Pentagon, U.S. arms makers to talk Russia, labor and supply chain

Pentagon leaders plan to meet with defense industry executives next week to discuss ways to tackle supply-chain problems, a U.S. official told Reuters, amid an expected surge in demand for weapons from U.S. allies due to Moscow’s invasion of Ukraine.

Deputy Secretary of Defense Kath Hicks will host a classified meeting with top U.S. defense contractors to discuss the National Defense Strategy, securing supply chains and shoring up the defense industrial base, including workforce challenges, spokesperson Eric Pahon told Reuters earlier this week.

Concern among Pentagon officials is growing that top U.S. defense suppliers will struggle with a surge in orders for weapons from European nations like Germany and Poland, amid growing fears of Russian President Putin’s ambitions in the region.

Prior meetings between Pentagon officials and top arms makers including Lockheed Martin Corp (LMT.N), Raytheon Technologies Corp (RTX.N) and General Dynamics Corp (GD.N) were focused on Ukraine and hypersonic weapon development.

Despite global interest in weapons, major U.S. arms makers continue to cite a tight labor market and lingering supply-chain problems from the coronavirus pandemic to tamp down expectations about how quickly they will be able to deliver on those expected orders.

“We have heard the concerns from industry regarding supply-chain challenges and workforce issues – and we share them,” the Pentagon’s chief weapons buyer Bill LaPlante told Reuters in a statement.

Pandemic related supply-chain issues are still hurting defense contractors because components and materials fail to arrive on time, which delays production and ultimately payment.

The Pentagon plans $500 million in workforce training and retention programs coupled with over $2 billion in supply-chain investments in the coming years as part of an effort to tackle the problems.

But Russia’s invasion of Ukraine has prompted countries like the United States and Germany to raise their defense spending budgets to record levels.

THE LONGEST POLE
In the meantime, the defense industry is taking steps on its own to shore up supplies and labor.

“If I had to boil it down to the longest pole in the tent, it’s the labor issues that are pervasive throughout the supply chain,” Raytheon Chief Financial Officer Neil Mitchill told Reuters.

Raytheon’s head, Greg Hayes, told investors last week the company had deployed teams to work with 400 problematic suppliers “on a daily basis, getting them raw material, giving them contract labor, giving them technical support.”

Northrop Grumman Corp’s (NOC.N) Chief Financial Officer Dave Keffer told Reuters the company had “added a lot of resources and focus on hiring,” with net new hires of 2,700 in the third quarter alone.

Last month, Lockheed head Jim Taiclet, told investors the company was “cross-training” employees to allow them to shift between product lines as demand grows and changes in the coming years.

Demand is real. Last month, Poland agreed to buy 288 artillery rocket launchers from South Korea, although it has said it wants many more.