tv Reagan National Defense Forum - Panel on Defense Technologies CSPAN January 25, 2018 6:42pm-8:01pm EST
prepared to take a chance on it. next on c-span2, here from navy secretary richard spencer along with technology and financial industry leaders talking about defense innovation. this was part of the reagan national defense forum at the reagan library in simi valley california. >> hello everyone, good morning. it's great to be here on a beautiful day in such a beautiful place at this very important time for many many
reasons. we are here today to talk about the challenges that the defense industry and our government faces as a result of the pressure from wall street. how does that quarterly earnings report affect the ability of our government to innovate and protect us? he it's a big question and it's an important question with lots of ramifications for years to come. we have mr. michael leskinen executive director of aerospace and defense. he is the wall street guy that is demanding all these things so he will have good insight for us. we have the managing director of ti u.s.. he's part of the $200 million fund that the government has with silicon valley to go out and require new technology and
find the coolest things on the horizon that can really help us. we have secretary of the navy honorable richard spencer right here next to me and behalf mr. mr. michael strianese ceo of l3 technology who also is looking for a lot of this technology that he can then present to the secretary to see what it is that can best protect us. i'm going to kick it off with the conversation. i want to remind you all to jump into the conversation you can do that on line through the mobile app and anybody watching at home if you have any questions send them to us on twitter and we will be watching for all of those twitter @#are in cf. anybody is watching on line right now. let's kick it off. michael first tell us about what it is that you want from a
disaster standpoint from these companies like mr. strianese' and what is it that you wanted what is it that you need? >> first of all trish i want to thank you for being here and to be with this esteemed group. the topic of putting more money into business is something we are doing more of already. it's not at a level that makes the department happy and as an investor there are trade-offs. i can ask for a buyback where the companies can invest in the business. for me to want to allocate my share of money to companies investing i need to see three things. neat to see a stable budget. that's not necessarily 10 or 20% higher budget, stable budget we
can plan on. china has a five-year plan that companies can invest within five years. years. need to see that. they need to see companies be -- purport night at taking risks. versus programs that may and if it -- innovate and you don't necessarily when the production phase. i'd rather see dividend buyback of that's a case and thirdly i think it's important from the department standpoint you want to see companies were awarded for past performance and vice versa. so if you are on a tanker or an aircraft program and you did not deliver on time and on budget that should have an impact on how likely you are for the next program and i look at how programs are worded that doesn't happen. those are the three pieces i would focus on.
>> mr. secretary when you know there is this pressure from investors like michael and all of wall street they want these companies how do you think about in terms of make sure you're getting the most in terms of the most innovative technology that's out there? >> trish it's fascinating having come from wall street everyone is saying, old friends are calling up and saying what is it like to work inside the pentagon and if you look at the job of secretary of state navy manned, equipped train and deliver the half that i wear is running a business. i have a budget. i deploy the funds. i deliver equipment to the combatant commanders. it is imperative for me to be a responsible consumer, a responsible client and the words that we are putting out right now and it starts from the top
on down through allen lord we want to get away from transactional relationships in the general sense and partner with the industrial base. what do i mean by partnership? what i mean is shared risk, shared benefit. we want to make sure that we are taking risks and that risks are being shared. government is 90% of the risk and 10% of the -- has to be distributed. it's incumbent on us to send that signal out to the industrial base. he told me once richard stop ranting about the industrial base of what it's doing to the pentagon. they are simply mirroring the system that we have in its human nature so we have to change that and we are looking forward to opening the doors for this relationship concept.
