 Here particularly right here on the front row for those who are looking for a seat there's Room for the brave up front. All right. Well, let's begin Welcome to today's panel on the Defense Industrial Base and Federated Defense. I'm Andrew Hunter I am the new Director of the Defense Industrial Initiatives Group here at CSIS and I'm going to be the moderator for this session. Our discussion this morning is a key part of the overall 2014 Global Security Forum focus on the top challenges facing US and global security. We're going to focus on some of the emerging and structural and ongoing budgetary dynamics that are driving changes in the Department of Defense industry relationship. And particularly we're going to have a bit of a focus today on something that we call Federated Defense. And that's a concept that I'm going to explain to you. And in more detail in just a bit before I do that what I'd like to do is introduce our panel. We have an outstanding panel of industry leaders with deep experience on a whole wide range of issues including our topic this morning. They've experienced the highest levels of government and industry and particularly a lot of experience in the globalization of industry and the defense and aerospace sector that we're going to focus on a bit this morning. So please join me in welcoming them in welcoming them. First we have William J. Lynn III, former Deputy Secretary of the Department of Defense and CEO of FinMechanica North America and DRS Technologies. We have Robert J. Stevens, the retired chairman and Chief Executive Officer of Lockheed Martin Corporation, Clayton Jones, former chairman and CEO Rockwell Collins and Pierre Chao, managing partner and founder of the Renaissance Strategic Advisors and a senior advisor to the Defense Industrial Initiatives Group at CSIS and a former director. Now before we get into before we go further, let me just say a word about this concept of Federated Defense to kind of baseline the discussion and kind of define terms if you will. CSIS kicked off a major project on Federated Defense about this time last year. It includes a series of reports and discussions and dialogues of which this is this is one. So Federated Defense is a concept for taking security cooperation, which is something that the U.S. has done for quite a long time between with our allies and partners and taking it to a deeper level where the nations involved in select missionaries would be designing and organizing and to some extent equipping their capabilities with the idea that they would be working cooperatively. And so these capabilities would be complementary and reinforcing in support of common strategic interests and security interests. This approach would be not just bilateral but also multilateral and involve a range of similarly interested parties building on existing alliances and partnerships around the world. The approach would potentially involve enhanced training, logistic support, tactics development, and ultimately potentially to include combined operational missions. However, it wouldn't be integrated so tightly that individual nations would be unable to engage in autonomous missions when they so desire. So this is not a straight jacket that means that countries can only act cooperatively but it's something that enables them to enact cooperatively when they so desire. Now the work done on Federated Defense so far has really identified six key mission areas where the folks that have been part of this dialogue believe Federated Defense approach may pay dividends and examples of those are Humanitarian Assistance Disaster Response, Information and Intelligence Sharing, Maritime Security, Undersea Warfare, Missile Defense and Cyber Security. And each of these missions areas represents a space where there is a strong alignment of U.S. security interests with partners and allies where there's the opportunity for deep cooperation involved in the Federated Defense concept and where there's a gap that a cooperative approach can help address, a capability gap that needs to be closed. Now one of the last aspects of the Federated Defense concept that bears heavily on this morning's discussion is leveraging and incorporating global value chains. And by global value chain I'm referring to production networks that are distributed globally and that leverage specialized capabilities that are resident in multiple nations. So as is increasingly the case, the United States based industry does not have a monopoly on good technology and in certain technologies the leading edge may in fact be located elsewhere. So the concept of a global value chain is leveraging those areas of expertise and combining them into a whole, an end product, end item. Commercial industry in many areas is highly leveraging global value chains but their use in the national security arena is less and there's significant barriers and constraints such as domestic contact content requirements, export controls and foreign disclosure constraints that make that difficult. So in the work done on Federated Defense so far increased utilization of global value chains appears to be a key enabler to a Federated Defense approach. With that limited background, I wanted to tee up this discussion. Let me lay out first how we're going to proceed and then and then we'll move into it. Each panelist will spend a few minutes talking about the key issues that they see emerging in the DoD industrial relationship and related challenges and opportunities for Federated Defense. We'll then move into a 20 minute panel discussion of these issues and then after that we'll open up to the audience for questions with the remaining time and we'll finish at 12.15 and we'll be the last thing standing between you and lunch. So first let's hear from former Deputy Secretary DeFenselin. Told me the test was whether I turned on the button before I spoke. Thanks very much, Andrew. Appreciate the opportunity to be here. Let me start by putting things in a longer term context. I think every generation or so you hit a point where you're on the cusp of structural change in the industrial base and I think there are forces building towards that over the next the remainder of this decade. We've had a couple of prior changes, the biggest two being one in at the beginning of World War II when we changed from an arsenal shipyard largely government-controlled industrial base to one that was based largely in the commercial sector largely in conglomerates. We had a second evolution at the end of the Cold War during the famous Last Supper that Bill Perry held at the Pentagon. When we moved from that conglomerate structure more to a structure of Senate around defense specialists including a couple of the companies represented here today. I think now as I said forces are gathering to change things again and those forces are three. One is the budget reductions. We've gone down a little over 20 percent since the peak in 2008. We're I think going to go go still further with the sequestration maybe not much further but the budget cuts alone though wouldn't normally force a structural change in industry. We've had budget cuts prior evolutions and industry structure adapts and adjusts. It gets a little smaller, it gets a little bigger but I think when you combine those budget reductions with two other factors one is the what Andrew was talking about with federated defense, the globalization of the defense marketplace. It's no longer viable for even a market as large as the U.S. to rely wholly on homegrown products and technologies. It has to look overseas to other nations both for technology and for competition. The industrial base itself isn't big enough in several sectors or the budget base isn't big enough to support multiple domestic contractors but the global base is big enough to support multiple international contractors. So if you want competition you look at a global marketplace. Similarly all the best technology is not based here, particularly when you look at the value chain that Andrew was talking about. Some of the best technologies are going to come from overseas so if we want to maintain the technological edge that's been the hallmark of our military since World War II and beyond we need