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DoD: Shipbuilding, Aviation Hardest-Hit Sectors in Defense Industrial Base by COVID Pandemic

P-8 Poseidon in Seattle Factory. Boeing photo.

The shipbuilding, aviation and small space launch sectors are the three hardest-hit by the COVID-19 pandemic within the defense industrial base, according to the under secretary of defense for acquisition and sustainment, despite a slew of memos and authorities signed out by the Pentagon to relieve pressure from sick workers and facilities closures.

“We see a slowdown in the shipyards to an extent. Aviation is actually the most highly impacted sector we have right now. So the 20 different memos that Kim Herrington (director of defense pricing and contracting) put out are really to make sure our cash flows and we quickly get on contract so we can keep going,” Ellen Lord told reporters on a Monday morning news conference.

She said her team is still in the process of going program by program and understanding what production milestones may be at risk due to pandemic-related disruptions – everything from work slowing down on assembly lines to allow for social distancing, to coping with a smaller workforce as some employees are sick or taking leave to care for children at home, to breaks in the supply chain as component suppliers struggle to keep on schedule. For now, Lord said she could not point to any specific programs or any specific milestones most at risk, but she said major defense acquisition programs as a whole will face about a three-month slowdown due to COVID-19.

To try to stay ahead of the spreading disease, “we follow very carefully where the highest number of cases are throughout the country and we look at the defense industrial base, where they are located, so we try to anticipate the problems and work with the companies to keep going to the greatest degree possible” and work with companies in emerging hot spots to put mitigation measures in place before their workforces are hit.

Lord also said that, as the Pentagon takes a close look at its supply chain, “one of the key things we have found out are some international dependencies. Mexico right now is somewhat problematical for us, but we’re working through our embassy. And then there are pockets in India as well.”

Specifically on Mexico, she said there is “a group of companies that are impacting many of our major primes” in the airframe production industry. She said she spoke to the U.S. ambassador to Mexico last week and would speak to Mexico’s foreign minister today to ask for help reopening these major international suppliers.

Without naming companies or sectors, Lord said in her opening remarks that, of 10,509 major prime contractors, 106 are currently closed and 68 have closed and already reopened. On the vendor side, out of 11,413 companies, 427 are closed, with another 147 having closed and reopened.

Though the Pentagon can’t help companies having to close because the workforce is sick, leaders can ensure that companies with healthy workers aren’t left without work and waiting for contracts to be signed. The Navy and DoD have accelerated contract awards and urged prime contractors to quickly push work down to their suppliers of all sizes, so that as soon as a company is ready for new work, the work is awarded and money already paid.

“I remain proud of the department’s responsiveness in addressing defense industry concerns outlined on [regular calls between the Pentagon and industry associations]. Mr. Kim Herrington, director of defense pricing and contracting, has issued 20 defense pricing and cost memos, aggressively responding to industry needs and impacts. Those memos include guidance for increased telecommuting, increased progress payment rates, acquisition timeline impacts, relief for those who cannot work, and more,” Lord said.
“Vice Adm. David Lewis, Defense Contracting Management Agency director, modified 1,500 contracts to help companies to file invoices at the higher progress payment rate, and he also worked with Defense Finance and Accounting Service for a seamless transition for invoices. Based on submitted invoices, we expect payments at the higher progress payment rate to start this week, helping provide $3 billion in increased cash flow to industry. I commend Lockheed Martin and Boeing for both publicly committing to ensure this cash flow goes quickly down the supply chain to small businesses who need it most. We are hoping for similar public announcement from other major primes.”

In addition to the actions the Pentagon can take on its own to help industry, Lord said the Defense Department is actively in talks with lawmakers and staffers to discuss a follow-on economic stimulus bill in the works. Though she couldn’t get into specifics, she said it would cost DoD “billions and billions” to implement a section of the Coronavirus Aid, Relief, and Economic Security (CARES) Act “which allows agencies to reimburse contractors for payment to workers who are prevented from working due to COVID-19 facility closures or other restrictions.” She said the Pentagon hoped to see some funding in the next stimulus bill to help with that bill, as well as to pay for medical supplies and cover costs of delays in major defense acquisition programs.

So far, the Defense Logistics Agency has provided more than 1.8 million N95 masks, 3.2 million non-medical and surgical masks, 8.4 million pairs of exam gloves, 275,000 surgical gowns and 8,000 ventilators to the military services, which are being used both to keep DoD personnel healthy as well as to support DoD’s contribution to the multiagency efforts around the country.

The Pentagon has also provided 10 million N95 masks to the Department of Health and Human Services and the Federal Emergency Management Agency and is prepared to give another 10 million from DoD stockpiles.

Additionally, DoD will invest $133 million to increase domestic production of N95 masks to more than 39 million in the next 90 days, Lord announced. Contracts have been finalized with 3M for $76 million, O&M Halyward for $29 million and Honeywell for $27.4 million.

Beyond new mask production, DoD also spent $415 million to buy 60 Battelle Memorial Institute Critical Care Decontamination Systems that will be able to sterilize N95 masks to allow for reuse up to 20 times, and therefore reduce the demand for new masks.

“Six units were delivered last week, including two to New York and one each to Columbus, Ohio; Boston; Chicago; and Tacoma; providing the ability to sterilize 3.4 million masks a week, reducing the need for new masks by the same number,” Lord said.
“All 60 systems will be available by early May for prioritization and distribution by Health and Human Services and Federal Emergency Management Agency. Once all are delivered, these 60 units will allow 4.8 million masks to be sterilized per day, almost 34 million per week.”