An Ever-Changing Industry

The changes in our aerospace and defense industry over the four decades since I joined Lockheed as a cooperative engineering student in 1983 as a sophomore at The University of Texas at Austin have been sweeping and provide context for what we are living through today.? ?I feel fortunate to have glimpsed the sunsetting US industrial base that supported the second World War and Vietnam, and to now live and work in a networked world where information travels at the speed of light and our industry makes a difference in the lives of people around the world.? Though change can be stressful, as we introduce new technologies, products and factories, and leave old pre-COVID practices behind, I am excited about where our industry is headed in the coming years.?? ????

From Mass Production to Manufacturing 4.0

In Southern California in the 1960’s, there were over a million aerospace workers who populated companies such as North American, Douglas, Lockheed, Northrop, and Hughes and made SoCal’s economy and defense industrial base a shining success.?? In the early 80's I remember touring Lockheed Aeronautics Burbank factory “hall of giants” with rows of Giddings & Lewis 5-axis mills stretching as far as the eye could see and got a sense for what it must have been like to produce P-38, B-17, U-2, and SR-71 aircraft at rate.? ?Today, only a small glass display case exists at the Burbank airport to remind travelers of this “city of industry” that helped the US win WWII.

At the time of my first visit to the Bay Area, Lockheed had over 36,000 employees at Space & Missiles in Sunnyvale CA and occupied most of the land now populated by Silicon valley start-ups.? In the 80’s, more people worked in aerospace in the Bay Area than in high-tech as defense contractors ringed San Jose and Palo Alto.? In fact, our industry populated most of the early technology companies as aerospace employment declined.? Company folklore marked this transition as Bill Hewlett and David Packard of HP fame shot skeet with the President of Lockheed Missiles & Space on the company property now occupied by the likes of Yahoo.? We had titans of industry then who knew their business and created franchises which endure to this day. ??

My first plant manager role was at the massive Air Force Plant 19 in San Diego where over 7000 B-24 Liberator aircraft were produced at a rate of one per hour in partnership with two sister plants in Fort Worth Texas (a plant I led a decade later) and the famous Willow Run Michigan plant.? A total of over 18,000 B-24’s were produced in a mass production approach that has been replaced by today’s flexible manufacturing methods.? I again felt the presence and weight of those who came before me, men and women who produced 12 Atlas rockets per month at peak rate during the Cold War vs. the 12 per year that my dedicated IAM team produced for commercial space missions.? John Glenn toured the factory in 1962 and signed his Atlas LV-3B rocket, the one he orbited the world three times as part of the Project Mercury program.? Talk about history in the air.? ?

Consolidated Aircraft and later General Dynamics employed tens of thousands in San Diego producing Catalinas, B-26, B-58, and F-102/104s.? General Atomics was just a tiny start-up.? The only drones around back in the 80’s were the Army’s Remotely Piloted Vehicle, a 13-foot wingspan, rail-launched drone designed to laser-designate enemy tanks for attack, a product ahead of its time that I worked on in Lockheed’s Austin Division.?

The Cost of Freedom

In the 1980’s and 1990’s, most DoD contracts were “cost plus” and there was enough work to go around for all the big primes.? Cost plus contracting motivated contractors to grow overhead layers and scale – the old joke was “Win a program, build a building” as A&D campuses expanded.? While this may have been costly for the taxpayer, it put the US in front in the arms race and funded robust R&D programs and maintaining deep technical strength that enabled the satellite and missile defense programs which I later ended up managing including THAAD and Patriot.?? I admire the brilliant engineers who created the platforms that kept our country safe through the Cold War to this day.??

In July 1993, DoD leadership convened what was called “the last supper”, where the top A&D CEOs were informed that consolidation was expected so that the USG could make its defense dollars go farther.?? I moved from Lockheed’s Calabasas CA HQ to Washington DC that year as part of the core team tasked to merge Lockheed and Martin Marietta where the ground rule was 1+1=1.3 when combining corporate staff.? The then-CEO of Lockheed Martin Norm Augustine was reportedly surprised to learn that a majority of the savings from the consolidation accrued to the USG, not the shareholders, despite all our heavy lifting to put the two companies together. Mergers of Northrop and Grumman and Boeing and McDonnell Douglas followed to form the top tier of the aerospace industry.

Ultimately, the changes were positive for both the DoD and industry, and the new primes’ sales have all grown well beyond their starting points. ?The shake-out was needed to drive efficiencies and gain scale, but the trend towards “winner takes all” procurements made the stakes all the higher.? It also led to a lack of competition on key procurements, and failed execution on many large programs as thinned-out contractors had laid off the experienced engineers and program managers in pursuit of “win or die” programs.?