to have a global approach to the marketplace. That's a second factor changing things. The third factor I think is the growing commercialization of defense technology. For decades during the Cold War defense was really a net exporter of technology whether it was GPS, the origins of the internet itself. A lot of the technology that was developed inside defense, inside defense R&D was then pushed out and there were commercial applications. That still happens but it's less and less and I think a more dominant trend now is their developments in the commercial side, their commercial technologies, 3D printing, nanotechnology, the broader sphere of information technology itself where defense needs to pull those technologies in and operationalize them for military use. And again I think if we're going to maintain our technological edge we're going to have to get very good at that particular operation. So in my mind what's happening is those three forces, budget reductions, globalization, commercialization are driving us towards over the next few years structural changes in the defense. I think the policy challenge for a panel like this and more broadly for the department and industry over the next few years is how do we adapt to and manage that change. In the prior two changes I cited, World War II and the Last Supper, those structural changes were actually managed extremely well and the U.S. ended up with an ever stronger military and a stronger industrial base supporting it. I think the challenge we face is to achieve the same result. All right, thank you. Bob Stevens. Hey, thanks, Andrew. Good morning everybody. I'd be very hard pressed this morning to offer you an example from the programs with which I have familiarity that don't have a fairly substantial segment of the program that has come from a global supply chain. In fact, most of the very high technology programs that I've been associated with have significant international content. I don't think there's any concern if we envision an environment where governments have aligned security interests and objectives and they can define their roles and responsibilities in those objectives and further they can determine what systems and support and services they need and specify the requirements there and access a global supply chain and have the supply side of the industry bring together the very best solutions. I think governments should in every case do that to the maximum extent possible and it's hard to argue with constructs when those constructs facilitate a market that is more creative, more innovative, generating higher levels of performance and better value for customers. I hope that in our discussion today we can explore a couple of the parameters that I think as I understand this federated defense concept that would be specifically of importance here. The first is the clear recognition that while we like to think about defense acquisition in the same way we think about a broader market context there are many, many reasons why defense is unique. Among them the nature of the defense industrial base for most countries is central to their definition of security and sovereignty and that's not likely to go away no matter how we orchestrate the architecture of the defense industrial base. It's the highest priority of the governments that I've interfaced with and I think appropriately so. There is this issue in my mind in a very complex global security environment that seems to be getting more complicated as to how much governments are investing in their security even if the security interests and objectives align and I think the data shows there's diminishing investment in security and that's going to affect the size and composition of the market and the overall vitality of the market. I do recognize Andrew, you laid out a number of what I regard as familiar to all of us policy issues like technology release policy or export controls and such things. Whether or not participants in the industrial base sign up to standards of ethics and business conduct and whether there's rigor in those standards or not all of those would also be a determinant and then I guess I think in the world that we face today with increasing volatility even when governments align given the dynamic nature of the world we see I have a question as to how tight that alignment can be how reliable we can be as partners over time government to government and how reliable we can be as an industrial base with one another over time as we respond to the challenges in this very dynamic and changing global security environment so I hope that this discussion this morning can facilitate some further consideration of those points as we try to define what a federated defense environment might look like. Thanks Andrew. Thank you Clay Jones. Thanks Andrew and good morning. Today we're blessed on the panel to have two extraordinary representatives from major defense companies global defense companies that operate on the prime sub prime supplier level and I think they'll be excellent spokesmen for the role of federated defense in their products and in those kind of systems. Today I think my role is to speak perhaps as a supplier or a subsystems provider and see how the applicability of a federated defense concept would work and in fact what I can tell you is for our company and especially those doing business in the electronics area which our company did we've been operating under this sort of concept I'd say for the last two decades or more and I think we were perhaps early leaders in this unbeknowning we were doing it because of the context in which we operate. We typically operate at a lower level in the Pentagon which lets fewer barriers associated with what we do. Those barrier those that visibility tends to be somewhat less political and we in the electronics area have a natural commercial bias because of the kind of products and components that we operate in and so as a good example of how this has evolved I can go back two decades ago with the advent of a new technology at the time called liquid crystal displays and all of you have those displays in your home and your TV set and in fact it was the commercial market for TVs that drove this technology to be put in place. The Pentagon recognizing the advantages of lower weight, higher complexity of display and ultimately lower costs saw this as a technology that needed to put into its systems but feared that being dependent on foreign sources which at the time were mostly coming out of Japan and then Korea would be in some way a hazard in national defense so it's been hundreds of millions of dollars trying to set up a U.S. base capability for liquid crystal displays which failed miserably. The market obviously couldn't adapt to that. It was done primarily for military use and had no commercial bent or capability that it could distribute the cost and drive the development for and as a result we've seen market forces not any policy but market forces evolve over that two decade period where literally every modern weapon system that we're producing now the F-35 the F-22 which converted to LCDs is using liquid crystal displays all of which are sourced outside the United States. This was also brought to bear when we recently experienced a tsunami in Japan and we had to immediately react to make sure that our base of supply for all of our military systems and commercial systems would be maintained and we found that we had literally hundreds of suppliers in Japan not all of which but some of which were affected by the tsunami many of which were sole sourced parts and so what I would tell you based on my experiences is we already have a very well established federated defense system in some of the supplier areas that certainly in the electronics area that we're dealing with and which can I think grow over time. Now where I think federated defense certainly can play a role if we look at the discussions that I've listened to this morning in this panel they've all been focused on the reduction in funding that we're seeing in the United States for military systems and an inordinate amount of time has been spent on something that virtually no one of the attendees that attend this conference