Northrop CEO: Invest More in R&D

Northrop CEO: Invest More in R&D

Citing the increasingly fast-pace of global technological change and the need for the U.S. military to maintain its superiority over potential adversaries, Northrop CEO Wes Bush said U.S. industry and government should invest more funds in research and development.

“If you are going to have technological superiority, you’ve got to push technology, “ Bush told a large audience gathered at the 2013 Air Force Association’s Conference and Technology Exposition, National Harbor, Md.

Bush discussed the need for more investment in defense R&D in the context of historical trends, saying U.S. investment in this area has been on a decline for decades.  He specified that in the 1960’s the U.S. was spending about one percent of its gross domestic product, or GDP, on defense R&D. That number decreased to 0.75 percent in the 80s and then dropped further over the last decade to 0.5 percent.

“Defense research and development is a fraction of our nation’s gross domestic product. It has been on a downward slope for some time now,” he added.

Furthermore, R&D investment is expected to drop to 0.25 percent of GDP, Bush added.

Bush cited the Long-Range Strike-Bomber, or LRS-B, program as an example of needed technological development.  The Air Force plans for its new, next-generation LRS-B to be operational sometime during the 2020’s. It’s an aircraft Bush has interest in developing as his company is expected to be a major player in its acquisition. Northrop builds the Air Force’s most advanced bomber, the B-2.

Regarding questions about sustaining the industrial base, Bush said it was important that government and industry protect the supply chain and assist small defense business who might be especially vulnerable during the ongoing economic down turn.  Bush said there may need to be instances where government or the U.S. government intervene to help preserve the high-tech workforce and supply chain.

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If there is R&D, it should be NASA-oversight for aircraft technology, DARPA for novel ahead-of-the-game electronics, and the DoD only when the product is closer to being ready for the warfighter.

We’re still waiting on that helmet, yes? Too ambitious, were we? That’s okay, government is paying for it as part of the F-35 program, hook line and sinker.

Not surprising that a CEO would advocate greater government spending, especially since his company would be a benficiary of said spending. His complaint that the sky is falling because R&D spending as a percent of GDP has decreased since the 1960’s is grossly misleading. GDP has grown enormously since the 1960s, so actual spending has not decreased. Yes, it would be cool if we could afford more research into new toys, but it doesn’t seem prudent if that means borrowing more money from China to do it. He strikes me as just another corporate exec one percenter that doesn’t want to acknowledge the cold war is over and uncle sugar’s money spigot is running dry due to runaway entitlement spending.

Probably thinks Northrop is entitled to government money. Though aerospace companies have hedged their bets by diversifying.

Does this man advocate taxpayer slushfund for these ‘companies’ to do the R&D or does he want government agencies like DARPA do the R&D? But hey even that ends up being given to the companies for free. I think the US needs some NON defense R&D. Because you need a large commercial manufacturing base, before you can have a good defense manufacturing base.

Let’s see how many jet fighters and aerial tankers and transports the US can produce in 3 decades time, when Boeing has stopped manufacturing passenger jets (heavy outsourcing). Look at the shipbuilding industry as a precursor.

Yes, Northrup loves getting $1.15 for every $1.00 they spend on “research and development”. It’s free money. They don’t have to produce anything. All they do is spend, and make money doing it. Hell, wouldn’t we all like to get a contract like that? If someone came to you and said you could make money by spending it, wouldn’t you jump at that deal too? If spending yourself rich sounds like it is too good a deal for you or I to ever get, just remember that’s exactly how defense contractors get rich. They get rich spending YOUR MONEY! Now, does anyone besides me have a problem with that?

…yeah, i agree with you, Dfens, exactly what you said…
Good example here, another *BUSH* crying for more taxpayer funding…

Please sir, can I have some more…?

