President-elect Trump, sequestration, and the COTS market

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November 30, 2016

During his campaign for the presidency, Donald Trump promised increased military spending if elected. Now that he has won, many in the defense electronics industry have their fingers crossed that he will follow through.

The hope of increased defense funding following a Republican presidential win after eight years of Democratic rule is not a new concept. Back in 2000, I was on the floor of the COTSCon West show in San Diego when an announcement was made that the Supreme Court had ruled – about a month after the presidential election – in favor of George W. Bush. A cheer went up from the exhibitors and attendees, as they knew that meant increased business for them. They deemed it a certainty.

With a Republican president backed by a Republican Congress in 2017, it would also seem a certainty that a healthier defense market is just around the corner, but Donald Trump is not a traditional Republican – having been a Democrat most of his life – so the industry is cautiously optimistic.

I think it is pretty simple. If Trump and the Republican Congress end sequestration – the automatic, across-the-board cuts to the defense budget – then he will be a hero to military leadership, prime contractors, system integrators, and commercial off-the-shelf (COTS) embedded computing suppliers.

Sequestration has cost thousands of defense industry jobs, slowed product development, hindered platform upgrades, and, if it continues, will adversely impact military readiness, if it hasn’t already.

The former chairman and CEO of Lockheed Martin, Bob Stevens, once called sequestration “a meat axe.” Cutting across the board is “an inefficient way to manage a business,” he said back in 2012, fearing the loss of thousands of jobs within the U.S. defense sector.

He was right. “The impact to date has meant the loss of tens of thousands of good, high-paying jobs in the defense industry, as well as the delay or cancellation of many national security programs,” said Bobby Sturgell, Senior Vice President of Washington Operations for Rockwell Collins and former Acting Administrator of the Federal Aviation Administration (FAA) in a roundtable article on sequestration you can read here. “Stephen Fuller, a well-respected economist at George Mason University, now expects sequestration to cost the U.S. over 1.5 million jobs, with about 820,000 coming from the defense community.”

I think sometimes it seems sequestration was put in place so that congressional leaders and the president could avoid making decisions. We need leaders more concerned with solving problems than with passing them off to the next Congress or presidential administration. In this sense, sequestration is a symptom of procrastination on the part of the government. The more you procrastinate on solving a problem, the worse it becomes.

Trump touts himself as a problem solver. If he works with Congress to successfully end sequestration, it will ultimately be a win for the defense industry.

Some think he will do just that. “Whether you like him or not, he is an action-oriented businessperson,” said Eric Sivertson, founder and CEO of QuantumTrace, earlier this year titled "Presidential politics and defense electronics." “Sequestration has created problems for the business industry and he [was] the only candidate taking a firm stand. However, it may not be a good thing at first for defense firms as he would likely kill programs, but he will remove the malaise of sequestration.”

Trump and COTS

If sequestration is abolished and Trump increases defense funding, it still may not mean more funding for COTS embedded computing technology. With sequestration gone, the budget will be more aligned with the missions to be accomplished. Those overall mission requirements will determine what technology investments need to be made such as supporting boots on the ground and troop deployments or increasing funding on research and development (R&D).

More mission clarity will enable more certainty on spending directions, enabling industry to channel their internal research and development (IRAD) investment appropriately.

If mission requirements call for more command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR), radar, and electronic warfare technology, then the outlook for signal processing and embedded software suppliers will be bright.

“In the long run I think [a Trump presidency] will be excellent for the defense industry, but in the near term a Trump presidency will create even more pain, more than Clinton or Sanders would,” Sivertson added. “Trump is all about the art of the deal; he will make deals and some will be painful, but it will probably be the right pill the DoD needs to take to clean it up and make it more economically efficient.”