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What COVID-19 Portends for Defense, Now and in the Future

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What COVID-19 Portends for Defense, Now and in the Future

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Steve. What changes are being proposed to fiscal? Twenty twenty what can we expect in that kind of supplementaries requests? That's being debated right now. The department offense is not particularly exposed or a beneficiary. If you will on of the emergency appropriations that are being made right now on. There may be some effect on. Dod Indeed the Twenty Twenty the total of twenty twenty appropriations all of a sudden on will surely be larger than the Seven hundred and eighteen billion dollars. That has been appropriated here to four but but I don't think it'll be a lot unless The administration comes up with new missions for the Department of Defense and its constituent elements the military departments primarily that that we hadn't you know that we haven't envision yet I think There's a little bit of money in one of the first bills that's already been asked to lead a poison forces or change the allocation or accelerate the allocation of some equipment to National Guard units. The details of those. I'll confess I'm not quite straight up on. But it's not a big impact as compared to the monies that are being allocated to the National Institutes of health. Hhs Department Obam Homeland. Security are the bigger recipients of money in the emergency supplemental. That were passed last weekend over the weekend. Michael did you have anything to add to that About some relief that might become in the way of the aerospace defense industry in some of the legislation. That's being occurred. Not maybe straight Appropriations but policy wise. Yeah absolutely I get to that in a moment but first Steve I gotta ask you. Is this the first known Emergency Appropriations bill that you can remember. That doesn't have the DOD at the center of it. I mean I'm just struck by the fact that we're talking about an emergency bill and Dod Really. The center of attention is just amazing to me. Yeah probably not the first one. I certainly believe there was a for example when when Hurricane Katrina if the Gulf coast that there was an emergency supplemental. Bill passed them. That had probably also had some dod money's in it but most about was federal monies to domestic. Let's call them agency so it's not it's not the first but but it's it's it's not often that we see a big supplemental come down the Pike with with dispatch like this one did that doesn't indeed feature the Department of Defense in this one does not want. It does not feature the Department of Defense. Let's say let's right. That's a good clarification over the other thing. I would say about it the other thing. Sorry now that you've got me rolling Michael Allen that I would say about. It is that Unlike some other supplemental appropriations. They're not really trading off or supplementing truly supplementing base appropriations Parisian's already been made in in the case of the twenty twenty budget on these are true incremental emergency expenses. You know as as we know and as our friend like Todd Harrison. Csis's painstakingly analyzed. There's a lot of stuff that ends up in a dod emergency supplemental. That are are really not true incremental responses to an emergency. This bill that they passed last week is is is true. You know authentic incremental expenses which but for the advent of the Cronin virus would not have made their way into Ud's budget and probably other agencies budgets as well. That's that's a good point. Excellent so Jen going back to your original question to me. So as we sit here and record this podcast were waiting to see what the Senate may came. Come up with in regards to any kind of specific stimulus for the aerospace and defense manufacturing sector as most people have probably heard by now. Boeing is leading the charge for a potential sixty billion. What I will call bailout? Bid that ostensibly Boeing is requesting for itself in its suppliers but as far as I can tell it would be money that would be going through Boeing as a clearinghouse Mainly for its commercial suppliers and we're going to more on that in a moment but there's that has to be determined because We only have the first of two chambers of Congress dealing with Bill Right now at its Senate and so far they can't they can't even get through the Senate in the two procedural vote. That have happened so far. So we'll we'll see what gets included in the end. In the meantime there is a there have been movements on a regulatory agency level of that the dod and that's the Department of Defense and Department of Homeland Security. Have an active where they're trying to help. Speed money to the aerospace and defense manufacturing sector through little Kind of unknown outside of the beltway but very important methods One of which is to try to raise What are called progress payment levels That contractors would be paid in the amount that they are build what that refers to is. let's say you make Doesn't F thirty five's and you send the bill over to the government you deliver them. The Government accepts them. You'd send the bill and the government says okay. Normally we would only pay you eighty percent of this bill up front because we WANNA make sure that these after work and we'll give you the other twenty percent leader. Well what's happened is the DOD has said were immediately raising that to ninety percent for the large companies and ninety five percent for smaller companies that get paid directly by DOD and so. That's just more money in the pockets of contractors. That's going to help a cushion. And he kind of liquidity crisis that may experience elsewhere in getting the funds needed to stay operating the other way that The government is trying to help. The manufacturing sector is by getting it declared and it has done so getting it declared any central part of the nation's critical infrastructure. And what that does is it formally provides guidance to state governors that when governor come along and they say hey we need to issue a shelter in place mandate so that people stay on their own and they certainly don't go to factories little on restaurants and things like that If however you work for a critical infrastructure like the electric grid or Potentially food processing or here now. The defense industry government still wants you to go. And so it's it's a it's a bit of policy making but it's important guidance coming on Washington office. That's good so With that said how is this likely to affect What's planned already for fiscal twenty twenty one Given you know this is kind of a crowded year already. There's a major presidential election underway. And we've got to get through on. Congres in Congress Legislation on all of these emergency bills at a at time when at least three members of Congress have corona virus. So how do you see that? Impacting this year schedule. And then beyond that into a feature years right so Just a couple of points of by way like a baseline The defense budget requests that was submitted for twenty twenty one in February for the Department of Defense Oh Five Oh if I may Speak in Arcane Parlin so But Jimmy accounts total seven hundred thirteen and a half billion dollars And then the end the out years associated with that request when he two three four and five Are for pretty slow too. You know depending on what you're talking about nominal dollars or constant dollars. It is either slow to even negative growth. Once you've taken in negative real growth once you've taken into account the effect of inflation such that we in my trade anyway are are are referring to the outlook for defense spending as flat Off Of the twenty twenty and frankly off of twenty twenty it even might be a little bit down Depending on how these supplementals turn out So even before corona virus captured the attention of The policy We were we. Were looking at an outlook for defense spending. That was flat. I think now with the advent of of the krona virus in the crisis that has created a in in all aspects health economic Difficult Policy That outlook is nominally. None Changed Right. The arm defense hasn't changed its budget requests out your program yet but politically and in our minds The minds of planners for these things I certainly think it has changed