can do or will do anything about and that is trying to get Congress to figure out how to do it better and get more funds. Rather than that I think we would spend our time more productively in seeing how we can address those problems that are under our control that will allow us to live within whatever funding and whatever oversight that the Congress will naturally apply to what we do and so I think that there have been a number of issues addressed that are common themes. How do we innovate? How can we maintain competition and how can we ultimately make weapon systems more affordable? And I think in all of those cases there are concrete steps that can be taken without congressional oversight that can improve in each one of those areas. I would submit that one of the best reports I've read here of late was published this summer by that Defense Business Board of which Pierre is a member and which if you heard Secretary Work this morning he was a big advocate of using the Defense Business Board and this was specifically a report on how to maintain innovation specifically using commercial approaches that Bill talked about in his. Now I was disappointed in the opportunity the question that Secretary Work had this morning about how do we improve the acquisition change that he didn't reference this report or talk specifically about the recommendations which I think would make dramatic improvements in the way that we buy and the way that we innovate and the way that we use the the innovative base that exists not only in the United States but around the world. So let me take the liberty if I can of picking four specific areas both out of this report and my own thinking that perhaps we can talk about a little bit more during the Q&A session. The first is a more modular approach to development using more open systems and the ability to upgrade these systems more eloquently. There's not a single I'll call it aircraft weapon system that's being developed that doesn't come replete with an avionics suite that is obsolete by the time it reached operational development. The F-22 was one the F-35 is becoming one because that system cannot be fielded and moved in a time that would meet the advances that we see in avionics or electronics opportunities and so if you design and build a system that allows itself to be modularized and updated you would save a lot of time and money and get more capability along the way if you do that. The second one that to be redundant what Bill said is the more use of commercial practices especially electronics and I'd say many other fields in the areas of even metallics and engine manufacturing a lot of the advances that we're seeing right now are being done in the commercial marketplace sometime the commercial aerospace marketplace sometime the consumer marketplace. The ability of the Pentagon to use commercial practices and to attract commercial firms is paramount. By the way we figured this out 20 years ago when FASA was passed in 1994 and there are already regulations far part 12 that are on the books in the defense department if they just take advantage of them instead what we see in the department is an attempt to rewrite FASA to remove the other type clauses that allow that adaption to be made from commercial pure commercial to commercial military use. The third area is incentives. I think the incentives as they're currently structured are not as productive as they can be. I've been a big advocate of use of more fixed price contracts. I think that would be a better way to do it if you think about cost-based contracts and they do have their purpose in certain areas a cost-based contract has incentives in all the wrong places. The only way is to supply that you can increase revenues and therefore profitability is to add cost. Now no contractor goes in with the conscious effort to increase the cost of these weapons systems but the system itself is insidious in allowing that to happen because the operator is always going to want more capability. It's almost like you listening to an ad for pharmaceuticals on the TV if it'll cure your problem you want to go get some and you'll use that name brand pharmaceutical. Same thing here we go in the operator wants it then the supplier is not going to turn that down and the system allows that to happen. The use of fixed price contract is in controlling configurations I think is a far better way to make sure the incentives are aligned better and then finally communications. I would say having been a 40-year veteran of the defense business I've never seen communication with industry be in a worse state than it is today. Today getting access to people in the Pentagon to have open candid and straightforward conversations is extraordinarily difficult and if you happen to get that meeting there's almost certainly a lawyer in the room that is not facilitating. And so I think we need to think about forums that would allow new ideas and new practices and processes to come to the table that would be helpful for both of us. Thank you. So it's a topic I think that has a blend of issues as usual and it's important to sort of peel them apart policy issues conceptual issues mythology as well as I think a reality. It's a notion that loops around I think when budgets get tighter as Clay sort of noted the Europeans have been and the European Defense Agency has been struggling with this topic CSIS has been involved in that dialogue with the Europeans and I think it's on showing itself on to us as we sit there and stare at a moral steer you know budget environment but doesn't mean it's not the right thing it's just let's be clear that I think that's one of the one of the elements of the drivers because there have been plenty of examples where we're actually doing it right now I would argue the US UK nuclear relationship is exactly of this notion right we're developing something together certainly the UK you know couldn't do without it and is willing to be relied upon us it's why Bill when he was in the building and CSIS and others we will everybody worked so hard on the US UK sort of technology treaty to try to enhance this so I mean there are elements of the notion that exist and the issues I think that we're all asking is is can it scale itself it has a mythology component to it to the extent of of we are trying to break down something that actually has never existed right this notion that oh I'm going to give up autonomy in order to do this in a federated fashion I think that's a little bit of what Clay and Bob and everybody's been telling you you never had that autonomy to start with right because the further than that's the key part of the reality the further down you go inside the supply chain the further down you go inside the industrial base so more this has been ever since the the the real acceleration of globalization you know in the 80s and 90s this has been going on underneath everybody's feet and I would argue this is just the policymakers catching up with the reality of what's going on underneath and and you can see clear examples of where the notion has worked not only and has been in play not only from a technological standpoint but also from a business you know standpoint of the concepts of I'm going to lash my fate to somebody else and together we will do better and and alone we actually couldn't operate and the best example a couple of examples I can think of is CFM right the GE Snackma joint venture doing commercial aerospace engines now it's instructive about how can that relationship work for as long as it did they drew some pretty clear lines you know for those of you guys for those of you know it or or don't or yeah or may or may not be familiar with with engine technology but one is focused on the hot engine hot section of the engine the other one's focused on the cold section and by doing that that's kind of kept each out of each other's hair and yet together they're putting together a product that couldn't be done I can give you plenty of other examples whether it's the Raytheon talus joint venture there have been missile joint ventures that have been constructed that way etc where have these worked out the best and where are we seeing the greatest amount of appetite for it