Competition and innovation: in the U.S. fixed-wing military aircraft industry, Issue 1656

Responds to Senate's comcerns that further consolidation in the military-aircraft industry, which has dropped from 11 prime contractors in 1960 to the current three, dwill pose risks to innovation and cost through limited or no competition in contracting for military aircraft and related weapon systems for the Department of Denfense. Defense policymakers have expressed concern that further consolidation in the industry that designs and manufactures U.S. military aircraft, which is now at three prime contractors (in contrast to 11 in 1960), will cause the Department of Defense (DoD) to acquire aircraft that are designed and produced in a far less competitive and innovative environment than they were in the past. This report responds to the Senate2s request that the DoD prepare a comprehensive analysis of and report on the risks to innovation and cost of limited or no competition in contracting for military aircraft and related weapon systems by examining the future of the U.S. military-aircraft industrial base in relation to specific questions Congress posed. The RAND research team translated the questions into four tasks: o Describe the military combat-aircraft industry. o Evaluate what is required to maintain a high level of innovation in the military combat-aircraft industry. o Assess prospects for innovation and competition in the military combat-aircraft industry. o Identify policy options open to the DoD. Our findings indicate that procurement funding will likely be adequate to sustain the basic institutional structure of the current prime military-aircraft contractors through at least the end of the present decade. However, a DoD decision to begin a new major combat-aircraft program before the end of this decade would provide a stronger basis for sustaining current structure and capability. If the number and frequency of major aircraft programs continue to diminish, it will be increasingly difficult to sustain an industry of the present size and posture. The policy questions that need to be addressed are, "What role can the government play and what role should it play in the evolution of industry structure and capabilities that is under way?" This research should be of interest to members of Congress, congressional staff members, industry executives, and others in the civilian and uniformed defense policy community interested in the future viability of the U.S. military-aircraft industrial base Annotation Defense policymakers and others have expressed concern that further consolidation in the industry that designs and manufactures U.S. military aircraft will degrade national security. The number of prime contractors, which stood at 11 in 1960, has dropped to three. This concern crystallized in the fall of 2001, when the Department of Defense (DoD) chose Lockheed-Martin as winner of the Joint Strike Fighter competition and as the prime contractor to develop and manufacture the F-35, one of the largest acquisition programs in history and the only new major military aircraft program currently planned. Responding to the Senate's request that the DoD report on the risks to innovation and cost of limited or no competition in contracting for military aircraft and related weapon systems, a RAND research team examine the structure and capabilities of the military combat aircraft industry and how they've changed over the past decades. They discuss what is required to maintain a high level of innovation, as well as the prospects for continued innovation and competition, in the military combat-aircraft industry. Finally, they assess the policy options that are open to the DoD to guide the industry's evolution and ensure that critical abilities and characteristics are maintained Annotation Will further consolidation in the industry that designs and manufactures U.S. military aircraft degrade national security? The authors examine the structure and capabilities of the military combat aircraft industry over the past decades, discuss what is required to maintain a high level of innovation, and assess the prospects for continued innovation and competition in the industry. They conclude by discussing policy options open to the DoD in order to guide the industry's evolution and future innovation Over the past several decades, a substantial change has occurred in the composition of demand for military aircraft, as has a consequent change in the size and composition of the industry supplying those aircraft. John Birkler ... [et Al.]. Prepared For The Office Of The Secretary Of Defense. Mr-1656. Includes Bibliographical References.