We are entering a “production era” where we’ll build more of the same; the prospects of new major missions are not good. Although expectations in terms of new capabilities and technologies may have been unrealistic, the space community did not live up to them over the past few years. We need to correct that by ensuring that we have:

  • Systematically planned evolution of critical systems, including regular technology insertions
  • Correct government and industry decisions on technology investment
  • Courage to be proactive
  • Long-term strategy
  • Innovation investment
  • Steady, predictable levels of R&D dollars

Krone: In the past 50 years, we’ve seen military, civil and commercial space grow in an unprecedented way, with bureaucracy and infrastructure that far exceeds what would be expected. Looking at the outpour of our industry, economists might ask “does that segment of the market attract new capital?” The answer is that some markets are attracting capital while some are losing it. We would probably get a passing grade in the smallest markets, not a passing grade in the high-end, large markets – the national security space markets. The national security space customer needs to be open to innovative commercial methods to meet needs such as commercial crew transport, hosted-payloads, commercial imagery and communications. We need broader application of space block-buys and innovative procurement. We need to understand that the future is about medium and small satellites and that the future is now. We also need to understand that we live in an environment that has excess capacity for the demand that we have today. The implication for primes, government, first- and second-tier suppliers is that we need to be more efficient and leaner, with reductions in workforce and industrial base.

Lambert: The industrial base is very broad, in both the manufacturing and service sectors. As we think more about our industrial base and the services we need to get to warfighters, we need to think outside the box. We need to better understand second-, third- and forth-tier suppliers — “from sand to satellite.” Of the industrial sectors that we reviewed in the Quadrennial Defense Review (QDR) — the first ever to cover space – space is second to none in understanding the base. We’re not starting from scratch with space, but still have a ways to go. We’re now undertaking, sector-by-sector and tier-by-tier approach to industrial base for whole defense department. The goal is to allow us to see the industrial base in a more holistic way and to make this an annual effort.

Maguire: At a time when the military intelligence communities are gearing up for many launches, the price per launch is going up. The cost is a consequence of buying one launch at a time and uncertainty in NASA plans. We must strike the appropriate balance between mission risk and execution risk. We discuss fixed price vs. cost-plus contracts, but the type of contract doesn’t ensure success. The important thing is which contract type matches with desired outcomes. Assuring opportunities for insertion upgrades is paramount for moving forward. We’re encouraged by government plans to reform export controls; this is critical for stability of U.S. spacecraft manufacturers. Lockheed Martin believes in EASE strategy being implemented by our customers. It is right for the nation, customers and industrial base.

Maser: Let’s look at the industrial base from an economic approach, using supply and demand. Supply is capacity — there are questions about excess capacity, the right amount or not enough. Right now, NASA, DoD and commercial demand is uncertain. There is also a lot of uncertainty about price elasticity of demand. As competition increased in the past, prices per kilogram went down, but there was no increase in demand. In the late 1990s, we built a lot of capacity for demand that did not materialize. The Space Shuttle retirement is creating shift in capacity, but not a decrease. In the short run, pricing can be highly influenced by estimates of demand, but in the end, it needs to be equal or greater than cost. Fixed costs are driven by capacity and utilization of that capacity, and by the risk-posture of the buyer. Another factor for cost is volume, especially for unit cost, but we’re not sure how much volume there will be. Profit is determined by elements of risk taken by the seller — reliability, availability, credibility. The fundamental question is: what integrated capacity must the nation have? We need to be clear on risk-posture: whether we want “failure is not an option” or “good enough.” Industry and the U.S. government can have shared risk and shared reward. We need to have discussions about the best way to contract. We’re consolidating and cutting down our fixed costs and we’re leaning out the process — doing more with less people.

McKinney: Some on the commercial side don’t see a large issue with industrial base. They’ve adjusted their strategy. Some are worried there are too many suppliers and some worry there are too few. We need clear strategies in place on both the government and the commercial side — looking at block buys and spreading dollars more evenly. We’ve published the National Space Policy and the National Space Security Policy, and these add to consistency about where government will put its dollars. With a flat or declining budget, government won’t always be the answer. We need to think about what is the best use of our dollars. My advice for commercial space companies: work within your means, and adjust to the market – and you can make the best decision. Government and industry need to work hand-in-hand to ensure scarce dollars are spent where they have the best benefit.

Pictured, left to right: Brett Lambert, Joanne M. Maguire, James Maser, Richard W. McKinney 

This article is part of Space Watch: May 2011 (Volume: 10, Issue: 5).

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