i know it will come. we have relationships now and it's just drinking them them because i don't have the amount of funds that i need for the requirement that are being heaped on me. i need to increase my capability to every single aspect where do business. the only way i can do that is by working in partnership with the industrial base and in that line that trickles down to michael is going to make the investments because capital is the universal for my business in order for my suppliers and my supply chain to function correctly. >> mr. strianese you are caught in the middle because you have michael demanding quarterly earnings and you have science at one success for the future. >> we are subject to the competitive pressures of the competitive markets. we have customers that we care about a new technology and investment. we have our shareholders that
like a market return. there are other industries that i'm sure raj sees everyday on the west coast that produces returns weight greater than the defense ministry but we are known for being predictable over the long-term. however as a result of the past decade of shrinking the budget it's very difficult for many companies in the industry who make investment decisions that work for the long-term because of the lack of certainty and whether there will be program and how long it will take and whether they get money back and it runs into problems. even worse you will have an activist show up and and not hae the personal pleasure of dealing with that. i'm happy to say that.it's the
environment. we want to keep our customers and their defense fighters the best force we ever seen. i think we have a bit of a deficit as you occurred over the past decade and we need to again be competitive within the capital markets so we can attractive place to invest. the balancing act. >> i want to circle back to that because activist investors are a new phenomenon certainly in the last five to 10 years, at least the extent to which they are operating and that makes it challenging for any business but it adds on a whole other layer when you are talking about the defense industry because it's so relevant to you mr. secretary into all of us and keeping us safe. i want to go to raj for a moment because you are part of what the government is trying to do to discover the new technologies before l3 does or before wall
street does. >> thank you for the chance to be here as the department of defense is representative in the valley of the wall street panel. the nature of warfare is changing and it's being driven by technology whose development is led in the commercial sector. there are sluice of startups and tech companies for their own commercial markets that are going to play a major role in the defense of our new nation and on the battlefield. the pentagon needs to be a buyer buyer. that world is changing and it has a lot of implications. one, these companies are going to build this technology whether or not we participate or not. i think about artificial
intelligence and autonomy and how it's disrupting technology companies. it's embedded in all the phones that you have in your pockets right now and you have real-time translation of any language. the world itself is striving harder but all of this has military implications and tech is moving so fast and it's accessible to our adversaries. we don't have exclusive rights to those and so what is most important is not just the protection of that, it's how fast we can ingest and incorporate that and to the ends of our men and women on the battlefield. there are different things that are really interesting and the use of drones by her adversaries and notifications of isis and
others making a drone and putting a weapon onto it. there was a discussion about the data being collected over video. so that's another piece of technology. the good news is the capitol market and even and even early-stage capital markets are beginning to look into problems as once they want to solve and invest in. >> mr. strianese hop has investment in technology change over the last several decades? when you think about the military feels like there was a time in history where we had all kinds of resources in defense and we have backed off that and it's changed many ways including the military because much of
this now is outsourced. that could be far more efficient but walk us through that change and the current state of things now. >> it's interesting trish and that if you look back to the day when darpa was new when you have the department of defense leading innovation literally a plane nasa and dod, they were probably the biggest innovators back in the 50s, 60s and 70s. the commercial world caught up. the last 10 or 15 years you look at what is happening to us on a budgeting cycle for the dod specifically in the requirements that we have received to do our job. we no longer have the money to make those investments and it naturally trickled away. if i was to look back over the last 10 years, i just talked about the responsibility that i have a new good client to my
suppliers and my supply chain. we have obviously, i won't say we have sent a failed signal, we have sent a signal that we are not investing because you have the largest stock buyback and dividends because they don't find any opportunities to invest in on the business basis. so that on us for not crafting a good enough message but bad on that on us for not having a sustainable source of resources to signal to the marketplace that we are in this for the long run so they can afford to invest the dollars to make the returns so michael can invest in their companies. it's a true relationship. it's symbiotic and i don't know if it is true inside the building. the responsibility of doing a good client. >> michael at l3 you have the most cutting-edge technology to
show the clients how do you do that and an environment that is so driven by a bottom-line and how critical is knowing that your clients will be supportive of the projects in terms of your overall portfolio? >> i'm very confident the client will still be there. the question is will the congress fund our clients? we like all companies invested a certain base level of r&d and there's an urgent requirement for deployment or whatever the case may be and you need to invest in new tech allergy or a new system that can counter and
making those decisions have become a little bit more challenging when the funding is not as clear. like our -- unlike her adversaries whether it's china who has state-funded industries that they can do anything they want and they can act a lot faster. the pentagon as you know, comes from industry and it comes from us. we need a tighter relationship with budget certainties and things that would give us the confidence going forward. >> i'd like to make a point on that and i don't know how many of you in the room have paid attention to this but the budget control acton sequestration and the caps i was asked by some of my board of directors on the hill to ask what that cost the navy. the last nine cr's have cost the navy in the neighborhood of
$4 billion. that's not opportunity loss prevents putting $4 billion in a trashcan pudding lighter fluid on it and burning it. and that's the symbiotic relationship we have to have with the industrial base. it's a tough environment to work in when we think we can turn the switch on and off to build a ship or to fund the project and the whipsaw affect let alone what happened to the pentagon's delivery schedule and cost of dollars. it trickled down to our supply chain and our suppliers in a magnified manner. >> if i could expand on that. the return in the defense industry are very good. this is a great business. it's not a question of not investing in current returns. it's a question of if i invested a can it drive more revenue in the future and with sequestration you don't get there. with budget-based requirements you don't get there.
