July 7, 2009
The U.S. military will be best served by a defense sector that leverages the positive elements of industry globalization, offering the most advanced products at competitive prices for America’s warfighters.
This was the message of EADS North America’s Chairman and CEO Ralph D. Crosby, Jr., during a speech today at Town Hall Los Angeles, which was attended by Southern California industry and political leaders, the national news media and other invited guests.
Crosby noted that as the head of U.S. operations for the world’s largest non-U.S. headquartered aerospace company, he considers EADS North America a vital element of the country’s aerospace industry – contributing daily to the nation’s industrial base and supporting its national security.
He cited company products such as the U.S. Army’s UH-72A Light Utility Helicopter and U.S. Coast Guard HC-144A Ocean Sentry maritime patrol aircraft as examples of how systems with an international lineage were selected by the U.S. government for their operational capabilities and best value.
“Globalization has been at work in advancing technology, widening the scope of sourcing, and enhancing price competition,” Crosby explained. “Our foundational beliefs in the shape and nature of the U.S. defense/aerospace industrial base require adjustment to current realities. The change that has been going on around us must be accommodated by a change in the way we think about our defense industrial base.”
In his Town Hall Los Angeles speech, Crosby addressed four factors that he believes need to be considered in determining the future of America’s aerospace and defense industrial strategies.
The first is that robust competition is not only essential for the customer, it is absolutely vital for the competitors.
“True competition drives innovation, reduces cost over time and delivers the greatest capability to the warfighter at the lowest cost to the taxpayer – and no matter what we think about the size of the defense budget, getting best value…our money’s worth…is critical,” Crosby explained. “It’s a paradoxical relationship, but we need our competitors, if only to create a market space where the comparative value of innovation is recognized and rewarded.”
He said this is clearly demonstrated in EADS’ current teaming with Northrop Grumman in the competition to provide the Air Force with its next-generation aerial refueling tanker. Crosby noted that EADS is the only company besides Boeing that has a commercial aircraft platform large enough to provide a basis for the tanker – the A330 jetliner. EADS was asked by Northrop Grumman to join its team for a competitive offer on the new tanker, which initially was selected by the Air Force last year.
“Without the EADS/Northrop Grumman partnership, the Air Force would have been left with a sole source award – which had previously failed – and none of the competitive benefits of lower cost and greater performance,” he explained. “The phenomenon of reduced cost and greater capability in defense through competition is validated by a number of government and private studies. Across the board, they show that an acquisition environment without competition increases development costs by nearly 40 percent, drives up purchase costs by as much as 45 percent, and results in a nearly 30 percent reduction in the number of systems delivered to the warfighter.”
The second factor, Crosby said, is that industry consolidation requires a re-think of the “made in America” definition.
“As a result of consolidation, our customers – particularly the Department of Defense – have vastly fewer acquisition options, with all the potentially negative implications for cost, quality and innovation,” he said. “If American warfighters are to field the very best equipment in the world, we must broaden our acquisition landscape beyond the traditional base of U.S.-headquartered suppliers.”
Crosby pointed out how this has occurred in numerous recent program awards, including EADS North America’s win of a contract to supply the U.S. Army’s new Light Utility Helicopter. The bidding process involved four competitors – all offering either foreign-designed or foreign-produced products.
In proposing a version of the mission-proven EC145 helicopter to the Army, EADS North America committed to establishing a U.S. production line for this rotary-wing aircraft in the U.S. at a new center of aerospace excellence in Mississippi.
After winning the Light Utility Helicopter competition in June 2006, EADS North America’s American Eurocopter business unit established a state-of-the-art 325,000 square foot facility at Columbus, Mississippi, and hired hundreds of employees to build the aircraft. To date, 72 of the UH-72A Lakota helicopters have been delivered to the service on – or ahead of schedule – and on cost, and EADS North America is routinely cited by the U.S. Army for its Light Utility Helicopter program excellence.
The new Columbus, Mississippi facility also is serving other American Eurocopter government and commercial customers previously supported from outside the U.S., and additional companies have followed EADS North America’s lead by investing over $5 billion dollars in the Columbus, Mississippi area – which includes an engine manufacturer, another aerospace company, and a foreign firm that created a new steel mill.
“So counter-intuitively, the selection of what many may have seen as a foreign helicopter has created an entirely new and sustainable industry in Northern Mississippi,” Crosby said. “At the same time, it introduced a new ‘made in America’ Army helicopter into the warfighter’s inventory.”
The third factor cited by Crosby is the need to sustain aerospace and defense dominance, both economically and militarily.
“The aerospace industry has become trans-national, as are many of the nation’s foundational industries, and the same economic forces that prompted U.S. companies to outsource overseas are creating industrial growth opportunities here at home,” he explained. We must grasp and exploit these opportunities to our benefit.”
He said EADS North America’s new Mississippi helicopter facility is one example, while the U.S. Air Force tanker re-competition in which the company is teamed with Northrop Grumman is another.
“If the Northrop Grumman tanker is selected again, EADS North America will build a new center of large commercial aircraft production in Mobile, Alabama to support the program,” he told LA Town Hall attendees. “This would be the second such facility operating in the U.S. and only the third in the world – and will become a major global center of aerospace excellence and a key element in sustaining our dominance on the world aviation stage.”
EADS has committed to build A330 commercial freighters on the same production line at Mobile – with the capacity to deliver up to four aircraft a month to customers all over the world. Crosby noted that the Northrop Grumman-led tanker program will involve the hiring of more than 1,200 direct employees, while another nearly 50,000 American jobs will be supported by the project.
Crosby’s fourth factor is rejecting the false appeal of protectionism as a means of maintaining America’s dominance.
“We learned an important military lesson in the last century: that while we may be capable of military self-sufficiency, we can’t operate effectively in all combat environments, except as part of the larger global community,” he said. “The same lesson is relevant for ongoing combat in the global aerospace economy. We can imagine that we are self-sufficient—but to be successful we also must operate effectively in the global community. Succumbing to knee-jerk protectionism will not defend our economic interests at home or abroad.”
Crosby added that if the U.S. responds to the new competitive environment by closing its borders, the country will lose twice: suffering potential retaliation while throwing away opportunities for U.S. industrial growth created by foreign investment.
“Success on the industrial battlefield will retain world markets for U.S. aerospace exports. It will sustain a pathway for American warfighters to get what they need, when they need it, and it will broaden our own domestic industrial capacity and innovative edge,” Crosby concluded. “We believe, and have demonstrated, that we can do this by bringing to the U.S. the best our international company has to offer, build it here, make it better and put it in the hands of our service men and women.”
