Hegseth plan to speed up defense procurement

[rj1]

Draft memo reveals potentially sweeping Pentagon acquisition reforms - Breaking Defense

Breaking Defense obtained the draft memo just days before Defense Secretary Pete Hegseth is set to address a crowd of defense CEOs and top military acquisition officials on Friday, where he is expected to announce significant changes to how the Pentagon buys weapons.

breakingdefense.com

Think an end game here is partial nationalization of the likes of Boeing and Lockheed. (Say 10% like we did with Intel.)

 

[Monash]

Not sure owning 10% of the stock will speed up procurement that much. Sure it gives you a seat and the table where you can state what the DoDs priorities are but your creating a hell of a conflict for whoever sitting on the boards involved. If the government demands a particular program be progressed at a faster pace or at a lower per unit cost? Both of which potentially cost the companies more money?

 

[rj1]

Not sure owning 10% of the stock will speed up procurement that much. Sure it gives you a seat and the table where you can state what the DoDs priorities are but your creating a hell of a conflict for whoever sitting on the boards involved. If the government demands a particular program be progressed at a faster pace or at a lower per unit cost? Both of which potentially cost the companies more money?

I think that's the point. U.S. government becomes #1 priority for business priorities. Otherwise they will go find other businesses to give contracts to. Much harder for Boeing to be completely cutoff if the government owns 10% of them. Their Board of Directors to protect shareholder value would probably be in favor.

The unsaid aspect of this is the defense industry ever since the Clinton administration has undergone massive consolidation and there's loads of items that are single source, i.e. it's naturally uncompetitive bidding. I think the hope although it's a stretch in some fields is they do to the industry what SpaceX did to launch costs where ULA was likewise single source. I don't understand though how you can "SpaceX" something like building ships. The only reason SpaceX is a thing is people were blissfully sending money to an entity losing money hand over fist. Which is how venture capital works, but greater than 95% of all venture capital startups fail and most for the investors are only meant to live enough to be able to sell.

You can get rid of the unique requirements on the front end for starters which I'm sure are already in targeting crosshairs, but even if you do that the Navy I think against their will got a pre-packaged Italian design getting built in Wisconsin that they have subsequently destroyed any semblance of previously established design via all these unique requirements.

 

[Monash]

I think that's the point. U.S. government becomes #1 priority for business priorities. Otherwise they will go find other businesses to give contracts to. Much harder for Boeing to be completely cutoff if the government owns 10% of them. Their Board of Directors to protect shareholder value would probably be in favor.

The unsaid aspect of this is the defense industry ever since the Clinton administration has undergone massive consolidation and there's loads of items that are single source, i.e. it's naturally uncompetitive bidding. I think the hope although it's a stretch in some fields is they do to the industry what SpaceX did to launch costs where ULA was likewise single source. I don't understand though how you can "SpaceX" something like building ships. The only reason SpaceX is a thing is people were blissfully sending money to an entity losing money hand over fist. Which is how venture capital works, but greater than 95% of all venture capital startups fail and most for the investors are only meant to live enough to be able to sell.

You can get rid of the unique requirements on the front end for starters which I'm sure are already in targeting crosshairs, but even if you do that the Navy I think against their will got a pre-packaged Italian design getting built in Wisconsin that they have subsequently destroyed any semblance of previously established design via all these unique requirements.

Isn't that first bit socialism?

That aside what 'other businesses' can the US Government go to? Who else can they do business with other than Boeing, Lockheed and the other big 10 defense firms? It's not like Trump would let the DoD take their business offshore and this isn't WW2. Neither Ford or GM etc are suddenly going to start retooling in order to win US Government aerospace contracts just because Trump says to!

 

[jlvfr]

Honestly, it looks more like a way to have a grab at outright onwership of the big-$$$$ defense companies into a handfull of people...

 

[Monash]

Honestly, it looks more like a way to have a grab at outright onwership of the big-$$$$ defense companies into a handfull of people...

Depends. If to give an extreme example Trump decided that the US Government would compulsorily acquire 10% of a large number of strategically important fortune 500 companies as I see it he would have basically two choices. One, have the Federal Government purchase the shares at market rates or perhaps at a discount of the market rate or two, have the companies issue new shares to the value of 10% of their market capitalization and just hand them to the Government. The latter would represent a diminution of shareholder value and automatically piss off a lot of powerful wealthy Trump supporters - and the boards of those companies themselves.

If as you suggest at the end of his term he tried to arbitrarily transfer these shares to favored individuals (including himslef of course because there's no-one on the planet Trump favors more than himself) He has the same two options in reverse. Selling them at market or a discounted value or compulsory transfer. Doing either at anything less than market value would put legal targets on the foreheads of everyone involved.

 

[rj1]

"I think that's the point. U.S. government becomes #1 priority for business priorities. "

Isn't that first bit socialism?

Well, the Republican Party under Trump has embraced socialism. Like I've said a few times, Edmund Burke and political conservatism have left the building.

That aside what 'other businesses' can the US Government go to? Who else can they do business with other than Boeing, Lockheed and the other big 10 defense firms?

