Since May of 2012, Frank Kendall has served as Under Secretary of Defense for Acquisition, Technology and Logistics (AT&L) – the Pentagon's top acquisitions official. Kendall launched a number of industrial base initiatives, and Defense News asked him to reflect on the state of the defense industry as the Obama administration enters its final months.
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How confident are you in the status of the US industrial base right now?
Overall, I think it's reasonably healthy. The industrial base kind of goes with the budget in terms of production rates, what we ask them to do and so on. I think it's good that we're stimulating them with the demonstration projects we started. The Aerospace Innovation Initiative is one of those, there are a number of things I started, the Strategic Capabilities Office is doing a number of things, so that's all positive. We're challenging engineers, we're employing them meaningfully. I'd like to do more of that, frankly.
Are you concerned about keeping production rates up?
I'm a little worried about what happens with sequestration next year, so the manufacturing side could be better. But I think it's all right. I think the uncertainty that we're about to enter into, with a new administration and with possible sequestration in '18, is something that industry is going to be very concerned about. Overall I think we're ok, but I'm never fully satisfied with where we are.
Industry has remained, profit margins have stayed flat or gone up a little bit in the last several years. So I think we have kept our commitment to industry to not have a 'War on Profit.' Sales have come down because budgets have come down, but I think we have worked with industry to craft win-win business deals where they maintain profitability but we also got better results, and that is what our goal was.
You've expressed concern about M&A activity at the prime level, but there is a decent amount occurring at the lower levels. Any worries there?
We look at that. We look at all the M&A activity to make sure it's competitive or will change the structure in a way that's not good for the country, but we do that more on a case by case basis. There's been some. We just had the Leidos/Lockheed Martin services deal, which we didn't see a problem with. We look at it case by case. I don't know that I see a big acceleration in it, but it's possible. I think the continuing uncertainty of budgets has been a damper for a long time on M&A activity and I think it will stay that way for a while.
Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.