not only on the part of industry but as well as as government thinks about it if you start to pot it out it's in all the areas that are very capital intensive and where we're getting stuck on the wrong end of the cost versus capability curve right where it's starting to go asymptotic on us that every increment of additional capability is costing us so much that nobody can do it and there's one of two ways to break that we do an innovation that restarts the curve somehow so I have a whole bunch of UAV guys trying to break the the fixed wing fighter curve or I have a bunch of cyber guys sort of saying I can break the entire curve because you don't need hardware I can do it with 10 lines of code or a way to share the cost of that you know of that of that burden I mean the the the JSF I think conceptually right was an attempt to break the curve go beyond the notion of the standard teaming arrangements the standard work shares and and move into that fashion from a conceptual standpoint and if you kind of go down the list of where do we have the most amount of of strain and pain it's in it's in those areas where the very capital intensive side or what everybody has been calling you know low density high demand assets right that's that's another euphemism for you know I wish I had it but I can't afford it and you're seeing it live right now there are certain countries that don't have heavy left capabilities and they're entirely relying upon us in order to provide that so I think the the issue is not whether the idea makes sense or whether it's not even that it's it's it's in operation today I would submit to you that the industry is more amenable and ready for it if not already you know doing it behind the scenes in some way in some ways it's how do you take the notion and scale it to the level that we want to do and in what appropriate areas all right thank you very much so we teed up a lot of great issues here and let's let's dig into them let me start with this issue that's come up a couple of times about from an industry perspective do we need to change anything to support a federated defense approach I've heard essentially a couple say no that it's there already that we're this is how industry is operating today but uh Mr. Stevens also suggested that there is something a little different about the unique defense marketplace that we need to think about so why don't I direct that if I could do you bob and and get you to address that sure we're gonna start I do I think much of this answer is going to lie in what is the definition of a federated defense environment and like you I'm still filling in the blanks and what that definition means to me we have a healthy well functioning globally oriented defense industrial base today as as clay and pier highlighted it's been that way for a while there is not an f16 and f22 and f35 or c130 that takes to the sky unless the global defense industrial base has delivered you can say the same thing about missile defense about satellites about rockets about ships about all our electronic systems so we are very familiar with that environment they these initiatives tend to be one off or programmatically defined so I think one of the threshold conditions I'm still trying to envision is is whether a federated defense environment starts at a national sovereign level with government to government agreements about what the content of their defense industrial base will look like what will be the rules of fair and open markets on both sides because what won't work is any one country opening their markets to others and not have a reciprocal opening of markets that is highly reliable not just from the industry perspective but from government leadership both in the executive branch and the legislative branch we've seen a checkered pattern of what is an open market and how accessible can technology be some of the efforts that have gone into facilitating the version of federated let me say the small version of federated defense that that I described have been accomplished through really Herculean efforts having a champion in the department of defense and having a champion in industry who will do all the heavy lifting to navigate an administrative system that doesn't support this at all in fact brings out antibodies to try to stop this process unless we can address the those conditions in that environment I don't think we will have a smooth functioning reliable market where industry as Pierre mentioned with significant capital investments our time span of discretion is going to be longer than a cr I mean it's going to be longer than than an annual appropriation cycle it's we're going to look out 10 and 20 years for these long term partnerships can we as a participant be a reliable partner and can we secure the interest of reliable partners with government support is a significant question to me I think from from my point of view I'd like to understand more how that say that macro market would work to facilitate the the kinds of outcomes we're looking for and the kinds of outcomes we have secured program by program in some very specific ways so I want to be careful in terms of sort of saying that hey it's it's all there right the issue of scalability is a massive one right in terms of the notion the concept and the reason why this is going to be very hard is because 60 70% of the problem is a cultural one to the extent of how well do you how comfortable are you working in joint ventures etc which in the grand scheme of things American companies have a tougher time than than others who have been forced to do that and be interesting maybe Billy might have some insights into your on both sides of the Atlantic from that perspective so there's a cultural component to it there are plenty of speed bumps along what I'm what I guess I'm saying is I would argue there's no huge walls but there's some pretty high speed bumps along the way and you listed some of those right export control laws etc etc that that's sort of that that all have to be overcome the point that I would make though and it was rightly brought out by by both Bob and Clay that the further you go to the visible part you know where you're at the at the political level where you can see the flag on the product I mean that's what you got to solve lots of other things are then going on underneath the hood that are I think in the end reflecting the reality of the global marketplace what you're talking about though is solving the flag part on the product with simple but complex notions of hey how about I build this on your behalf and offer that now there's a huge component that could be a lubricant to this and that now gets into why we put so much investment in CQ networks etc the you know the IT side of this of you know can you build a scalable system that lets people opt in out plug in plug out I mean that's where all these notions of open architectures etc etc you know have a I have a huge role to play well one thing we've proven is you can fit a lot of flags on a JSF so we just need to buy things with a lot of surface area sounds like I'm Clay did you want to I just very quickly want to convince answer your question in my view is no I don't think there's a major policy initiative or a big regulatory change that I can see as much as I understand federated defense I'm a little bit in Bob's camp there that would make a dramatic difference I mean we can't close a base or cancel an ATIN so how in the world are we going to eliminate a capability and go to one of our allies and say you pick this up and we'll provide this that interdependency I think Bob said it very well for nationalistic and political reasons create giant hurdles that someone has to figure out how to get over before you can consciously as a secretary of defense saying we're going to get out of what the nuclear game we're going to get out of the fifth generation fighter a sixth generation fighter game we're going to get out of the bomber game I mean pick a system that we're willing to give up the crystal displays happened by market forces it evolved I believe market forces will take care of themselves because again of what Bob said we have an active strong functioning global aerospace system that's becoming