he said mike is kind of in the middle between the customer and the investor and that's not exactly true because we are all lines. business is good. if i seem never -- revenue growth -- revenue growth i will support business all day long and the second i would make is on development, on new programs. .. >> right now, the acquisition rules do not allow that. >> what does that mean for our company if the acquisition doesn't -- are your competition
for those were out there trying to find that competition silicon valley. you have to find them to and hopefully acquire them. i think it's cheaper to acquire them than for five years capital expense into something and not know if it was gonna pan out. >> true. i like to think we will be partnering. doesn't serve either of our interest to make things more expensive. for some of the discussion i would say let's follow the money. the industry has plowed tens of billions of dollars into -- because of a certain return. a risk-free return. for investing and buying shares in a company we know best, our own companies. it wasn't in technology or future production. it's simple, that was only place to go when the budget was
contracting and shrinking. there's not a lot to think about on that. too much assisting your company and operate in this competitive market? that's what we have seen. at the end of that cycle because we have shifted back to your purchases about a number of companies last couple of years and have made investments. >> you hit the nail on the head. we have been nibbling around the edge for reform of the acquisition policy. a funny story going up for confirmation i got a briefing on the acquisition instruction. had two generals and two admirals briefing me.
at the end of the table was a marine corps captain and i always loved speaking to the junior officers. i said what do you do the think about our acquisition program? the navy lieutenant goes over to the marine and the marine looks down and says well, sir, if it was up to me i would stamp top-secret on 500 it and leave it on the chinese steps and then we went. >> were doing great things, it's terrific. were leaving great reformation, we have cells. we have to make sure it impregnates the whole organization. we our our own worst enemies. from my point of view we say we
need this, we do. but we also need work inside the building and make sure that we spend your treasures the best way we can. we have to have the tools to do that. industry is ready. if we change the process, industry will adapt to that process. we need to go back to where we both share risks and returns. >> i want to hit on the last comment of the partnership. commercial technology and business has underpinned the hard and soft power of this nation. there should not be any daylight between the innovation of the economy we have seen crop up over the last decade or two. to be more specific, you have your companies that take high
levels of risk that are backed by venture capitalists understand the risk. but when i find something that works in the we want to bring it to scale, the department is 3 million people. if you want to bring it to scale, this is where the industrial partners are vital. they understand the process and have the relationship. they know how to work in these locations. what we have seen from my vantage point is the most successful efforts are taking our best young companies and emergent technologies infusing them with our industrial partners to say, that's bring the strength of both together and we can do it in a timeline that is much faster. >> in terms of where the country is trading, i think the surprise of the election caused outside
in defense companies that wasn't necessarily built-in. so the sector as you pointed out is doing well. where do you see it heading over the next 6 - 12 months and work goes to work and go. >> i would like everyone to buy j.p. morgan funds. no. the, the sectors valued at the top five percentile where it has been historically on a relative basis. so, to see the multiples expand from here stuff. to see a contract is unlikely as well. the cash profile is strong. the budget have turned. the degree to which is still in question. what we're headed up from here. the returns are stable.
that's a nice set up in a slow growth world. you also see earnings growth drive in stock performance. i'd like to see the players investing get a disproportionate amount of the topline growth. if that occurs in the differentiation and performance will come from the topline growth. but i use the opportunity as we talk about partnering with commercial and along if you look at what boeing has done for partnering with success. bought some would say they have gone too far. but i think the dod could adopt it. on key programs, legacy programs like the 737 or the triple seven, their contracts in place
for them to deal with their suppliers. the contract say for this part you'll pay x. but it's competitive and commercial airspace. there trying to drive costs out. so they are partnering for success which means contractually you can charge a sex for this landing gear. we can outsource it to someone else. so if you work with us on this program then we come out the next airplane then you will get more business from us because your partnering with us. that requires program managers to work across programs at a higher level. i think that is low hanging fruit.
