Long-Term Challenges of the U.S. Defense Industrial Base

October 22, 2018

According to a recently published Pentagon report, America’s defense industry outperformed other industrial sectors in fiscal year 2017 but faces serious challenges in the future. The Fiscal Year 2017 Annual Industrial Capabilities Report to Congress, released in May 2018, found that long-term trends threaten the health of the industrial base, limit innovation, and reduce U.S. competitiveness in global markets.

The greatest challenge appears to be demographics of the workforce. Specifically, defense companies are faced with a shortage of qualified workers to meet current demands as well as future demands created by retiring senior-level engineers and skilled technicians.

The risks vary by sector. For the aerospace industry, the greatest risk is the ability to sustain design and manufacturing skills and capabilities for future aircraft design and manufacture. For the ground vehicle sector, the concern is a lack of innovation over the last decade which has led to stagnation in the development of new combat vehicles. Therefore, any new combat vehicle design could face cost, schedule, and performance challenges.

The shipbuilding sector remained stable in FY 2017, but it could face challenges if the small, highly concentrated industrial base were to shrink or change significantly. According to the report, the Department of Defense (“DoD”) should continue to monitor shipbuilder workload to make sure enough production exists to keep the industrial base viable.

The space sector is becoming more and more dependent on the commercial market. While that market has provided technological developments over the past decade, dependence upon it also means that certain parts and qualifications used for national security space missions are in short supply. The report recommends timely investment to establish a domestic capability; otherwise, the United States risks jeopardizing various other security programs.

There are also major concerns about the “organic industrial base” ― those internal suppliers who handle acquisition, sustainment and maintenance issues. An example of how the organic base is struggling is the naval shipyard infrastructure, which due to its age and condition contributes to a significant number of work stoppages each year.

To meet these challenges the DoD must make significant investments in workforce development, systems design, and infrastructure in the near term.