more global not less as the as the realities of life extend themselves one of the reasons that the British made the decision they did is because it didn't make any economic sense to maintain that capability France is the last bastion of maintaining all those capabilities and they're going to hang in until they can't hang anymore for nationalistic reasons and each country is going to form its own opinion like that us getting in the middle of that thinking we can define that for the world I think is beyond our capability I think our time is much better spent on making the department easier to do business with so people coming in from the commercial sector or the international sector can do business with the department without adding 20 percent of cost just for being in the room and that's about what you do now if you're a commercial company and you say I'd like to sell something in the DoD so one of the themes that I think is emerging here is that this government to government relationship government government willingness to tackle these issues what are people willing to give up are they willing interdependencies are they willing to take on is pretty crucial and the example was raised of the US UK relationship defense trade treaty of course that's historically one of the closest government relationships that there is could you speak a little bit secretary lin about how you've seen that working and what kind of lessons or you know that might have good and bad for us in how these kinds of relationships work yeah I mean the the I mean I think it's probably not great in terms of how it sets up I mean the US UK a treaty that we got as well as the comparable one with Australia took an enormous lift in congress and and through the department to move it forward and you can't think of an easier situation I mean this is our closest ally in the world there's no security threat we weren't looking at sensitive technologies there was really nothing in the way and it took years and an enormous amount of effort and then at the end of the day what do we have I haven't checked in on it much since I left office but I don't think it's being heavily used right now so we spent a lot of effort to get something that in theory was absolutely right in in practice it should have been easy and it was neither it wasn't easy and it hasn't hasn't been used it doesn't serve I think is a great example of the highway we ought to be ought to be going down a more more interesting as we get into it let me talk a little bit about all of you I have you know traveled extensively talked to a lot of senior leaders and other governments about where you know so this question of what are people willing to give up maybe that's not the most artful way to put it but but it's out there where are foreign leaders really willing to lean forward and cooperate with the United States and maybe be you know a little bit dependent on us but but I don't think we're focusing in federated defense so much on dependency as much as you know enabling each other but where do you see those opportunities being the largest would you start sure I mean a little a little bit towards what Bob and clay were saying if you focus on the big highly visible platforms the thing that you know is pure saying they have the flag on it that's good those are going to be the hardest it's particularly actually in this country a little bit less I think in Europe but still the same I mean Europe the dynamics of the budget I think have driven countries more to the point they realize they can't be the sole producer of every product in their military so they're already moving I don't think we've quite reached that point here although the the budget is going to take us there over time but I do think when you get underneath the hood is is everybody in the panel has been saying where and it's where the content and defense is going anyway so the electronics the communications the all of the the things that are underneath that platform I think those do not have the same visibility and they're already globally sourced anyway so you're just building building on a trend and you can move them higher up in the supply chain with much less of a of a political hurdle than you could if you try and take the platform itself I think we have again plenty of live examples now right so heavy lift and transport is an area training right there are plenty of countries that send their pilots here to be trained why either because they geographically don't have the ability to have lots of space in order to do live training and or you're training your people at certain time it's a huge amount of fixed assets in order to have a range and all the simulated et cetera et cetera and and people are getting together you know in in in order to leverage it I mean it's not too different than than from you know the the commercial world in terms of you know where do people look to leverage and and gain efficiencies through through combination it usually doesn't start at the pointy end of the spear either on the business side or the government side it's in the quote-unquote back office now how you wanted to find that back office in government terms we we we can do that but that's the that's the place is the start and that's usually again where where industry goes when it comes time to hey where do I do I want to outsource my it do I want to outsource my hr do I want to outsource my my my blankety blank is it really a national imperative to have every european country do their own hr system I don't know I could see a NATO HR you know people will probably flip out because again that that might be another one of these equivalent flag things that if your check came from a you know if a sergeant in the military got his check from a french bank i'm sure he probably would flip out but you know so I so I exaggerate for effect but you know it's I think there's a lot of those equivalent that they end up on and what I would call the back office side that it becomes obvious places and or what what I would say and at the risk of becoming the cynic on the panel and I apologize if I'm going that direction but a lot of people I talked about outside the United States actually don't look forward to doing business with the United States we're hard to do business with and you know the the top thing on their list is it our controls uh we you know whether they can use it or whether they can export it or how they can use it is very tightly controlled by our regulatory oversight you know we could say that's overkill there's some goodness for having it but it creates a burden the biggest opportunities we have when we're selling avionics around the world is using a commercially based itar free system in which case they love it and and we we have to consciously design around doing that to make that happen so I'm back to ease of doing business with uh that's the bigger issue here not what are they willing to get up to get to do that at the risk of competing with clay for cynic on the panel in addition to the I we've actually experienced commercial satellite campaigns where the marketing argument for our competitors is itar free that that's the the definitive characteristic that brought the competitor home which is very telling uh beyond that when I've talked to leaders in both government and militaries I've been surprised at how much they've questioned the confidence of what we're doing here in America and this is where sequestration in my judgment has not helped we've been the model as difficult as it may appear to all of us with the processes we've had to the rest of the world we've been the model of how to do this right and the discussions about sequestration the discussions about continuing resolutions about government shutdowns have given rise to a question of how reliable are we going to be as global security partners whether that's in partnership capacity building or a federated defense or any other manifestation who are we dealing with and and what's the duration of a commitment that I have from you because you may come forward with the best of intentions clay jones um but you may be impaired at some level in the future of delivering on your commitment so in addition to streamlining