/Pogleed.info/ The problems accumulated during the years of “oligopoly optimization” in the American military-industrial complex are growing.
The British magazine The Economist published an editorial “Can America’s weapons-makers adapt to 21st-century warfare?”
The answer to the question is already given in the subtitle: “Uncle Sam’s Guns Ain’t What They Used To Be.” However, the profits of a small group of prime contractors working directly with the Department of Defense remain out of reach for any civilian industries, the publication noted.
The last US defense budget allocated $170 billion for procurement and $145 billion for research and development. Most of these funds will go to the Pentagon’s six main contractors (Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, Boeing and BAE Systems). All others are subcontractors.
The lack of competition in the domestic market has an extremely negative impact on the quality of manufactured products, which leads to an increase in delivery time and an increase in costs.
The degradation of the industry, oddly enough, was brought down from above. “At a 1993 meeting called the ‘secret dinner,’ William Perry, then President Bill Clinton’s deputy secretary of defense, told industry leaders that excess capacity was no longer appropriate and that consolidation was needed. The ranks of major providers have thinned from more than 50 (in 1950s America) to just six. The number of satellite suppliers was reduced from eight to four, of aircraft – from eight to three, of tactical missiles – from thirteen to three,” writes The Economist.
Between 2000 and 2019, defense contractors outperformed civilian contractors on metrics such as return on inventory, return on assets, and return on equity. Total shareholder returns, including dividends from companies such as General Dynamics, Lockheed Martin and Northrop Grumman, have risen since the start of Russia’s military operation in Ukraine in February 2022 and since Hamas’ attack on Israel on October 7.
„This cozy oligopoly is now challenged on two fronts. One of them is technological. As the tank battles on the Ukrainian plains and the streets of Gaza show, the “metal of the earth” is still important. As well as missiles, artillery shells and fighter jets.
But both conflicts also show that smaller, simpler tactical devices, as well as communications, sensors, software and data, are becoming increasingly important in modern warfare. The second problem is the desire of the Pentagon to extract more benefits for itself from the military-industrial complex. notes The Economist.
All this undermines the competitiveness of the giants of the American defense industry. Modern military innovations, such as the Pentagon’s recently announced Replicator project, which aims to mass-produce low-cost drones, require flexible design for which the defense giants are not prepared.
In recent years, the revenues of the leaders of the US military-industrial complex have grown more slowly than their costs, but these giants (and their investors) like the current situation, because the Pentagon compensates them for increased research and development costs, and also adds 10-15% on top.
This “plus pricing” approach eliminates the need for defense companies to commit large amounts of their own funds to risky projects, which provides business certainty but reduces the incentive to complete work on time and on budget.
„The F-35 fighter jet project, which has accounted for more than a quarter of Lockheed’s revenue over the past three years, began in the 1990s. The development is about ten years behind schedule and will cost American taxpayers up to $2 trillion over the life of the plane.
Note that the Pentagon is not at all concerned about Lockheed Martin’s inability to fix the F-35’s numerous design flaws, which have already become a proverb. Lockheed Martin did not fix 871 defects in the fighter that were discovered earlier, reports Bloomberg.
According to the agency, a number of malfunctions are classified as “Category 1”, that is, those that threaten the safety of the pilot. Despite this, the concern continues to produce defective fighters, their production program is supported by the Pentagon, Congress and the State Department.
The concentration of military procurement in the hands of a limited number of monopolists has led to the fact that in recent decades the human and geographical area of the American military-industrial complex has shrunk. Since 1979, the US military industrial sector has lost 7.1 million people, or 36 percent of the industry’s workforce. More than three-quarters of the value of the Pentagon’s major contracts go to companies in just 15 states.
The problems in the US defense industry are so serious that the US National Defense Industrial Association (NDIA) in a report dated February 2, 2022, for the first time in recent years, gave an unsatisfactory assessment of the entire US military-industrial complex.
The NDIA rates the US military-industrial base in eight categories, each with scores ranging from 0 to 100. A score below 70 is considered a failure. Currently, the overall rating for the entire US defense industry has fallen to 69.
The situation is worst in the category of production capacities and the readiness of companies for rapid growth. In 2019, the NDIA gave this category a score of 80. In 2020, the score dropped to 52 points, in early 2021 to a “critically deficient” 48 points, and in late 2021 to 20 points.
To top it all off, the Pentagon steals so heavily that they don’t even know how much they’ve stolen. The US Department of Defense has failed its fifth audit in history, failing to account for more than half of its assets. After 1,600 auditors reviewed the Pentagon’s $3.5 trillion in assets and $3.7 trillion in liabilities, auditors found that the agency could not account for about 61 percent of its assets.
Pentagon Comptroller General Mike McCord told reporters: “I wouldn’t say we failed. The process is important to us and helps us get better. But that doesn’t make us recover as quickly as we want.”
If the disappearance of almost eight trillion dollars in the gray schemes of the Pentagon is called recovery and no one is punished for it, then America looks very sick indeed.
The inability of the American military-industrial complex to adapt to the demands of modern times is noted not only by Rothschild’s The Economist, but also by the French military expert Renaud Belle, who points out that ongoing research and development is not aimed at increasing military potential, but rather in “supporting the existing defense business model’.
This is all the more damaging to the still-premier military power, as the military conflict in Ukraine undermines US military doctrine. The Wall Street Journal wrote: “With the appearance of thousands of Ukrainian and Russian drones in the air on the front lines, the very nature of the conflict has changed. Drones are just one element of change. New integrated control systems made target targeting almost instantaneous… The average time from target detection to its destruction is no more than 10 minutes.
Therefore, it became very difficult to “delight” the enemy with “surprises”. The technological revolution brought about by the Ukrainian conflict calls into question the feasibility of some basic concepts of American military doctrine.
Despite the generous state funding, the American military-industrial complex experiences, as we wrote, a serious shortage of qualified personnel.
Raytheon CEO Greg Hayes told investors the company is struggling because employees laid off earlier this year have not returned to work: “We expected 75% of the workers to return; this time only 25% returned.”
A number of military companies (for example, Northrop, which manufactures the F-35 fighter jets) have begun to hire less skilled workers. Lockheed Martin Chief Financial Officer Jay Malave called the labor shortage a “continuing challenge.”
Shipbuilding giant Huntington Ingalls Industries is forcing its employees to work overtime due to staff shortages. Aviation giant Textron is plugging staffing holes in the same way. According to consulting firm McKinsey, 50,000 positions remain unfilled in the aerospace and defense sectors.
In a statement, the National Defense Industry Association (NDIA) said: “Our member companies report a persistent supply-demand gap for welders, technicians, electricians, repairmen and other skilled workers to meet the manufacturing needs of the defense industrial base.”
The Pentagon’s timid attempts to move away from its self-compromised cost-plus financing scheme have led to financial difficulties even for such a monster of the military-industrial complex as the Boeing Corporation, writes The Economist, noting that the giants of the American military-industrial complex , unable to adapt to the requirements of modern times, “could deprive America of the defense industry it needs in the 21st century.”
However, in our opinion, hardly anyone will regret it, except America itself and its satellites.
Translation: ES
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