The Defense Department expects three-month delay to major programs as the coronavirus ripples through
"We believe that there will be a three-month impact that we can see right now, so we're looking at schedule delays and inefficiencies," Ellen Lord, the Pentagon's chief of acquisition and sustainment, told reporters Monday.
"That isn't a particular program. That's MDAPs in general," Lord said, referring to major defense acquisition programs, which includes purchases of and upgrades to items like aircraft and ships, without naming any specifically.
"We're following all the MDAPs. Particularly, we see a slowdown in the shipyards, to an extent. Aviation is actually the most highly impacted sector that we have right now," Lord said. "Right now there isn't any specific COVID penalty that we see for a specific program; however, we do anticipate ... slower rates in terms of execution than we saw before, and we are just now looking at key milestones that might be impacted."
The delay stems from closures by firms across the
Of 10,509 major prime companies, 106 are closed and 68 have closed and reopened, while out of 11,413 vendor-based companies, 427 are closed and 147 have closed and reopened, Lord said, adding the small-space-launch sector to those most affected.
"This is a hideous combination of a commercial market downturn and a freezing up of credit markets," Richard Aboulafia, vice president of analysis at Teal Group, told Insider last week.
"If you're a supplier and half your work comes from commercial, which means you're average, you're in trouble," Aboulafia said. "If you're trying to tap credit markets, the smaller you are, the harder it gets. You're in big trouble. So the Pentagon absolutely has to pay attention to these things."
'We're talking billions and billions'
Lord said Monday that the department is tracking the location of coronavirus cases in relation to the defense industrial base to "try to anticipate the problems and work with the companies to keep going to the greatest extent possible."
The Coronavirus Aid, Relief, and Economic Security Act, which totaled about $2.2 trillion, included $1 billion for the Pentagon to make purchases under the Defense Production Act.
Of that money, $750 million will go to medical resources — such as drug ingredients, ventilators, and personal protective equipment, Lord said — and the rest for the defense industrial base. Priorities in the latter category include machine tools, radar, munitions and missiles, and soldier and ground systems.
Lord also said the Pentagon expects to provide an additional $3 billion to industry through increased progress payments and encouraged larger companies to direct cash to suppliers, commending Lockheed Martin and Boeing for committing to ensure that money goes "quickly ... to small businesses who need it most."
"We are hoping for similar public announcements from other major primes," Lord added.
The CARES Act also allows the Pentagon to reimburse industry for payments to workers kept from working due to the coronavirus.
Lord said Monday that the Pentagon would request funds for reimbursement in the second CARES Act but declined to reveal how much, saying only that "we're talking billions and billions" of dollars.
Firms lower in the defense supply chain have already signaled their economic distress. While many of them aren't household names, they are important to maintaining and developing weapons systems.
"If this ecosystem suffers widespread failure due to
Richard Hunt, president of shipbuilder Fincantieri Marinette Marine, said his firm's suppliers were still operating and there hadn't yet been an impact on the shipyard.
"I have to believe that some point down the road, perhaps, a new critical path will develop, and we'll find that there are some things in there that we haven't seen in the past that are going to be major impacts on schedule," Hunt said on an April 10 edition of the Defense Aerospace podcast.
"I think it's really too early to tell. My guess is the impact on our nation's industrial base as a whole, once we turn the tide completely on the virus, it'll probably take a year or two to get really back to normal, and we'll have to see what the long-term impact is, especially on the very small suppliers," added Hunt, a retired three-star Navy admiral.
Other firms are already seeing the impact.
"In the last week, I've started to get emails and notifications that companies are having to shut down and delay shipments," Anne Shybunko-Moore, owner of GSE Dynamics, an aircraft parts supplier that employs 72 people, told Politico. "My biggest concern is a supply chain impact to the lower tiers that feed me."
The outlook depends largely on the recovery, Aboulafia said, adding that the "heart-attack moment" facing the commercial side of the defense industry was in contrast to the typically long-cycle nature of the business.
"That's not long cycle. So are we talking about a three-month situation? Are we talking about a three-year situation? That's the big question for a lot of these guys," Aboulafia said.
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