Evolution Through Consolidation

In the 2000’s and 2010’s, we saw industry consolidation continue at the second tier with the rise of “Super Tier 2” suppliers like Honeywell, L3Harris, RTX, Safran, and Transdigm.? Their increased scale and spending power helped enable them to withstand the growing cost-down pressure from the Tier 1 primes and DoD, and in many cases, to own the IP and technology most critical to the platform and mission.? The tension between these suppliers and the primes remains high as contractors fight over a tightening defense dollar spend even as top-line defense budgets grow to simultaneously support modernization and recapitalization.??

With the consolidations at the Tier 1 and 2 levels largely complete (and an increasingly risk-sharing and litigious environment), it’s no surprise that we are now seeing consolidation underway at the Tier 3 and 4 levels and increased private equity ownership.? Companies including Orbital, Aerojet, Esterline, GKN, Meggitt, Kaman, Circor, Heroux Devtec, and Barnes have all been acquired either by strategics or private equity.??

COVID and the recession further stressed an already cash-strapped supply chain as the DoD accelerated their adoption of fixed price development and production contracts over the last 15 years. ?Say what you will about the days of cost-plus and incentive-based contracts, the warfighters got the aircraft and weapons they needed, and the US remained the strongest power in the world.? It was a partnership between government and industry to make the impossible possible. ? ??

From Bullpen to Metaverse

The scope of change in our industry has not been limited to the industrial base and business models, but also in the enabling technologies in design, manufacturing, and communications.??The phoneless and computer-less bullpens full of green drafting boards and endless mezzanines of engineers (mostly men) have been replaced by a diverse and tech-savvy workforce capable of designing anywhere in a distributed and virtual environment.? Automation and Additive Manufacturing (pioneered by UT Austin in the 1980s) progressed to the point where firms like Divergent 3D and Anduril are pointing the way to adoption of Digital Manufacturing 4.0 factories that will make rapid and affordable production of new products that were only conceived weeks or months before.??

As a student in the 1980’s working on Star Wars-funded algorithms to ensure effective missile defense, it’s been fascinating to see the transition from Ops Research to Expert Systems to AI.? Aviation Week’s January 12th edition highlights how AI is sweeping across the industry to classify threats, enable safe landings, explore the cosmos, streamline our factories and supply chains, and connect diverse platforms to enable our customer’s mission success.?

The next generation of workers are reinventing how we develop and build our products.? ?I continued to be inspired by the young engineers I meet at UT and TRIUMPH.? They no longer learn drafting or how key components like transistors work in college as technology advances by the degree we take the underlying technologies and algorithms for granted.? The US’ ability to stay out in front both economically and militarily depends on how we can leverage new ways of analyzing data, making risk-weighted decisions, and implementing solutions at lightning speed, not via multi-decade procurements.??

Where will AI lead us in the next decade?? I remain optimistic here as there is still a lot of waste in the system and tragically aviation incidents still occur as Wednesday's DCA crash sadly reminds us. But there is no replacement for ethical and independent thought.? As a member of UT Austin’s Engineering Advisory Board, I continued to emphasize the importance of students’ ability to make the right decisions in volatile, uncertain, complex and ambiguous environments, i.e., to possess “real intelligence” not artificial intelligence.? One can expect the latter to help build the former as we pursue a better world.

Making Aerospace Greater

Ultimately, our industry will continue its change journey in pursuit of perfect safety, mission effectiveness, and cost efficiency just as economist Adam Smith’s “invisible hand” ensures economically optimal outcomes.? I am excited about TRIUMPH’s progress on safety, quality, and next-gen products and the role we play in ensuring the safety and prosperity of the world.?

As a CEO, I continue to advocate for USG and industry investments in R&D, competition, new entrants, and win/win contracting practices, so that Norm Augustine’s 16th Law that postulated that “in the year 2054, the entire defense budget will purchase just one aircraft” does not come to pass.? Thanks to AvWeek magazine for recognizing Norm, a true industry luminary and “engineer’s engineer”, with their Lifetime Achievement Laureate award this March in Washington DC.

We are already starting to see a new A&D industrial base emerge, as Space X proved so well with its reusable launch vehicles and “fail fast and fix” approach to product development, cutting through red tape as normally only possible during war time. The eVTOL revolution and electric propulsion are poised to change aviation in ways the auto industry is already embracing. The diverse new workforce who exemplify Peter Drucker's "knowledge worker" on steroids is here to stay. As my first and widely-respected Lockheed CEO Dan Tellep used to say, "Look ahead to where the horizons are absolutely unlimited".

It’s an exciting time to be in our industry as we start a new super-cycle of combined commercial and defense growth.? As we manage through accelerating change, let us never forget author Paul Kennedy’s 1989 conclusion in The Rise and Fall of the Great Powers that a nation’s economic and military power go hand in hand.? Given our industry’s importance to the GDP, global commerce, and security, the US needs to ensure that we stay in front for the generations that follow.?

Dan C.