The hope is Silicon Valley-attached venture capital startups. The SpaceX to ULA comparison and how SpaceX destroyed ULA's business model (a joint venture where Boeing and Lockheed each own half so they could each enjoy the benefits of a monopoly instead of competing against one another for government launch contracts) by rethinking the question and being more nimble has become the model for how the tech crowd sees all current defense contracting. It's a convenient scapegoat for "why is Boeing as a company failing on multiple levels?", "why can our country no longer build ships?", "why are militaries globally switching to drones and America is lagging badly on that front?", "why do government procurement programs last decades?"

(The SpaceX to ULA comparison and while I don't think you can overstate its importance on current thinking because it is very important considering Musk's role to this point in this administration as well as other Musk-like individuals in the "technocratic utilitarianists" group, there is an in-built advantage to SpaceX of they started from a clean sheet of paper and were willing to absorb successive failures - see Starship - whereas ULA had the inertia of everything done in the past and what could be funded. It's one thing in general not well understood by most people that don't do manufacturing, but to frame it in a way more understandable, it's easier and cheaper to build a new house than to completely renovate an existing one to A+ condition.)

 

[rj1]

Honestly, it looks more like a way to have a grab at outright onwership of the big-$$$$ defense companies into a handfull of people...

The nationalization of Boeing was being discussed when Biden was still President because Boeing while being private it's clearly very important to the U.S. military and government and would not be allowed to fail...and it was failing on multiple levels. Again, when given the choice between being completely disrupted and giving the government 10% ownership, $20 says the Boeing Board of Directors will pick the 10%.

The Nationalization of Boeing Begins

Wall Street, labor, customers, and regulators all hate Boeing's management. Meanwhile a strike looms as Boeing's contract with the Machinist union is up. The government is finally stepping in.

www.thebignewsletter.com

Part of the issue and why this is even a thing is there are some very easy targets for disruptors to aim for. That doesn't automatically mean the disruptors will be good disruptors however. I guess come back in 5 years and see how everything worked out.

 

[Monash]

"I think that's the point. U.S. government becomes #1 priority for business priorities. "

Well, the Republican Party under Trump has embraced socialism. Like I've said a few times, Edmund Burke and political conservatism have left the building.



The hope is Silicon Valley-attached venture capital startups. The SpaceX to ULA comparison and how SpaceX destroyed ULA's business model (a joint venture where Boeing and Lockheed each own half so they could each enjoy the benefits of a monopoly instead of competing against one another for government launch contracts) by rethinking the question and being more nimble has become the model for how the tech crowd sees all current defense contracting. It's a convenient scapegoat for "why is Boeing as a company failing on multiple levels?", "why can our country no longer build ships?", "why are militaries globally switching to drones and America is lagging badly on that front?", "why do government procurement programs last decades?"

(The SpaceX to ULA comparison and while I don't think you can overstate its importance on current thinking because it is very important considering Musk's role to this point in this administration as well as other Musk-like individuals in the "technocratic utilitarianists" group, there is an in-built advantage to SpaceX of they started from a clean sheet of paper and were willing to absorb successive failures - see Starship - whereas ULA had the inertia of everything done in the past and what could be funded. It's one thing in general not well understood by most people that don't do manufacturing, but to frame it in a way more understandable, it's easier and cheaper to build a new house than to completely renovate an existing one to A+ condition.)

Great! So the 'plan' is to hope Silicon valley can save the day. Start-ups can come up with innovative products no question. But then it takes more investment and most importantly time for that product to be scaled up in production to the level's needed by organizations like the DoD. You have to build the plants and train or acquire the skilled workforce you need. SpaceX started working on its large for example rocket designs back in 2005 and while they've made solid progress, depending on the model they're still only about TL5 or 6 on their latest designs. How long are the US armed forces supposed to wait for new equipment? And that's not even considering the damage to current market value of the current big players in the defense industry that would result from them being cut out of major projects.

 

[Officer of Engineers]

So the USAF is experiencing what the USN has experienced since before WWII. Name one non-government involved shipyard that produced a US aircraft carrier

 

[Monash]

So the USAF is experiencing what the USN has experienced since before WWII. Name one non-government involved shipyard that produced a US aircraft carrier

That was then this is now. As far as I am aware there are no government owned naval construction yards any more. They're all owned and run by the private sector. Same thing applies to aircraft construction so if the US Government really does want's to pass new business along to startup tech firms? Those firms are either going to have to build their own plants at scale or buy/lease existing factories off the current owners. And good luck with either option.

 

[rj1]

Great! So the 'plan' is to hope Silicon valley can save the day. Start-ups can come up with innovative products no question. But then it takes more investment and most importantly time for that product to be scaled up in production to the level's needed by organizations like the DoD. You have to build the plants and train or acquire the skilled workforce you need. SpaceX started working on its large for example rocket designs back in 2005 and while they've made solid progress, depending on the model they're still only about TL5 or 6 on their latest designs. How long are the US armed forces supposed to wait for new equipment? And that's not even considering the damage to current market value of the current big players in the defense industry that would result from them being cut out of major projects.

It's a comment I've made and has been made for example about the American-sourced rare earths: This is all for show because none of this stuff is coming online until the term of whoever gets elected President in 2032. Even super-scaled manufacturing in theory, you have to figure out what the design is before you build it.