…more?…More?…*MORE*…???…you want ***MORE***???…
…what, you want us to invade Iraq a THIRD TIME…???…
…or just RE-invade Afghanistan…???…
We need to invade an Ocean Country, so we can get more direct Navy involvement…

Private businesses, especially the big ones, always get the taxpayers to subsidize (“socialize”) their costs, while “privatizing the profits.” We need a formula where private defense companies pay back a certain percentage of the profits to the taxpayer. Otherwise, we should just nationalize them. That would slow the drain from the Treasury and cap salaries. Northrup, General (“Generous”) Dynamics, Huntington Ingalls Industries (shipbuilding) are all basically subsidiaries of the Pentagon. We should treat them as such and set their profits.

A previous CEO of Northrop explained that they wanted to but cant diversify because they cant compete in the commercial world.

Commercial world is just Boeing v Airbus. Even during the Cold War, Lockheed was just barely hanging on in the free market before throwing in the towel.

Are you proposing the government buy Class A stock and get a seat on the board of directors? Hooray, more dividends back to government coffers…until they create another class of stock that gets /more/ dividends, convert everyone else’s class A to it and leave government holding the bag. They are sly foxes…

remember, rich is a good thing! if you want a contract like that, make something of yourself

R&D is not where companies make their money. If anything R&D is often done at cost or even a loss with the chance to score a contract on the line. Additionally several companies have attacked this very real problem by reinvesting heavily into themselves by making IRaD (Internal Research and Development) a top priority. Harris is a good example of this. The problem this is that then the company owns it and the government has to license it. This is far more costly than if the government had overseen the R&D to begin with.

Hog Wash. Until recently the defense and aerospace R&D drove innovation in the commercial sector. Manufacturing bases have nothing to do with R&D. R&D requires a strong base of scientists and engineers which is at the root of this problem.

Oh. Yeah. Right. Well, *THAT* explains *EVERYTHING*…
Poor Northrup just can’t compete.
So, yes, they deserve to get an endless stream of FedGov Taxpayer money for nothing…
Yup. Makes sense to me. I shop at Wall-Mart…

As someone who sees what defense companies have for R&D equipment I know we need more funding. Engineers are using equipment that belongs in the Smithsonian Museum. 20 to 30 year old RF equipment that is so obsolete, they main focus is maintaining this junk.

It is very rare that a MIL company get’s money for capital equipment.

Imagine what China has? We cannot be a leader using old junk. We are spinning our wheels and it will be a cost we will not want to pay.

Well put Rich. R&D has become an afterthought in Defense and Aerospace. Taking a back seat to acquisition itself.

Let’s distinguish carefully between actual R&D funding — basic research up through technology development — and the “R&D” funds that get spent in major acquisition programs. The former are good value, and always underfunded (because you need the money today, but there’s no nice toy in sight). The latter is where defense acquisition fails the most spectacularly, spending billions to get what should have cost millions if the R&D had been done properly _before_ kicking off yet another not-quite-ready MDAP.

For the price of one major post-milestone-B EMD program struggling with immature technology and gold-plated requirements, you can have two dozen excellent DARPA-style programs, or half a dozen ACTD programs… but we always want the new toy NOW, and think that somehow starting the acquisition sooner and compressing the schedule will actually get it faster. We never learn.

YO!, “Rich” & “Tomcat”…why don’t you show us the tax returns for the Defense Contractor CEO’s and investors?…A small group of Wall St. types is getting RICH, while the scientists struggle with 20-year old junk…
Put the real blame where it really belongs…with the so-called “1%”…

Just another constituent asking the welfare state for more “free stuff” former POTUS candidate Mitt Romney was talking about. The Clinton Administration cut welfare for citizens way back, and even added work requirements — yet corporate welfare is still alive and well in the USA.

Its time we cut corporate welfare — especially for profitable companies — and especially those that export American jobs, manufacturing plants, and dual-use technologies overseas.

Yo! “Bradford” free lesson on government contracting, it’s called colors of money. Regardless of how much profit is set, a company, by law, cannot spend government money on R&D if it’s colored for production or maintenance (the overwhelming bulk of the DoD budget). The government has chosen to redistribute the budget towards more of the latter.

