AIA Urges SASC Leaders for Contract Flexibility in Defense BudgetSeptember 30, 2022

“Industry needs immediate flexibility in support of our specialized workforce and the small businesses that are the lifeblood of our supply chain.”

Arlington, Va. (Sept. 30, 2022) – The Aerospace Industries Association (AIA) is urging Senate Armed Services Committee to include language in this year’s National Defense Authorization Act (NDAA) allowing the Department of Defense (DoD) to modify contracts amid record-high inflation. In a letter to Chairman Jack Reed (D-R.I.) and Ranking Member Jim Inhofe (R-Okla.), AIA President and CEO Eric Fanning highlighted economic pressures affecting the entire ecosystem of defense companies, especially the thousands of small businesses comprising the shared A&D supply chain.

“Rather than continuing to do business with DoD and lose money, many companies will choose to leave the DIB entirely and focus on the commercial market, where they can more readily pass along increased costs,” Fanning wrote. “This directly threatens our national security: our advanced technologies and capabilities will dwindle, competition will significantly decline, and the innovation America needs to stay ahead of our global competitors could evaporate.”

Earlier this month, Fanning penned an op-ed in Breaking Defense detailing the industry impact of inflation and outlining the steps Congress and the Pentagon must take to ease the pain of inflation before it weakens national security.

Full text of the letter is available here and below.

September 28, 2022

Dear Chairman Reed and Ranking Member Inhofe: 

Unprecedented and systemic economic disruptions, including record levels of inflation and turmoil in global supply chains, are causing major headwinds for the Defense Industrial Base (DIB) that are beginning to threaten our ability to meet our obligations and deliver the cutting-edge capabilities and services that our warfighters, allies, and partners rely on. While the Committee included language in Section 1002 of S. 4543, the James M. lnhofe National Defense Authorization Act (NDAA) for Fiscal Year 2023, requiring a report on the detrimental impacts of inflation on the warfighter and the Defense Industrial Base, our industry needs immediate flexibility in support of our specialized workforce and the small businesses that are the lifeblood of our supply chain. We therefore strongly urge you to include bill language in this year’s NDAA granting the Department of Defense (DoD) the authority to modify existing DoD contracts to provide equitable adjustments. 

Most DoD contracts were negotiated with expectations of only 2 to 3 percent annual inflation and with properly functioning global supply chains. With inflation currently running at more than twice that rate, coupled with supply chain and workforce disruptions, companies are now faced with possible schedule delays, less output, possible cost increases, and most alarmingly, a significant exodus of workforce talent. While these economic pressures affect the entire ecosystem of defense companies, the situation is uniquely challenging for the thousands of small businesses comprising the shared A&D supply chain. These businesses have limited tools to manage skyrocketing costs, scarce parts and materials, and the loss of skilled talent. Rather than continuing to do business with DoD and lose money, many companies will choose to leave the DIB entirely and focus on the commercial market, where they can more readily pass along increased costs. This directly threatens our national security: our advanced technologies and capabilities will dwindle, competition will significantly decline, and the innovation America needs to stay ahead of our global competitors could evaporate. 

While all parts of our economy are being affected, we are confident that potential damage to our national security is something that your Committee recognizes and can address. In that spirit, we urge you to provide DoD with this vital contracting flexibility in the FY23 NDAA. 

Sincerely, 

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