>> here's where we have to change our acquisition parameters. one of the most fascinating things i've had to do is the pa program. if you look at what goes on with the 737 on the commercial side and now were military buyer, it's not quite there, but it's pretty close. duplicate at exactly what michael is talking about. boeing has a service where 24 hours the plane doesn't remain on the ground more than 24 hours. i saying why can't we take the mindset that we are buying readiness. i don't want to own parts in the bin, i want to buy readiness. by 99% up, how the supply chain gets it there is the value they
provide me and that's what i compensate them for. we couldn't use that because there's no way to validate what a true price was. mess with the commercial world looks at it. so to adopt these programs which are low hanging fruit we need to change the way we do business. >> what you think some of the most exciting technologies are that you have in your pipeline in terms of what is on the horizon and how does that get presented to the secretary. >> we have regular dialogue with the secretary. we have invested this year and undersea vehicles including much-needed propulsion which does not rely on the lithium batteries. i know it's clear that we don't want those ownerships or subs so come up with something else, and we have.
so i think they have witnessed a few demonstrations so that's one example. another where we saw problem that needed solving is the congestion in the airports at the checkpoint. that's something everybody loves to hate people don't recognize who that is they just have to do this. but we've invested it a number of companies that have technology or we've developed it on our own with a traveler does not have to divest liquid from their baker computer because the machine will identify it as an explosive or not. the hope there is that will get lines moving faster the public will be safe to and will get enjoyment back in our vacation. >> that's a tall order.
we would all appreciate it, for sure. walk me through the process. you send this is our problem, michael, can you say solid. were you saying hey i'm seeing this on the horizon, maybe that would make a lot of sense for the u.s. navy. >> more the former than the latter. we need to shift that. our primary job is to find is to provide the requirements to the industrial base of what the problem is. and see you guys go back and do your r&d and come back with a solution. roche is a perfect example of how her changing it. we need to be out there looking around saying here are atypical or nonstandard developments out there in the marketplace that we are not see normally through our
traditional supply base. we have to be doing both it is a communications layer, of give-and-take. >> it's an 18 month organization. as we talk about capital one of the challenges is how do we adequately fund and invest in commercial technology that may not meet the quarterly earnings impact. the real challenges that our adversaries are not waiting. they recognize this. i'll share some stats. if you look at all venture deals in the united states in 2015, 12% had an investor from china.
that's up from 6% in 2010. if you look at certain technology such as robotics 17% of the funding was from china. see you can make determinations of why they're doing it. but if we think they're going to be military relevant in the future, then getting a seat at the table early, prior to our regulatory activities take place, that's a big deal. they're quite open about it. they set up to venture funds this pastor. there is a 1 billion-dollar fund focus on taking technologies from our universities. there's a $500 million fund started in san francisco that's focused on these and it's a seven wealth fund.
so it's a challenge for us is we look at our economic arm quite separately. technologies are moving fast we have to think about how are going to react to that. >> uses 200 million, and they get 1 billion. are they spending the money or they just throwing money at the problem, guess if you throw enough you likely get like in a few. where they just gobbling up whatever they can think? >> maybe it's a full enterprise if we know these are important thing, and unless to play a
role. we are writing quick contracts to bring that tech in but it goes back to what the secretary said. how we prototype it. but that's the model that needs to change. i think were seen that in the department. one of the critical inhibitors particularly if it's a software business, if you go into any startup if you walk into the office and say show me your server room and walk in the door there's one comcast box nobody has racks of processors of memory anymore. they use the cloud. sophia sm to come and build this
that they haven't done since the 80s it doesn't work. the department has launched an effort and they put a directive out to help the entire department embrace cloud computing. it's how do you build applications in the cloud. were starting to make the right steps to be agile. >> let me put an example here. just say you don't think the dod is the complete -- limit have some calluses on her knuckles, but we are getting better. one of the greatest things of this job is exiting the pentagon and going out and seeing the sailors and marines. highs in the west coast and i had a chance to stop by an amtrak repair facility which is an armored amphibious vehicle.
as we finished going through it there was a white box with an awning on it. as we get closer i figured it out it was manufacturing being done on the field. they are plastic parts, helmet visor adapter that had a four-week way. it was a 400-dollar part they were making for $14. but i got to the end of the table and there's this amazingly elegant turban that look like if you cut it seashell in half. it was part of an injector for a tank. the part had a 19 week delay time. from order to delivery. 23000 tell apart.
