Lessons in A&D and Auto Supply Chain Strategy, Part 2: Focus on Competitive Advantage

by KPMG’s George Odden & Vincent Pavlak

In July 2010, Vincent Pavlak, a partner in KPMG LLP’s Transactions & Restructuring service group, contributed an article to Defense Industry Daily, titled, “Lessons from the Automotive Supply Chain: Surviving a Downturn.” At the time, the automotive industry was enduring one of the worst economic periods in history, and there were concerns that the aerospace and defense industry could suffer a similar fate. Ultimately, the automotive suppliers that endured the downturn have emerged stronger, due in part to critical efforts undertaken during the crisis. Meanwhile, the aerospace and defense industry has experienced a post-crisis divergence of paths, with commercial aerospace companies enjoying a resurgence parallel to the automotive industry while the defense sector has suffered declining revenues and prospects. Despite differing outlooks now facing each industry, supply chain enhancement presents opportunities for increased competitive advantage for aerospace, defense and other industries across varying economic cycles.

Part 1 looked at supply chain issues and imperatives for aerospace & defense (A&D). Part 2 looks at some implications, trends, and opportunities.

Next NATO Secretary General Opposed the Organization as a Youth Activist

• Former Norwegian Prime Minister Jens Stoltenberg will be NATO’s next secretary-general starting on October 1st. As a youth activist he used to have strong feelings against the alliance.

Lessons in A&D and Auto Supply Chain Strategy, Part 1: Supply Chain Challenges

by KPMG’s George Odden & Vincent Pavlak

In July 2010, Vincent Pavlak, a partner in KPMG LLP’s Transactions & Restructuring service group, contributed an article to Defense Industry Daily, titled, “Lessons from the Automotive Supply Chain: Surviving a Downturn.” At the time, the automotive industry was enduring one of the worst economic periods in history, and there were concerns that the aerospace and defense industry could suffer a similar fate. Ultimately, the automotive suppliers that endured the downturn have emerged stronger, due in part to critical efforts undertaken during the crisis. Meanwhile, the aerospace and defense industry has experienced a post-crisis divergence of paths, with commercial aerospace companies enjoying a resurgence parallel to the automotive industry while the defense sector has suffered declining revenues and prospects. Despite differing outlooks now facing each industry, supply chain enhancement presents opportunities for increased competitive advantage for aerospace, defense and other industries across varying economic cycles.

Part 1 deals with the key challenges facing these industries’ supply chains.

US Navy Decommissions USS Miami

USS Miami

The nuclear-powered Improved Los Angeles Class (SSN-688i) submarine USS Miami (SSN 755) was ordered in 1983 and built by General Dynamics Electric Boat. She was commissioned in 1990, is homeported in Groton, CT, and was the focus of Tom Clancy’s 1993 non-fiction book Submarine: A Guided Tour Inside a Nuclear Warship. In May 2012, a civilian shipyard worker in Portsmouth Naval Shipyard caused a fire, which quickly spread through its forward compartments. It took the efforts of more than 100 firefighters to save her. The cost of the necessary facelifts and fixes was so high that the Navy eventually decided to retire the boat.

GAO Encourages DoD to Better Share Lessons from Canceled Programs

• The US military cancelled so many billion dollar programs during the past decade that they developed the Smart Shutdown [PDF] guidance and online portal to try and salvage useful bits. However the GAO reckons in a new report that this resource may not be well known by program managers, limiting opportunities to learn from past closures or reuse useful bits from them.

US Navy CNO Maps Projection Shifts by 2020, While China Goes Through Accelerated Shipbuilding

• In his statement [PDF] submitted today to the Senate Armed Services Committee, US Navy Chief of Naval Operations Admiral Greenert explains the Navy’s current and future posture. The document includes a map of the 104 ships forward deployed across the world today, and how that should evolve in the next 5 years, with up to 17 additional ships in the Pacific region by FY20. But Greenert’s testimony also includes the word “sequestration” 7 times, to explain reductions in maintenance and training.

Qatar: The Emir’s New Helicopters

The Persian Gulf

The Qatar Emiri Air Force (QEAF) needs to replace most of its helicopters. Its Sikorsky S-92 VIP helicopters are predictably modern, but the operational front is less promising. The QEAF had been depending on a combination of a small handful of Lynx maritime helicopters, 12-13 old Sea King/ Westland Commando medium naval utility and patrol helicopters, 6 SA330 Puma medium utility helicopters, 6 somewhat more modern SA332F Super Pumas, and 12 old SA324G Gazelle light armed scout helicopters. Age is taking its toll.

The Emirate is a small country, but its does need some flyable helicopters, and could benefit by improving its maritime overwatch capabilities. Iran’s military, with its fleets of small boats and mines, is coupled with a second-track internal threat of subversion and terrorism. In both cases, helicopters are a military’s most valuable assets. A 2008-2011 buy of 21 AW139 light-med utility helicopters was a good first step, and in 2012, Qatar began to get equally serious about improving both its maritime surveillance capabilities, and its armed helicopter punch…

Russia’s Crimean Takeover Leaves Ukraine with Paper Navy

• IHS Jane’s reports that after Russia seized assets in Crimea, Ukraine is left with just 5 of its 17 warships, almost no naval aviation, and few naval personnel.

• Ukraine’s acting Defense Minister Igor Tenyukh was replaced by Col. Gen. Mykhailo Koval, so far head of the Ukrainian border guard. Tenyukh resigned after his wavering handling of the situation of Crimea was criticized.

• The US Congress looks closer to voting an aid package for Ukraine as Senate Democrats dropped their request to tie IMF reform to the bill.

GAO Points to Continued Software Liabilities in JSF Program

• The Government Accountability Office’s latest report on the F-35 notes that while aircraft manufacturing has improved last year, software delays and capability limitations continue to threaten the program’s overall schedule.

Survey of American Defense Execs Shows Discouraged View of Govt Acquisition

• A recent survey of 340 defense acquisition executives showed there’s a widespread sense of pessimism about how government acquisitions are run.

Ukraine/Russia

• Over the weekend Russian forces overrun Ukraine’s military presence in Crimea: FT | Kyiv Post. The circumstances of the Ukrainian retreat from the peninsula remain somewhat muddled.

• Russia also built up a significant troop presence right next to Ukraine’s eastern border.

• Germany suspended its military contracts with Russia, which the latter found “not constructive.”

• Leon Aron from the conservative American Enterprise Institute: the dangerous future of Putin’s regime .