Lesson #2, also free of charge, defense acquisition profit percentages are regulated by the government (15% for R&D and 6% for most others). By comparison your iPhone carries about a 20% margin. Educate yourself.

You’re correct on the cost of R&D once a program of record is established. It usually is far more expensive. However, it is well documented that the majority of 6.1 (DARPA) and 6.2 (ONR) do not successfully cross the so-called “valley of death” into programs of record. The technology transition path is precarious and often a major killer of great R&D. While DARPA makes amazing things they aren’t successfully getting them to the war fighter of commercializing them.

It sounds like Rich is complaining that the parent company won’t spend the money to update their own labs, but earlier you said companies are investing in their internal R&D. Here you’re describing that the company can only spend so much of its profits on R&D. Please clarify.

Otherwise they want to make the next gen bomber really bad.

Seems to me Lockheed and Textron have had not issues with doing their own R&D and then turning to the government and saying “This is what we’ve got. Want one?”

Just because a certain amount of profit for R&D work is government-regulated doesn’t make it right. There are innumerable silly government regulations. My humble opinion is that double digit profit percentages for R&D work is too much. The labor rates for the scientists already contain significant burdening, adders, and fees that benefit the company. Double digit profits on top of that is just more gravy.

Everything you say is true, but I don’t think it’s DARPA’s fault (necessarily) that the things they develop don’t cross the valley of death. The missing step in the middle is where you demonstrate that the new technology can successfully be used to meet a particular mission need. That means a prototype that meets threshold requirements in all of the hard areas simultaneously — but we always skip that step, and go straight from prototypes with no requirements at all to a full set of ridiculous KPP thresholds in a program of record. Then we’re surprised when they burn billions of dollars over a decade to learn that the prototype design can’t actually be modified to meet all of those requirements simultaneously.

…I don’t have an iPhone…
But, nice try changing the subject, and avoiding answering direct questions…You must be a Gov’t Contractor…

So if aerospace companies decide a dividend check is more important than capital reinvestment, it’s the government’s fault? Didn’t realize companies couldn’t spend their own revenue on capital reinvestment. What a strange free market this is.

Now this is an aptly named commenter.

What we really need is for the defense contractors to cover their own development costs. That way they’d have to put their profits back into their business if they want to continue to do business. If they decide they no longer want to play, then the military should stand up its own weapon design houses. Hell, the US Army used to design and build most of their own rifles at Springfield Armory. The Navy used to design their own ships and they were built in the Navy’s own ship yards. NASA used to design their own rockets, back when we could go to the moon. Today we have to buy a ride on an ex-Soviet Union designed rocket to get our asstronauts to low earth orbit, which is as far as we can go for the last 40 year.

Find me a civilian market for a stealth bomber.

Only one thing to say — Go look at NG’s last annual report — $100M spent on R&D 1 Billion spent on stock buyback to inflate the share price and give better yield on stock options– Whats more important?

The “problem” of getting R&D projects built isn’t DARPA’s. We pay these defense contractors a profit on weapon development. Why would they ignore their main source of profit to develop weapons using their own funds? This is especially true given the low profit levels they make on their publicly funded development programs. 10 — 15% profit margins are extremely low. If a defense contractor unsuccessfully develops even a low cost weapon on their own funds the risk it doesn’t sell looms huge over their profit margin. Plus, the way the military is structured now there is no advocate to buy weapons developed without a huge military procurement program behind it. Look at the C-130J. Even through it had been developed at the contractor’s expense for 50 years, the J model was highly controversial due to it’s being developed without an established Air Force bureaucracy to support it.

There is nothing “free” about the defense market. It’s all about politics with the government picking the winners and losers. This idiot wants the US taxpayer to subsidize more R&D, but there’s no evidence that the R&D spending we do now ever has any impact on the actual weapons that are produced. When is the last time you saw a research product turned into an actual weapon? Hell, look at the rail guns the Navy has been screwing around with for decades. Just more research for the sake of research. Every year they show a little progress, but never produce a weapon.


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