Will the military aviation industry get nationalized? A battle for the industry's future

“If our industrial base collapses any more, we’ll have to nationalize advanced aviation and maybe other parts of the Air Force that currently are competitive,” Roper said. “But I also am holding out some hope that if we open up the door to do design frequently, and build things in smaller batches that are between X-planes and mass production, that we will eventually encourage an innovative company to cross over into defense, or companies to start up that just want to build really cool airplanes or satellites, because they don’t have to own the big production lines and tooling workforce, which is the only way to work with us today.”

But one analyst says other countries — Britain, France, Japan, Sweden — have proven that they can keep a single combat aircraft manufacturer alive without formally nationalizing it. Nationalization is “an admission that they have failed miserably and I don’t think they have failed,” said Richard Aboulafia, vice president of analysis at the Teal Group aviation consulting firm.

“The arsenal system was great for the Civil War, where you don’t have to respond to market needs in terms of talent and corporate organization, but the real world of aerospace calls for, at the very least, a public-private partnership — nationalization being, kind of the land of the lost,” Aboulafia said.

That was from an interesting article at Defense One, “US May Need to Nationalize Military Aircraft Industry, USAF Says.” Here is the well written Breaking Defense piece on it. Here’s my quick take in a LinkedIn comment:

Seems clear Roper doesn’t want nationalization, but is something of a boogeyman for industry’s trajectory if he isn’t able to move forward with his NGAD vision.

BTW, JK Galbraith openly spoke of nationalizing defense in the 1960s. Rickover wanted nationalization of the shipyards and allow contractors to operate (GOCO).

In the Defense One article, an analyst wasn’t worried and thought the US should support a single airframer like France, UK, Sweden, Japan. But that’s not a good comparison. Sweden’s *entire* defense budget is $5.5B. And the other countries are bw $40-$55B.

The F-35 itself is $10-$12B per year in acquisition costs alone! Total aircraft procurement (from CBO) is approaching $30B. Doing some back of the envelope lifecycle cost math, that means the DoD spends over $100B on its aviation fleet total each year. That’s more than enough to sustain a competitive industry.

I’d say that when the government looks like a big monopsony buyer with infrequent aircraft programs that suck up all the money, industry will naturally reflect those structures back at you in terms of consolidating into a monopoly. And that is the trend we are on, where one firm owns an entire capability area. Until the DoD takes a hard look at itself and does business differently, there’s no reason to expect anything from stopping further consolidation except antitrust suits from the Department of Justice.

[Update: I also didn’t appreciate the Teal analyst’s assertion that the bureau/arsenal system is inappropriate for our time. The government must do more in-house technical work if it wants to be smart enough to contract with industry for it. I don’t think it should do a majority of the work by dollar value. Somewhere in the historical norms of 15 to 30 percent seems reasonable.]