the process in the department of defense you know i've been struck john hamry and i 13 years ago sat on a commission to study the future of the u.s. aerospace industry i don't commend it to you um however as part of the educational process i decided to look at how many other of these kinds of investigations have been undertaken and the in the short answer is a lot including at least a half a dozen major studies from hoover one hoover two fits you grace the packard commission what struck me is two things after 70 years of acquisition reform we have not reformed acquisition we have not because we're talking about the very same subjects today as is written in those reports and if we just did half the things that these experienced area diet leaders suggested we do we wouldn't be having some of these conversations today in the pack i won't be long winded in the packard commission they said funding stability is a huge part of the ability to get efficiencies and investment in the defense sector let's go to a two-year defense budget cycle not only don't we have by any old defense cycles we have continuing resolutions and shutdowns and sequester and we're going into the third year that would be the antithesis of what the packard commission recommended so is it is there any wonder that things are costing more that there's hesitation in the global supply chain in an understanding of who we're doing with who we're dealing with how can we trust you how can we rely upon it so we we really do have work to do in streamlining the processes and reestablishing the foundation so that this whatever level of federated defense we seek and i think it's essential that we have a level of federated defense nothing here works without it the worst phrase i think i've ever heard was by american is if someone institutes a by american policy all our programs are shut down because we don't have the the reach anymore in the industrial base here we rely on that global industrial base so i think we need to do more to invigorate that all right i want to throw one last question out to the group and then we'll go to audience questions but i i want to take this down to a we've done a couple of examples but there's one example that is just irresistible and i bring it up not because i have bob stevens in the room but i just think it's just so relevant to the discussion which is the f35 joint strike fighter program which is a cooperative program the largest cooperative program in the history of the world and uh i just think we ought to spend a little bit of time talking about how that relates uh and and what about it is working i think there's a lot about it is working and i'm sure there are others here who think there's a lot about it that's working also but uh and and what challenges have come up as we've gone through that process you know this is where i give huge credit to leaders in the department of defense um who who did exactly what secretary lin suggested had to be done to envision a model that would be different from our past practice even with all the risks attendant and of course when you suggest to anybody who's done this more than once that we're going to have any one system that satisfies three services and nine partner countries there's a certain amount of skepticism that comes from that i think at the outset everybody recognizes going to be heavy lifting this is not easy to do but it is worth doing and while i think the program has been perhaps overly maligned in in some respects this program will in the final analysis be enormously successful not just for the united states but for our partner countries in all three services here it'll be a fully functioning terrific fifth generation 40 50 year airplane from which we will get enormous returns on investment but it took conspicuous leadership and a willingness to go against the grain of what was usual and traditional and to take on the challenges that were evident and to assemble not only an industrial base in america but a global supply chain in partnership uh with the department of defense leadership as well as members of congress who who were skeptical but supported the program and understood it i i i think it might turn out to be a model perhaps a little like our relationship with the united kingdom on nuclear weapons i don't know if it's if we can replicate that today um just to get the global procurement authority i mean in the early days we couldn't talk to our partners and every discussion required a technical assistant agreement in place every one can you imagine trying to assemble a global supply chain on a fast track development program for three variants of a fifth generation supersonic stealthy airplane that hovers uh and waiting while while bureaucracies put forward the authority to simply have a conversation in a conference room and show people who are our partners exhibits uh on the program it's better than it was uh if we're going to have a market rather than a program function on this basis we have a lot of work to do i think the bob mentioned the some of the criticisms of the f-35 and and they're fair in the sense that you know the f-35 is is gone over cost it's gone gone over budget i think the impressive thing about the f-35 is that it's not worse than other development programs of similar complexity and technological challenge to bob's point if you're doing you know nine countries three services they should have been much much worse and we have programs uh uh where that's happened uh that that this is in line with historical uh efforts i think is is underappreciated as a as actually a huge success uh don't normally say you know overruns or success but here you know the the the challenge of bringing this kind of complexity uh into operation always involves those kinds of risks and those kinds of risks usually show up on the budget in the schedule side the second point i think about the f-35 is it does lead somewhat the way forward in the you know i cautioned about moving platforms into this area but the way you're going to do it is the way we've done it with the f-35 is you're going to have to share the work you cannot keep it all we cannot follow the model we're going to build it here and sell it overseas and i i think you know lockheed and the and the department have done a nice job of managing that that work share uh uh as partner countries uh come in they get a work share it's i i'm sure extraordinarily difficult negotiation it's going back to the first one it's extraordinarily difficult then to control the costs in that kind of environment and i and i think both uh both have been done final point of f-35 is to your federated defense is it almost has to be the future because we've talked the prior panel talked a lot about the budget if you spent any time here you should have come away very pessimistic that that the budget uh uh dead lock here is going to be broken and that we're going to get out of bca levels and if you want to go to a similar panel in europe you'll be even more depressed uh european defense budgets are even in a uh a sorrier state and we can sit and lecture the europeans or lecture our congress for as long as we want i don't think it's really going to change the the budgets are going to be what they're going to be there are other national needs there are deficits there's an enormous number of pressures the challenge is how are we going to do better within the existing budgets that we have and the f-35 i think is an example of how we can move towards federated defense and do that quick quick comment there's a notion that's almost equivalent to the conservation of energy sort of law right that there's a there's a complexity in the system that exists today underneath the hood we think it looks simple at the top because you know i am buying an airplane it's simple and all that can play all you're asking to do i would argue in some ways is just moving that complexity up into the visible level in order to make the plumbing underneath simpler and and the issue is which way in the end works better given all the political realities you know etc etc etc i mean so but i don't think you're going to change the amount of complexity in the system frankly if that's the premise that's