President Trump, sequestration, and the COTS market
During his campaign for the presidency, Donald Trump promised increased military spending if elected. Now that he has assumed office, many in the defense electronics industry have their fingers crossed that he will follow through.
The hope of increased defense funding following a Republican presidential win after eight years of Democratic rule is not a new concept. Back in 2000, I was on the floor of the COTSCon West show in San Diego when an announcement was made that the Supreme Court had ruled – about a month after the presidential election – in favor of George W. Bush. A cheer went up from the exhibitors and attendees, as they knew that meant increased business for them. They deemed it a certainty.
With a Republican president backed by a Republican Congress in 2017, it would also seem a certainty that a healthier defense market is just around the corner, but Donald Trump is not a traditional Republican – having been a Democrat most of his life – so the industry is cautiously optimistic.
However, if Trump and the Republican-led Congress end sequestration – the automatic, across-the-board cuts to the defense budget – then he will be a hero to military leadership, prime contractors, system integrators, and commercial off-the-shelf (COTS) suppliers.
Sequestration has cost thousands of defense industry jobs, slowed product development, hindered platform upgrades, and, if it continues, will likely hurt military readiness, if it hasn’t already.
Former chairman and CEO of Lockheed Martin, Bob Stevens, once called sequestration “a meat axe.” Cutting across the board is “an inefficient way to manage a business,” he said back in 2012, fearing the loss of thousands of jobs within the U.S. defense sector.
He was right. “The impact to date has meant the loss of tens of thousands of good, high-paying jobs in the defense industry, as well as the delay or cancellation of many national security programs,” said Bobby Sturgell, senior vice president of Washington Operations for Rockwell Collins and former acting administrator of the Federal Aviation Administration (FAA) in a roundtable article on mil-embedded.com.
Sometimes it seems sequestration was designed so congressional leaders and the president could avoid making decisions. We need leaders more concerned with solving problems than passing them off to their successors. In this sense, sequestration is like procrastination; the more you procrastinate on solving a problem, the worse it becomes.
Trump touts himself as a problem solver. If he works with Congress to successfully end sequestration, it will ultimately be a win for the defense industry.
Some think he will do just that. “Whether you like him or not, he is an action-oriented businessperson,” said Eric Sivertson, founder and CEO of QuantumTrace, earlier this year in an article titled “Presidential politics and defense electronics.” “Sequestration has created problems for the business industry and he [was] the only candidate taking a firm stand. However, it may not be a good thing at first for defense firms as he would likely kill programs, but he will remove the malaise of sequestration.”
Trump and COTS
An end to sequestration and increased defense funding still may not mean more funding for COTS technology. With sequestration gone, the budget will be more aligned with mission priorities. Those priorities will determine whether funding addresses more troop deployments or investment in technology research and development (R&D).
More mission clarity will enable more certainty on spending directions, enabling industry to channel their internal R&D dollars appropriately.
If mission requirements call for more intelligence, surveillance, and reconnaissance, radar, and electronic warfare technology, then the outlook for embedded computing suppliers will be bright.
And doubly so, as the push toward commonality resulting from the budget restraints will likely grow as DoD leaders see the associated cost advantages. It’s a new procurement reality and likely to continue under a Trump Administration that prides itself on trimming expensive platforms such as the F-35.
Trump’s appointment of retired Marine Corps General James Mattis as DoD Secretary also bodes well for more mission clarity. Military historian Thomas Ricks says in article on ForeignPolicy.com, titled “Mattis as defense secretary, what it means for us, the military, and for Trump,” that Mattis is a strategic thinker, an avid reader, a fiscal conservative, a straight shooter, and loved by the troops.
“In the long run I think [a Trump presidency] will be excellent for the defense industry, but in the near term a Trump presidency will create even more pain, more than Clinton or Sanders would,” Sivertson added. “Trump is all about the art of the deal; he will make deals and some will be painful, but it will probably be the right pill the DoD needs to take to clean it up and make it more economically efficient.”