a corporal in the marine corps took the development tool home with her on the weekend. she put together an algorithm to cad this thing. comes to work on monday. we have a civilian there she says here's the algorithm can we get this produce? they find someone to cad it, put it on, first one failed, second one, got it. they're doing this in one week. if you take rand's equation for what a corporal cost in the marine corps times 14 hours plus the aluminum and milling charge, is $2300 to deliver that part. this is the speed of relevancy we need to get to. this is the application of technology. this is happening. but this is the speed of
relevance that we have to move out. capital is not the issue. capital moves faster than lightning. we have to start moving faster. >> what he say to that michael? is a been challenging. >> these printers that can generate spare parts in the field have been something of great interest. from a logistics standpoint instead of going through a chain that takes 30 days for remote base for not a lot of cost, you can have one of these printers generate the part on site. specially were taking care of aviation aircraft, helicopters. there's a steady stream of part requirements and that's an
application of technology toward a real problem that is existing today. giving the number of these around the world for u.s. military the logistic chain is quite complex. looking for 24 hour turnaround on an equipment is the goal. >> who do you consider the biggest threat in terms of had it been the most cutting-edge technology for their military right now? >> the biggest threat, canada, ourselves, in that change is hard. i think were fortunate that we have a senior leadership team that's focused on modernization and ensuring that we never have a fair fight.
the operators we have on the ground of the most innovative people in the world. you see this that you need a part, though find out how to get it built. but we do have is incentives problem. we have built a set of structures and rules that does not encourage speed. processes where nobody gets fired for going slow they make it fire for making a small mistake. had we make those cultural changes so that speed is rewarded. we take risks all the time in the battlefield. it's a calculated risk. i look internally to the dod at large.
the good news is that were starting to see change. >> i cannot stress that enough. over the past maybe 15 years or so the organization has, in my opinion drifted away from risk management to -- were trying to get risk out of the equation. i can get you to zero risk, i can't afford it. we have to get back to the game of managing risk. it's not going to be perfect. i don't need to talk cavalierly about it. we need to quantify the risk, manage the risk in order to get the best effectiveness and efficiency out of what we are doing. i think we have strayed away from that is an enterprise.
>> any ideas how to do that given your perspective on things are constantly managing risk in your portfolio. how is it that this industry grows quickly enough to meet the needs that we have while also being careful enough. >> if there is budget there'll be plenty of investment in industry. >> more money. >> it's a good return and budget. it's a political question. that's the biggest cause of hesitation. i will make a point on innovation and manufacturing. 3d printing, there is a growing number products that can be used that way cheaply. i was say the nature of our contracted as a government --
wiki was 10% on sales. if i'm getting a 10% on sales on a $2300 thing i make $23. fica make that for $50 and no flexibility within the accounting that says we should be able to still make a prophet they are cannibalizing your business. that's backwards. it's not partnership. more innovative thinking can go a long way focused on bringing the cost to the taxpayer down and that is not always the case. >> how do you think about investing in different technologies when competitors, are vested and similar technologies. how do you get there first?
when a stranger of acquiring companies. the been one of more active players over the last 20 years. we can invest in the r&d and get there on our own, or we can just buy the company. the power plant if you will there's a startup that came out of mit we just bought it. i have it today, not two years ago from now. will have technologies that complement what we do and just buy the company. >> where you seen the most
innovation? here i know it has a lot of innovation as well. where you acquiring it from. >> generally privately owned individual startups generally small companies that have customers they sell to. they could take that to other companies and it feels the niche that we have. it's a great model. the service well over the past several years. >> what is the technology that you really want right now over looking at a force multiplier when i'm wearing my navy title x had on his the unmanned sector. both in the air and on the sea.
i think networks, artificial intelligence think you heard the general saying we need to have equipment that thinks quicker, smarter, shares, and learns. that's a punctuation mark, to learn. >> i was asking about how much time you spend in a given week if you were to divvy up and say percentagewise how much do you focus on this new technology and what is next. the number was quite high. >> it's 25%. a footnote for that, that is problem-solving with a technological bent to it. it is front and center. >> and what about you michael? how much are you focus on what's next and what the technology is to drive you forward?
