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Pentagon, suppliers must change to survive: report

By Andrea Shalal

WASHINGTON (Reuters) - The U.S. military and its main suppliers must globalize and adopt more commercial practices to stay competitive, according to a report released this week.

"We're at another tipping point in the evolution of the defense industry," said former U.S. Deputy Defense Secretary William Lynn, who co-chaired a task force that helped shape the report by the Center for a New American Security.

"If we’re going to maintain our technological edge, we need to ensure that our industrial strategy and our acquisition structures take account of these commercialization and globalization forces," said Lynn, who now heads DRS Technologies, a unit of Italy's Finmeccanica SpA.

U.S. military spending is falling, but China, India and other countries are spending more and making strides in development of satellites and other advanced technologies. To maintain revenues, Lockheed Martin, Boeing and other big U.S. firms are increasingly turning to overseas sales and hunting for opportunities in non-defense markets.

Lynn told Reuters the CNAS report was intended as a "warning bell" on the need for changes like those that swept through the auto industry decades ago.

The report said the U.S. weapons industry moves too slowly to adjust to current trends. For example, the Pentagon has switched from taking the lead in developing technologies like GPS satellites and now looks to commercial players for innovations like 3-D printing.

It said industry and government need to invest more in new technologies and remove regulatory and acquisition barriers that hinder U.S. firms.

For instance, export controls have limited the ability of U.S. firms to sell unmanned planes overseas, allowing Israel to become the leading exporter of drones.

Export controls have also hampered commercial sales of infrared technologies developed for the U.S. military, Lynn said. "Our not exporting it doesn't mean it's not available. It just means U.S. companies aren't getting the business, and U.S. jobs aren't being put to use," he said.

The report called for reforms to allow more U.S. and foreign firms to participate in the U.S. weapons market, greater communication about the Pentagon's technology needs and measures to safeguard private intellectual property.

At the same time, it said arms makers need to invest more in new technologies, or acquire companies that already developed them; make greater efforts to design products for export from the start, and encourage more international collaboration.

Former Raytheon Co chief engineer Andy Lowery said cost pressures were prompting shipbuilder Huntington Ingalls Industries and other defense suppliers to adopt virtual reality technologies to cut production costs and improve quality.

Lowery, who is now president of DAQRI, which develops virtual reality software, said smaller, more commercially oriented firms, like privately held Space Exploration Technologies, are quicker to adopt such technologies. "The big companies are interested, but they have a natural propensity to crawl, walk, run," he said.

(Reporting by Andrea Shalal; Editing by Dan Grebler)

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