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Sequestration: Won’t it Ever Go Away?

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If you had asked me before the New Year if there was anything that the Congress could do that was worse than letting sequestration happen, I would have said no. Then they kicked the can two months down the road and again showed me how they, in fact, could do something worse. Everyone—the military, industry and the populace—would have been better off with the execution of sequestration. The results would have been so devastating that government would have been forced to actually go in and make decisions quickly on both the military and the public part of our budget to keep the economy from collapsing. What we are now labored with is an additional two months of indecision. Add to that the potential that this new Congress will continue to play this game of chicken with itself and the President for political party ideology—and they might once again kick the can forward. 

As Defense Secretary Leon Panetta so aptly stated on January 2nd, “We need to have the resources to effectively execute our strategy, defend the nation, and meet our commitments…” The military electronics suppliers are a major element of what needs to be protected—especially in a climate of major military manpower reductions. The SecDef added, “My hope is that in the next two months, all of us in the leadership of the nation and the Congress can work together to provide that stability and to prevent sequestration once and for all. Our national security demands no less.” And yet that was something that was not possible in all of 2012. Panetta also noted that if sequestration had been enacted he would have had to provide potential furlough notices to 800,000 civilian employees.

Every month that the companies supporting the prime contractors are left hanging not knowing where to direct their efforts, is another month that they get closer to not being able to recover. All the basics are still in play: work what you have, offer small upgrades and technology insertions—don’t think about finding new markets. This is a good strategy, but we can’t forget that no matter how hard we’ve tried to reduce the time between design-in to full production, most programs still have a cycle time of at least 12 months. That means when we’ve worked current military programs as far as we can, we need new ones to take their place. It will take time for primes to reorganize their efforts on programs that will rise to the top once a budget and a military programs direction are put into place. That reorganization will include the realization that the prime’s major opportunity for profit will be with highly specialized technologies unique for each program. They will at the same time profit from integrating the more basic electronic systems, acquired from outside sources, into those programs.

This scenario takes the country back to where it was in the mid-90s. And this provides a greater number of opportunities for smaller electronic systems suppliers that are willing to adjust their base product to meet a program’s needs. This flexibility will be needed in order to get programs fielded in the time frame demanded by the DoD, in order to recover from this languishing period of indecision.

Shifting gears slightly, Panetta will be departing shortly, and at the time of this writing, U.S. Senator Chuck Hagel from Nebraska (Figure 1) was being considered as replacement for Panetta as SecDef. As with almost every nomination ever made for any position, there is opposition, and only time will tell if his potential nomination even moves forward. Hagel is a combat veteran, a two-term Senator and a successful business man. I’m guessing he may be the right person for the job. He’s disliked by people from both sides of the aisle—one side because he’s a Republican, and the other side because he’s not Republican enough.  

Figure 1
Chuck Hagel, former U.S. Senator from Nebraska and nominee for Secretary of Defense.