>> their business units and we put our heads together quite often, it runs about one third of the time. >> and that's like a hundred% of what you do, you're always looking for the next big thing. >> how to u.s. investors think about the next big thing? often these companies are too small to be publicly traded, but some might come out in an ipo. are you looking for that next big thing as well? >> at j.p. morgan on my team were dealing with large-cap in stocks. looking at the big program wins and the confidence we have in those programs being funded the confidence of those being a security. i will differentiate where we
shifting our investment in the forward look. we are looking at five years despite uncertainty, that's my job. to think of what this company will look five years from today, not what they will learn in the next quarter. >> i don't always hear that. it may be a luxury. a lot of shareholders check their portfolios every day. >> mom-and-pop investors, you transfer that right to the other scale he knows exactly what his portfolio did on any given day. he knows his peers up or down.
so if it's mom-and-pop saying were going to go out this weekend because the market did well or billionaire investor, people care whether they are up or down. how does that get received? >> i know exactly how my portfolio has done every day. the long-term is made up of a successive short term. there's a piece a short-term news that's a program there's a mistake on the program and it indicates maybe the management team is more likely to script the next program, that would impact my investment. if they decide to make a thoughtful investment that will drive revenue growth in the future, that's an opportunity. the long-term investor. that's where we try to differentiate ourselves.
>> it's hard to because they think that a lot of fund managers want to be the s&p in your people that look at their 401k's daily or weekly, or quarterly. they don't want to be done. nobody wants to lose money. fortunately right now people are not losing money. it gets back to the reality of how do you balance risk and success. you have to deal with these angry investors if you're not doing what they want. if they see red on the screen, they are not happy. >> no, they are not. [laughter] i can't say they have the right solutions so either. >> are they not always thinking about it right? are they to short-term oriented?
>> in my experience, yes. like sell a portion of the business or go borrow a billion dollars and pay a special dividend, it was said, do anything you need to do to give us a short-term increase in the price. >> you had that said to? >> absolutely. >> to anything you can do to give us a short-term increase. we don't care if it's a buyback or special dividends, but you gonna do something to get us a game. and the answers, were going to do its best for the the company. it was offensive. >> but you're not the only one
that has happened to. there's a lot of companies under pressure right now investors are playing a role. think about it in terms of national security and advancing what we need is a nation, mr. secretary, if you have michael dealing with the pressure of need something now as opposed we need something for the future, hadley balances. especially when china's out there putting a billion dollars in the fund and silicon valley? >> this is america, please pay attention. if you look at under this manner being responsible. a responsible client, this is something that doesn't keep me up at night but it is a worrisome issue. capital does move at light speed. i am an unapologetic capitalist and free markets here.
>> good, because you're here at the brecon library. >> it's interesting that what transpires. one thing we have to be responsible about is the health of the base. if in fact we have limited resources to produce something that we must have, yes, i am not responsible. it is a dance that has to be done, you're dancing on a knife edge because you're out there with the fiduciary responsibility to buy the best piece of gear for the most efficient and effective way you can. now add in another that you have to help and industry in a certain area or make the capital investments myself to have this manufacture produce, it flies in
the face appear in open competition. we need to live with that because we need the gear. this just wait to do business. the movement of capital is something you have to pay attention to. >> i too am a red-blooded american capitalist who believes that capital market is the very best, most efficient ability in which to divide up resources and see growth. sometimes, if michael has to sell a division of his company that is promising for five or ten years down the road but that technology gets squash because the investing public is so demanding of the quarterly earnings, you start to wonder at what point do you start to help manage this.
what should you be doing? maybe it needs to be more than $200 million investing in. i may be your bringing these technologies to the likes of michael. >> there's a variety of classes that have importance in national security and defense. the point i would highlight as we think about these new and emerging technologies, there is at ample capital going in today. take artificial intelligence. laster there was 40 billion invested r&d and ai by the large tech companies. another 10 billion by startups in young companies. i look at the number that a defense department put in its well over 100 million.
these funds are going, our best and brightest engineers and graduates are going to these companies. it's happening. it's a good thing. now, the next step is to how we get that tech. my experience is that they smart engineers want to work on important problems. photo sharing apps early so much fun, compared to how do we maker sailors were -- and her ships more survivable. that we have to provide a mechanism to work on that. that's a long-term capital does, it will be a partnership that will be built. we have to accept some of the sources from this technology require us to operate noise we have not before.
