For more than three decades, David Davis has worked at the U.S. Air Force Space and Missile Systems Center (SMC) in El Segundo, Calif., rising through the ranks to become the Systems Engineering Division chief in 2005. In that role, he pays close attention to the health of the space industrial base, and in particular to the suppliers who provide raw materials and critical subcomponents for the Air Force’s missiles and GPS, surveillance and communications satellites.
Those suppliers face great challenges as Department of Defense (DoD) and civil space budget priorities continue to shift, export controls constrain international marketing activity and foreign competition grows. Even if the U.S. government takes immediate action to ease export controls and lower barriers to international competition, some segments of the U.S. space industrial base that have disappeared in recent years are unlikely to come back, Davis said. Foreign companies have emerged to supply the products once manufactured by U.S. companies. Davis spoke recently with Space News correspondent Debra Werner.
How would you characterize the state of the space industrial base?
Space is generally a low volume, low margin, niche market. The product volume and the profit margin are often insufficient to sustain a robust industrial base. We see this primarily at the sub-tier supplier level. We get our job done today. Our prime contractors are generally in a fairly stable state. We see most of our challenges as we move down the supply chain. We see from our assessment that we completed as part of our industrial base analysis, there are pockets of the sub-tier space industrial base that are fragile and vulnerable.
Can you discuss any of those pockets?
Without getting specific, it’s generally those technologies and products that are high value, unique and specific to space systems. They are designed to fly in a space environment.
Are there certain areas of the space industrial base that are in trouble?
The sub-tier supply base represents most of the technologies that we fly: batteries, photovoltaics, traveling wave tubes, those kinds of subsystem components. At that level, we see the fragile supply base, including some of the raw material supplies. The gaps in demand on our systems often present challenges at that sub-tier supply level.
So a company is building components for a while, then the program ends or it’s canceled?
Yes. If we have a follow-on buy for satellites, you may not see another acquisition for three to four years. The reduced budgets and reduced number of systems translate into the very low volume, niche market. It does not provide the best business conditions for sustaining a long-term viable business base.
What are the factors creating the problems?
The declining or erratic production programs reduce the need for the robust supply base. In lots of cases we are down to one or two suppliers for certain products or technologies that we fly. We are very sensitive to the materials that we use in applications. As materials change in the industry, we have to make sure they don’t impact the products that we are flying.
What is the Air Force doing to strengthen the space industrial base?
Industrial base issues have always been important to the Air Force and DoD but even more so today. At SMC, we have always had to stay very close to our supply base because we have to make sure that we get the quality and reliability we need. In space, it’s basically one strike and you’re out.
We look at the industrial base primarily from three perspectives: the traditional diminishing manufacturing sources view; the industrial base for future systems; and we need to make sure the companies that provide our space products have the appropriate technical practices in place so that it provides us the confidence, maturity and reliability for the long mission lives we want to obtain with our space systems.
A few years ago we started seeing increased industrial base issues beyond the normal downsizing that we experienced over the last decade. We started seeing recurring situations where we were getting down to a couple of suppliers or in some cases sole-source suppliers. That could be at the component level as well as raw materials level. So we put a program in place.
We conduct industrial base assessments on a regular basis to get a heads-up on where we might see issues coming down the pike. We work across programs and across other government agencies within our space community to try to collaborate. Hopefully we can share the burden of trying to mitigate those risks.
About four years ago, DoD’s space executive agent created the Space Industrial Base Council to bring senior-level attention to space industrial base issues and identify recommendations to mitigate those issues.
In parallel to that, the Air Force has re-established the Air Force Industrial Base Council to get senior visibility across industrial base programs and understand the impact to Air Force operations and programs.
Have you made progress?
I think we have. It has been somewhat of an uphill battle. We have used some traditional military programs such as DoD’s Manufacturing Technology program, the Small Business Administration’s Small Business Innovative Research program and DoD’s Title 3 program, which is specifically for the purpose of protecting critical industrial base capabilities.
What other actions should be taken?
We are currently having some success in funding targeted areas to strengthen our industrial base, but we believe we need to couple that with the establishment of a clear DoD and U.S. industrial base policy. Some of the space system procurements we deal with require trusted chains of supply, and there are cases where existing U.S. suppliers are threatened by the diminishing base due to foreign sourcing. Without some policy changes we feel like we could lose the ability to produce these critical space systems within those trusted sources.
In our space business, we need to make sure we plan for and fund the work needed to mature the new technologies from concept to the space-qualified level. Our programs today are more risk averse. That presents a barrier to introducing new technologies.
One other challenging aspect for our supply base is that at the prime contractor level. They try to put as much burden as possible on the supplier to take responsibility for the maturity of the product. Often, we don’t see our development dollars flowing down to the supply base to the extent that is necessary.
How are the International Traffic in Arms Regulations (ITAR) affecting the industrial base?
Our suppliers tell us that ITAR has been an obstacle for retaining or competing for foreign business. We know that ITAR played a significant role in incentivizing other countries to find alternative sources of satellite parts and components that were previously provided by U.S. suppliers. We have seen where “ITAR free” serves as a promotion banner to market the elimination of those technical cost and schedule uncertainties that are often attributed to the ITAR controls.
Prime contractors, because of their size and organizational structure, are better postured to deal with ITAR. But at the lower-tier supplier level, where they don’t have the staff, it becomes more of a burden. We have been told repeatedly that the licensing requirements are challenging to understand, often misunderstood and there is a high degree of unpredictability that goes with the ITAR process.
What is the impact of foreign competition on the industrial base?
We do utilize foreign-provided components and materials. A lot of our electronics are processed overseas. We struggle with deciding when it is appropriate and when domestic sources of supply are appropriate. We struggle somewhat with the lack of policy in this area.
Foreign countries have established their own internal industrial base policies. Even if you took away the ITAR restriction and other barriers, a certain amount of that business base is lost. The foreign companies have stepped up to provide products that previously came from the United States.
What are the challenges ahead?
Changing policies and requirements within DoD impact the supply base that depends predominantly on military sales. The very dynamic funding process and program acquisition process that we go through presents challenges. The globalization of the defense industry combined with the decreased demand has resulted in consolidation or elimination of U.S. suppliers of critical materials. With consolidation, we’ll continue to see a decrease in support for some niche technologies with limited market potential. Some companies may walk away.
When we adapt and apply new technologies, we expect the first vehicle out of the gate to perform to its mission requirements. We expect them to perform for 10 or 15 years on orbit. We don’t have the opportunity to repair them. That puts a demand on the technical practices and design practices employed. It all plays into the challenges. We can’t readily go out there and adapt commercial products and technologies for our systems.