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With Deputy Secretary Patrick Shanahan now the acting Secretary of Defense, there has been some hyperventilating about whether Boeing, Shanahan’s former employer, has the inside track in the Pentagon. Industry can relax. By law and regulation, Shanahan is prevented from making most acquisition decisions, his pro-Boeing comments are in the mainstream, he has recused himself from issues involving Boeing, and ethics rules essentially prevent him from going back to Boeing anyway. The risks that industry faces in this leadership transition are from the uncertain budget level and a possible change in defense strategy, not a rogue insider.
How we got here. In mid-December, then-Sec. Mattis submitted his resignation to the president but proposed to stay on the job until the end of February to allow a smooth transition. At some point, Trump, apparently having either read the letter or been alerted by Fox network, recognized the severe criticisms that it contained. So, Trump essentially fired Mattis, requiring him to leave by the end of December, and Shanahan became secretary of defense unexpectedly.
Before coming to DOD, Shanahan had worked 30 years at Boeing, rising from engineer to senior vice president of supply chain and operations. Some observers thought that this history would help Boeing in the rough-and-tumble of defense contracting, an advantage that would increase with Shanahan’s elevation. That’s not going to happen. Here’s why:
Neither the secretary nor the deputy secretary has a role in making acquisition decisions. By regulation, source selection— deciding who gets the contract—is left to the military services except for joint programs which are conducted by the defense acquisition executive, the undersecretary for acquisition and sustainment. Source selection committees do their work in secret and resent any interference. Other acquisition decisions—for example, cost, schedule, and performance—are made by the service acquisition executives or by the defense acquisition executive. The secretary and deputy secretary do not even confirm these decisions.
What about Shanahan bad mouthing the F-35 and suggesting an F-15X for the Air force? Shanahan apparently criticized the F 35 for being “unsustainable” and criticized Lockheed Martin for its inability to manage the program. In this, he joined a long line of F-35 critics. Former undersecretary for acquisition Frank Kendall, for example, once called the F-35 program a case of “acquisition malpractice.” Former secretary of defense Leon Panetta called the program “long delayed and horribly overbudget” in his memoirs, and former Secretary of Defense Robert Gates called the program “over budget and behind schedule” in his memoirs and withheld $614 million in performance fees. Shanahan may or may not be right about his criticism, but he’s in good company.
Shanahan also apparently suggested that the Air Force consider an F-15X being proposed by Boeing, a new version of the legacy F-15. The Air Force is resisting, being committed to an all fifth-generation fighter force of F-22s and F-35s. But the F-15X is not a crazy idea. The Navy has essentially done this, continuing to procure legacy F-18s—its equivalent to the Air Force F-15s and F-16s—even as it was buying F-35s. As a result, the Navy has a much healthier fighter force in terms of numbers and average age.
Shanahan has recused himself from issues regarding Boeing. This covers anything that could affect the company, for example, budget decisions about how much of a particular Boeing system to buy. Further, Shanahan apparently also set up an alert system that would notify his staff members if an issue arose involving the company.
Practically speaking, Shanahan can’t go back to Boeing. The ethics rules are so tight that it would be difficult for Shanahan to go back to Boeing and perform usefully when he had to recuse himself from so many government decisions. There is no need to make his former employer happy.
Defense industry executives should worry about budgets and strategy. Instead of worrying about the acting secretary’s background, defense industry should worry about the level of the defense budget and potential changes to the defense strategy.
The defense budget had seemed to be stable with a bipartisan consensus that the United States needed to spend more if it was going to confront Russia and China and still be engaged with the rest of the world. The FY 2019 budget had been a third year of substantial growth, and the projection for FY 2020 and beyond, while not higher in constant dollar terms, at least maintained that higher budget level.
The wild ride of the last two months has called that confidence into question. In November, Trump, apparently concerned about the deficit, stated that the national security budget would be cut from the planned $733 billion to $700 billion. (Both numbers include the base budget, the war funding, and the nuclear programs in the Department of Energy). In early December, Mattis convinced the president to reconsider, and the president then proposed $750 billion as a negotiating tactic.
Meanwhile, the Democrats, now in control of the House, have a lot of domestic priorities that they want to fund and have discussed cutting the defense budget. So, there is downward pressure from the Congress and uncertain support from the president. The question asked by many commentators is, have we hit peak defense?
Similarly, the defense strategy seems to be in play. Issued last January, the national defense strategy received bipartisan support for setting a course of long-term competition with Russia and China, continued confrontation with North Korea, Iran, and terrorism, engagement with allies, and higher defense budgets. The president’s many statements disparaging allies, questioning the value of forward engagement, and, recently, directing troop reductions in Syria and Afghanistan have called that strategy into question. A change in strategy might not reduce total defense investment, but it would drive different investment, hence disrupting programs that industry has developed and nurtured.
Both of these issues, the budget and the strategy, will play out over the next year. However, the nomination of the next secretary of defense will give some insight into where the White House is going. A nominee with prior experience in the national security community would indicate some continuity. A nominee from the outside might indicate a break. Stay tuned.