- The Washington Times - Tuesday, February 2, 2021

There is clear deterioration in key corners of the U.S. defense-industrial base, a new report warns, with major holes in cybersecurity and a lack of skilled workers across the sector threatening to undermine America’s advantage over global competitors such as China.

In its second annual “Vital Signs” industry report card, the National Defense Industrial Association (NDIA) — the leading trade group for American defense contractors — gave the sector a “C” grade, a barely passing mark that points to troubling trends that have direct effects on U.S. national security at home and military superiority abroad. The study also found that 70% of defense companies experienced a “moderate or large impact” from the COVID-19 pandemic, with 12% saying they believe their business will never return to 2019 levels.

The ongoing coronavirus crisis coupled with a host of negative long-term trajectories and politically charged flashpoints in the sector, such as foreign weapons sales, have created a daunting, high-stakes challenge for the Biden administration and its new leadership team at the Pentagon.

U.S. “defense is predicated on a vibrant and productive defense industrial base. That base is facing multiple headwinds in its efforts to keep American and allied warfighters advantaged in all domains of conflict,” said retired Air Force Gen. Herbert “Hawk” J. Carlisle, now the president and CEO of NDIA

“These challenges include but are not limited to intense industrial security threats highlighted by the recent SolarWinds hack attributed to Russia, along with myriad breaches attributed to China; expected flat budgets going forward; decreased investments in the basic science that fuels U.S. innovation; skilled, cleared workforce shortages; and increased regulatory burdens and barriers to entry for those seeking defense contracts,” Mr. Carlisle wrote in in the report.

Much of the big-picture data analyzed in the report is from 2019, meaning it did not factor in the effects of COVID-19 on the defense industry or on the economy as a whole. The study did, however, include a separate, smaller section focused on the impact of the pandemic. 

For defense leaders, perhaps the most troubling signs came in the realm of industrial security, which earned an alarming grade of 56 out of 100. Major vulnerabilities in cybersecurity continue to be a huge problem.

“Industrial security conditions continue to decline, losing ground on what was an already poor score,” the report says, referring to the one-point decline from last year’s mark. “This decline reflects larger trends in the erosion of industrial cybersecurity despite increasing attention and resources being dedicated to combating the threat.”

Other alarming signs came in the area of innovation, which scored a 71, down two points from last year’s survey. Political and regulatory activity dropped a whopping 10 points, from 82 to 72, because of “unfavorable congressional defense budgeting” and other factors, the report said.

Analysts generally expect relatively flat defense budgets for the next four years, potentially compounding the problem.

The industry’s supply chain scored a 77, down six points from last year’s survey. Deeper problems in the supply chain have only been compounded by COVID-19, which has upended the movement of goods around the world and made it much more difficult to maintain large physical workforces in factories and facilities across the country.

A key bright spot came in demand for military-related goods and services, which jumped 16 points from last year to a score of 93. Much of that leap was fueled by “foreign military sales,” NDIA said, which increased dramatically during former President Donald Trump’s time in office.

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