a that's a false hood right it's just where where is it and where do you see it when i heard bill say it could be worse i heard the voice of my mother-in-law in my head there is i want to offer you a footnote because there was some very considerable risk taking undertaken in the department of defense on the f-35 some considerable investment and investment in industry in a technology moving the design to a digital database and what enables this global supply chain to work and it takes some money and it takes some courage is to throw away the old design tools and get a new design tool set that results in what's referred to as the digital thread so that everybody up levels their engineering capability everybody gets on the same design architecture and we do that digitally then we can share information around the globe and that sharing of information then allows the global industrial base that is at that level of proficiency both in design and in manufacturing to produce against a specification that is sufficiently tight that when the parts come in from around the world they fit into that airplane exactly as they were designed because everybody's sharing the same content of that intellectual property as compared to as we used to do it paper designs shipped out to everybody who translates that paper design on another paper for design engineering that then translates it to manufacturing engineering we don't do that anymore and that was a huge investment on by the department of defense and by industry and I think took a lot of courage because that violates the rules of wing bucket where you know we are going to do that on this program and the scale of the program was substantial and I think that can prove real to be a viable course of action for other programs in other ways to incorporate facility in a global industrial base which oh by the way the commercial aerospace industry was already doing for example on the triple seven that design was working its way around the world you know every day as different design centers around the world we're working on that as you know all right well this point I will open it up to some audience questions we've got about 15 minutes left and we've got some hands and I think we have folks with microphones who can let you get started please introduce yourself and then ask your question and keep the questions brief please so we can fit several in I want to we start here thank you Michael Bruno with aviation week space technology sort of a contrarian question Tom Enders is talk about he never wants to do an A400 again people inside the Pentagon talk about how the JSF really wasn't the solution for the individual services people in Congress say they never want to do me ads again could we not be at a tipping point that goes against complex multinational programs and doesn't that sort of open up a better by American or by French atmosphere well I hope that's not the case I mean I those arguments I think we've heard before there have been precursor conditions that give rise to the sense that if we all just come home if we shut down our markets if we just do everything here we'll be fine but that that runs entirely contrary to the last 20 years of experience that we have had there's real vitality in the global industrial base anyone who thinks there's a corner on intellectual property is working in an environment that I'm unfamiliar with I do think that every aspect of American industry can be competitive but then we start talking about the allocation of scarce resources in money and time and talent what we ought to do is find out where are these areas where we can work effectively and well together set out the ground rules to assure fairness and reciprocity if it requires open markets use the best of the technology that we have and and give the customer leverage to to buy economic as economically as possible in this environment again I think we love to use the vocabulary of business and economics in our discussions about defense but we don't act in a fashion that you would recognize in the commercial market to actually get those economic outcomes so the more we can change our behavior here and invite and embrace the the global market with standards and I think the better off we're going to be I don't see us having the ability in in our country to go it alone and as I said if if we had a requirement today to only incorporate that which was designed developed and manufactured in America I don't think I know a company that could deliver a product tomorrow morning it's even hard to trace the source of the materials if you want to go back to or you know where was it mined we live in a globalized world that's we're not going to reverse that I don't think we should want to but if we did I don't think it's possible build on quickly what Bob said is I I think if you went the direction your question suggests it would be easier be politically easier it'd be easier less complex be easier to manage and the result would be you'd get more costly systems you'd get lower technology you'd get less capability so for the the trade isn't worth it and and we do work with other countries around the world in providing for the security of 320 million Americans and friends and allies and and we do have security cooperation partnerships and we would lose every opportunity in interoperability and sustainable in joint logistics bases in training and there is a byproduct in our experience I cite for you the f16 program that is long and well established we have in we the united states has incredibly good relations in 25 countries because the political leaders of those countries and the military leaders of those countries have worked with the united states military and political leadership in a security cooperation partnership where we got to understand one another culturally personally and and build bonds of friendship within and in industrial capacity with jobs and economics and it's it's built a fabric of a good relationship well beyond the simple provision of an airplane for military service so there are really derived benefits from these global exchanges where we're more aware of global circumstances we know one another better and we can call when we need it when we when we mobilize in a complex world today we're going with partners I mean this has been a repetitive behavior over the last 50 years and go back and look last every every downturn there's a reaction of oh let me get back to my core let's get rid of all this other stuff and then and then there's a j-curve you go you go through that and then you hit the bottom and you realize oh I don't have enough money in order to do this on my own and they come right back to doing things together this is this is right it is like everybody's playing their role in the act you know in the in the play that that's getting repeated again let me add a perspective you had looked at yet you mentioned programs that have cost overruns or trouble to pass let's compare that to the commercial marketplace seven eight seven done by Boeing c-series done by bombardier a a 380 and a 330 probably a 330 the best of the bunch so far all of which had issues that didn't have near the complexity or the the prime level global involvement that those programs you mentioned so I think we run the risk of masking what the real nature of the problem is with the fact that it happens to be complex technologically or happens to be involved with international partners if you go back and you trace the troubled programs we've had they all trace back to fundamental things that are program management 101 requirements stability staffing the program picking the right leader managing the configuration those are much more the the roads to doom than is the fact that you are introducing new technology or you have international partners or it is complex and I think if we look at parsing out what the real nature of the problem is we'll find that those four issues are usually at the root of most of these overruns and those are just those are things we can control less sexy but things we can control I'm Bob Hershey I'm a consultant what can be done to get more of this on the internet so that people can have transparency and see what the