>> i want to follow along with that. just say have an appreciation of the span of effort we're talking about. if i look at my budget in the navy alone which is a big chunk of the overall budget when you look at class, and 35, and fibs, and down the line, were also building high capital-intensive assets, aircraft carriers. for your builds. we have to nurture that workforce. their various organizations that are contributing to those efforts that are now going back to something we haven't talked about 20 years which is vocational schools. it's to teach people how to weld.
and how to get a great job working in shipyard. it's not just technology. we need to manage the whole span of workforce. >> that's a great point. something that is increasingly coming up as we go through this shift. and as we moved to technology it's not just technology, there's lots of other jobs that people can make a good living that we have gotten away from information for a variety of reasons. you make a great point. we have a lot of people who can do a lot of different things and how do we best put them to work. if you have questions you can tweet them at us at home. this is a question that came through, a reminder to put them
on the r&d f mobile app. you could also treat the tweet m to us. here's one, does wall street factor the risk of the current and future critical workforce shortages in stem and defense-related fields and its impact on productivity, quality, and output? >> through our industry group, we have made that a top priority. we are getting the word out and investing in stem programs were a can. we would agree, the lack of students coming through the science areas is going to rise to national security level. if it's not remediated. if you think about the demographics, we have baby
boomers that are close to retirement age. people coming up the ranks there's not enough to fill those jobs. hopefully we can do things more efficiently but it is a significant concern. >> so you have engineering opportunities that are challenging to fill with the education? >> it seems like we always have several thousand engineering jobs open across the country. we've established partnerships with colleges and universities were sponsor research and have access to student body so we can be first to attract those students to these jobs. it's an area we should be concerned about. >> when you're looking at the five-year time for your investments, you think about it as well?
>> i like to say were long-term and thinking five years out. there building centers of excellence to help drive innovation for long-term programs. saw the large have consolidated with there's lots material for that company. their programs delivering today that are needed to hit their quarterly earnings. if they've communicated at expectations well then they have the ability to plant seeds for the future. we've been a bit defeatist on this panel but i think we can be optimistic. you're seeing more examples of those invested in centers of excellence that should drive more innovation. >> another question about consolidation. to see a lot of that happening in 2017?
this might be directed to you michael because they're asking if you think you could bring in more tier one and two suppliers in house? >> the doors always open. we love technology. we have been a good partner for the entrepreneurial company. the founder would like to cash out but still work. we've done it over and over. >> does it typically work? one of the challenges is acquiring a company with a different cultural seal. i need to incorporate them in their people the personality and teach them your way. that's one way to do it is to make sure the cultures work.
there is an art to doing it right. i don't think it'll be popular for any established defense company to take a project that will run a loss for the next ten years. you need to do it on a separate company basis and maybe buy it at the end of the day. many companies we've acquired have run losses for a decade or more. invested the samadhi which gets redeemed away by it. >> they have taken the risk as opposed to you. >> exactly. it works in very specific areas. >> so in the coming year, what you think? >> 17 is seen the return of some deals in the space.
we look at acquisitions that felt well with what we do. there's no shortage of companies in that space right now. >> this is an interesting topic. it's going to happen in the marketplace. the capital is going to move to the appropriate winter. i need to see an additive benefit for me in the acquisition field. i have to do it michael is talking about witches reward risk. michael goes and buys a company that helps them solve that figures it into the price, but i get a value plus from that. if somebody's buying a company for cash flow and all of a
sudden i'm a legacy buyer from getting no uplift in one mayor layer of management, i have to figure out how to send a better signal. how is this going to help me as a client? at the end of the day i do have a vote. this is a discussion we have to have is a partnership. it's what we look forward to. >> the senate has approved or voted for a tax reform plan and the expectations are they may actually do this thing. they're in the house and it won't be repeal and replace all over again. what is that going to mean? michael, in terms of their ability to do things with that capital and michael, what does it mean for your portfolio?
if tax reform does go through. >> first, i would vote on an increased defense budget than the tax cut. they gave that answer on this morning show and i guess it's called the presidents baby ugly. i guess i'll be tweeted tomorrow. all the cash in the world is in, help if we used in the form of dividends. if there's not growth there where will we invest and get a reasonable return? i would advocate more for certain growth in the defense budget. >> critically, does the r&d tax credit stay. on a one-for-one ratio i would
expect does it accrue to the customer? i think if a customer tries to negotiate the way we've discussed today may be a get pieces of it. >> i think you go back to shareholders. >> but that's your fears that your back once again for the stock and you're not seen enough demand for your goods because budgets are being restricted. >> it's all about stability of the budget. it's probably not good in the long term. i like to see a channel of three to 5% growth for five years. >> the next are there's gonna be a cr. there's' hard to think long term when the budgets are
schizophrenic. >> i don't know if you can be so anti- tax cuts if you're at the reagan library. we'll save that. how can defense companies prioritize and maintain their -- and have a fully national focus on wall street, this is really about what were trying to get at, the essence of this conversation. we need to reconcile in the world where other nations have a lot to money to deploy throw at this. we have historically now had for many decades the most powerful military. we hope that we have that for many decades more. it's going to require investments, and we have competition. what do we do?
