SIMI VALLEY, Calif. — Former and current defense officials, members of Congress, and industry executives at the Reagan National Defense Forum here in early December zeroed in on two threats: China, which the Pentagon has described as its pacing challenge; and Ukraine, where the ongoing war has raised new questions about American and European defense requirements, as well as how industry can position itself to meet those needs.
At BAE Systems, the company is looking to address both areas, Tom Arseneault, who heads the contractor’s U.S. business, told Defense News during an interview on the sidelines of the forum.
He said the February invasion of Ukraine by Russia created both a near- and midterm horizon, adding to the longer-term one focused on China. The near-term effort is centered around “what can we get to Ukraine and how quickly,” while the medium-term horizon, meaning the next few years, is focused on the defensive posture of Eastern Europe, he said.
This interview was edited for clarity and length.
You indicated the war in Ukraine created two new horizons, adding to the longer-term one. Can you explain that?
The near-term horizon is the one we’ve all been scurrying to do. What’s transpired there is the recognition that you can’t just turn the production lines on like a light switch. We’re going to lean on legacy technologies, draw out of the inventories of the services, and then have a backfill strategy where appropriate and possible.
So to the extent possible, how can we draw off of more current production lines to backfill? Case in point: M113s, the old Vietnam War-era personnel carriers, of which 152 are in Ukraine today from a number of countries. The U.S. Army has seen fit to now backfill those with our Armored Multi-Purpose Vehicle. It’s a good example of trading out legacy hardware for a more current version.
The medium-term horizon — we’re starting to see that play out, most notably at our BAE Systems Hägglunds business in Sweden, where there’s been an acceleration of procurements in both the Czech Republic and in Slovakia, very close to the conflict. We’ll be working our CV90 infantry fighting vehicle into those two countries.
The China horizon — the long-term one — seems relatively certain for you as a company. The short-term and the medium-term horizons seem more uncertain. The makeup of Congress is changing; members may lose some of the appetite for Ukraine aid. How do you think about it as a company?
It all comes down to budgets and priorities. The balancing act will be the urgency of the defense of Eastern Europe juxtaposed against the threat and the timeline of the pacing challenge in China.
The fact that today [militaries] are drawing out of current inventories, they’re creating a gap in what they would hope to have. In fact, it has woken much of the world up to the inventories that they thought were sufficient. Now, as they draw these down in support of Ukraine, it raises some questions as to whether we had the right inventory level then and what’s it going to take to get back there.
There’s some certainty around that because no country wants to be vulnerable in that way. Somehow or another, both of these horizons will need to be dealt with, and the budgets will need to support them.
As you’re seeing equipment head to Ukraine, what lessons has industry learned?
Just to pick an example, the relevance of a certain system and the inventory levels at which that system should be stocked are being reviewed. The M777 towed artillery gun is out of production effectively. Now, artillery suddenly becomes an interesting thing in the wake of the conflict in Ukraine. So the call for more M777s around the world comes back up. The relevance of the system is in review, and the stocks of those systems around the world is in review.
These are things that have been out of production for a while. If they continue to be relevant in some way, what does it take to start those back up? And was it wise to shut them down?
Wouldn’t it have real effects for industry if militaries around the world decide that they need to pay for higher levels of inventory, that they need to keep some production lines they’d rather let go, just in case?
If we’re going to decide that we want to shut down the line, that we cannot sustain it for 20 years longer, then let’s get a sense of what’s the real demand out in the world, and let’s put that in inventory. So when the time comes, and if we need to do like we’ve done in Ukraine and send some of these systems elsewhere around the world, they’re there and there’s enough left for us to satisfy our own needs in the long term.
It’s a balancing act. What industry would love to see is just a steady, predictable budget and demand signal. That’s when we can create the economies of scale that get the services the best buying power. But it is very difficult to do in the environment we’re in with cyclical budgets and demand volatility.
Marjorie Censer is the editor of Defense News. She was previously editor of Inside Defense. She has also worked as the defense editor at Politico, as well as a staff writer at the Washington Post, the Carroll County Times and the Princeton Packet.