issues are and what their economic consensus is getting appropriate systems where people can have international participation which helps the system so you're interested in transparency some of this cooperative work that's underway Bill could you give us you have a perspective from your time and government about how obviously some government government interactions are not going to be public and a lot of cases are very sensitive but in other cases it's part of the process is you know is making it public and having you know public events and discussions putting out policies yeah I guess I haven't seen lack of transparency is as a core hurdle or challenge in you know industrial policy in terms of partnering with with nations I think I guess come the other direction I think the internet other social media the global growth the news media to begin with there's an awful lot of information out there far more than there was a decade or two ago so I think the information's out there it it's available it's it's more accessible I mean the challenge is more sorting it than acquiring it but so I guess I don't quite go down the same thrust as you did I can give you an example from the F-35 program in conjunction with our department of defense and the ministries of defense in partner countries we would have supplier fairs we would have broad area announcements in the countries who were participating investing partners and bring in their industry and talk about the program and as I mentioned to you earlier that some of the challenge was assuring that we had the technical assistance agreements and the proper documentation in place but and they were widely and well received so that even small businesses in in a variety of countries had an opportunity to understand more clearly I thought it was advertised pretty well although it wasn't done exclusively by us and had a great response and and was very competitive you know when we talk about well we want more competition there's a lot of competition going on folks much more than you might think well even lot to lot in serial production where it looks like the prime contractor doesn't change I would invite you to ask clay jones how he feels about competition for the subsystems that he provides because a lot to lot if you can't meet the expectations of an improving cost curve at quality with delivering on schedule we're going shopping Bill would expect us to do nothing less and he was right in that we should deliver against that set of criteria we have an obligation to do it we have a global supply chain to sample from and we're going shopping you could back here yes my name is frank barone I live in Arlington Virginia DC and I'm a private investor so thank you very much for all the things you've done with your companies we very much appreciate that going all the way back to norm augustine who I know very well I live next door to him in Naples so we get to talk to each other a lot my question is a little bit different that is when I talk to the guys that wear the stars on their shoulders and uniforms which I did a lot of yesterday because it was veterans day I asked the question that you began to allude to Mr. Linan that is why are we not able to take all the various militaries that we have they're all in our in our field so to speak and divide the war between ourselves that's what that's what happens in the real war the first world war the second world war the Korean war it seems to me like the defense federation has another precedent that that is the offensive preparation at the federated level the requirements as you pointed out are the big driver here that's the number one item that mr. Jones talked about here why can we not start that issue you certainly already have a lot of maturity in the production bottom up but what I don't see here is anything associated with the operational forces I know the guys in socom I asked them a lot about that because they're in the Florida area what are you doing to make sure that your counterpart and you and they can communicate with one another and as you talking about on the training aspect of it pilots come to the United States to be trained because we have resources whatever we have so maybe there's more than a single phase to this effectively federated challenge that is you've got the industrial base up for the federation to make the parts and the materials logistically supportable function incapable which also have the requirements coming from the top down which is the issue associated with the warfighter where are they going to fit in this because I think they're probably really the key a couple of things one I think the overall thrust of your question is right is that I think Bob alluded this earlier one of the one of the real dynamics for federated defense is that we should basically build systems as we fight we we we fight together we we virtually never go into anything alone anymore we we engage our allies we our allies support us they sometimes lead we sometimes lead it's always an integrated effort to support that integrated effort you need integrated equipment very mundane loving to be able to communicate you need to be able to have efficiency of maintaining efficiency of logistics so there's there's a strong operational dynamic I would fight your analogy to world war two though world war two we largely produced everything and then provided it it wasn't the our allies weren't in a position to produce that kind of equipment at that time in the world that isn't the case today so I don't think that that analogy would work I'd offer you a different one it doesn't come from defense it comes from the automobile industry if you go back I don't know 30 years ago it was virtually unpatriotic to drive a German or a Japanese car people you know I thought you were stealing jobs from Americans that now you look at things today the largest exporter of us built cars in the world is BMW they build the most cars for exports the whole market has become integrated the that overseas brought plants here we've brought plants overseas the market for automobiles is global we compete very effectively but it's no longer a parochial market it's no longer a market where you put walls around your capability and try and move your product overseas I think that's the direction there's there's additional challenges with security and technology with defense it's not a simple metaphor but nevertheless I think that's the direction that we need to look to be going and there's been a notion of design concepts inside the building of you know designed for for exportability putting that all all all the way in at the beginning that actually runs against the tighter budget environment because that's extra money you spend up front right so that's that's again systems engineering all these things are things that get thrown out when budgets get tight but that's that's one notion that that leads to it there's another dilemma that that also we need to wrap our heads around you know systems that we designed for our core customer you know for the american military are usually way overscaled for most other countries right a c-cube system for an army core is probably equivalent to the c-cube system for the entire country of barundi so they sit there and go how do I plug into that which a lot of times is where some of the european competitors have a better time in the export market because they're they're better scaled and so that's part of the notions again of how do you how do you build in that kind of scalability so it'll work for the u.s. military all the way down to any one of these and which is why you're now you're back to the electronic side of this as partly the answer because that's how you get it's how you get your scalability okay well we have come to the hour the 12 15 hour and before I talk a little bit about the next stage which is lunch let me just ask everyone to thank our panelists and add my thanks added quite a bit to our discussion that'll be very helpful so the next stage of the forum is lunch for the folks in this room there is food and seating available on the concourse level which is downstairs whichever set of stairs or elevators you choose to use and thank you very much for coming