>> that's a great question. if we look at china, they have often nice capital. if you look at what they're doing on the investing site and the one belt, one road efforts they have had, sealed joke that we've run out of money, we have to think smarter. were there now. you have to become more innovative. that's gonna come over time. we have to address our capability. it's what i mean by -- we have to find the technologies and processes that would give us that leap with the capacity base that we have right now. that is my immediate reaction to
that. the capital markets of the capital markets. they will do it they do. one more reason of why we have to be in a strategic partnership with our industrial base. >> i would add to that, winters not coming. we have strength. that we can play two in the u.s. despite our actions were adversaries, we still have the greatest movement of capital. both human and financial. we need to nurture that. one thing and seeing from our industry partners is a move of both types of capital to the senators of innovation. to try to get access to that and help bring them.
>> the opportunity for us is to recognize changes that are occurring and have the wherewithal to move fast enough. we need to know that some things are not going to work and will have to change the status quo incentives. >> to think we've ever had as much competition as we have right now from china? i know you don't want to name the other big buyer and who the biggest competition, and i say we need to be in competition with their self. but if you think about who's out there trying to grow themselves economically, militarily, seems china is the one we need to be focused on doing everything we can to make sure we are five steps ahead. >> we need to recognize the fact in the behavior and it will be
actionable here. >> mr. secretary, how do you think about it? he said you're at this moment where we have to get smarter because we are out of money. is it nearing the point where you worry that for now more focused and supportive of the industry we run the risk of not being as successful militarily in the future? >> i reference the joke, were out of money, we are getting funds. but the analogy is that october 1954 was but that. we used on the space and now all of a sudden were hearing pitter patter feet coming up behind us. our over match is not as great as it used to be.
i believe were at that inflection point. if you speak to secretary madison listen to his signals and say let us move at the speed of relevance, that underscores it. >> final thoughts. >> to sleep at night i take great pride in the products this industry is turned out. i think anybody is as close to the technology as we could. astute men and women who work in this industry. i think we're all committed to continue on to make sure the united states enjoys the technological advantages of has. we advise had the best and we will continue to have the best. >> so, congress needs to get out of its own way? >> i appreciate the reception
that organizations that are trying to do things differently and have received from our industry partners and suppliers. i think we have the right elements we just have to have conviction to get it done. >> stability, budgets, more partnership and pain for risk taking. and their interests here are more aligned, then not. >> as we look forward to think we've reached a turning point? i things changing? is there a bigger and broader commitment you feel in washington right now. >> looking back on the last ten years in around washington, i've never seen the stars align better for what were facing now.
doesn't matter if i'm in front of the senate arms committee, everyone is leaning and wanting to help. there's no partisanship, it's all about national defense. not to leave everybody depressed, i'm very excited about what can come out of this. i want to make sure we use the sobriety of what were facing now to make the move to go forward. and grasp a hold of the opportunity. >> that is a good way tennis panel. thank you very much. [applause] for all of our viewers on foxbusiness, stay with us. i will be with you shortly.
adam will take it from here. thank you to the panelist, and all of you. >> sunday night on afterwards, the book, the new american revolution, the breaking of a populist movement. she's interviewed by senior columnist, matt lewis. >> they say why do we use this word? i'm not a populist. to me, it sums up what the book is about, it's the people. i wanted to honestly profile the people on the left and the right. most of the voters i profiled were trump voters but some were not. so is capturing the sentiment that drove an electorate to deliver one of the most astonishing electoral defeats we have seen certainly in my
lifetime or modern history. >> watch on sunday night at nine eastern on c-span twos, tv. >> where you from? >> the moment itself i describe it as a bizarre moment. it was a surprise when he called me over. you're in the oval office and so if he says where you, come over here, you don't have an option. >> sunday night, from our te washington correspondent, katrina perry talks about covering president trump during and after the election season. in her book "in america" quote. drain the swamp is incredibly provocative.
so is he playing on the notion that d.c. was built on a swamp and by draining it, taking the horrible people that live there replacing with better people. whether the voters believed him or not they were prepared to take a chance. >> tonight on c-span2, senate hearing on the you use of the u.s. postal system to ship the illegal drugs. then, hearing on the emergency alert system and the false alarm set statewide in hawaii. fuel. a transportation technology. the senate hearing, officials discussed how drug traffickers exploit u.s. mail