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2002 Speeches

Dr. E. David Spong

President, Military Aerospace Support

The Boeing Company

"Military Privatization: Opportunities for the Future"

Aviation Week & Space Technology Maintenance, Repair and Overhaul Conference

Phoenix, Arizona

April 10, 2002

It's a pleasure to be here this morning. I appreciate this opportunity to discuss military privatization because it is a timely and important topic. As our world has changed in the past year, so have our collective views of privatization. How do we privatize? Why do we privatize?

The major reason for privatization is to get the same result for less. In the mid-80s and early 90s, industry was busy defining their core skills and outsourcing those things that were not core.

A good example of this was the outsourcing of dining room and food services. In our industry, we were paying aerospace-type wages and benefits to obtain food services, when the food-service industry offered them at a much reduced cost!

Today, it is difficult to find an aerospace company operating an in-house dining room, yet the food service is at least as good, or better, than when we did it ourselves. And I can attest to that fact!

In essence, industry outsourcing is nothing more than allowing the market to determine the value of a product or service.

On the government side, the United States Air Force experienced depot maintenance privatization in the mid- to late-1990s, during the closure of the Sacramento and San Antonio Air Logistics Centers.

Through a long process with many course changes and "lessons learned," today we are part of both of those privatization efforts. We are a major tenant at the former Kelly Air Force Base, which is the home to our Boeing Aerospace Support Center. We stood up this operation in 1998 as our center for large military aircraft maintenance and modification. Today it employs 2,300 people and has serviced and delivered almost 550 aircraft.

One of the three programs currently at the center came from the privatization efforts of the Sacramento Air Logistics Center. Our KC-135 Programmed Depot Maintenance work was brought to San Antonio through a public/private partnership with the Ogden Air Logistics Center, where we competed as a team for the workload at McClellan.

While those examples both have been successful in their own right, they both were driven by the same initiative: BRAC. You can argue this is a much different dynamic than industry outsourcing because it was imposed on the ALCs, rather than solely getting "more for less."

I believe we are going to see a significant expansion in the types of military privatization opportunities, for reasons more varied than infrastructure reduction. Supply-chain privatization is one example. Senior Government officials are asking themselves the following questions:

Taking a hard look at DoD Supply Chain Management makes sense on a few levels.

In reviewing the supply-chain management process and looking at the opportunities for privatization, the same principles exist that exist in the aircraft maintenance business:

In some ways, privatizing supply chain management will prove to be more challenging than privatizing maintenance.

You can send off an aircraft to a contractor's hangar and get it back without too many internal government process changes. In fact, performance standards and contract management agencies enforce government standards and processes on the contractor. I believe that privatizing supply-chain management will require more challenging internal government process changes, for these reasons:

Industry has a clear mandate to play a significant role in the formation of supply-chain management privatization.

A lot of emphasis is given today to "Performance Based Logistics," or PBL. The concept is to migrate from transaction-based contracting to receiving a service from industry. Various DoD agencies are busy making plans to migrate to PBL, or have already done so to some extent.

If we asked this audience: "What does PBL mean to you?," we would probably get more than one answer. To me, it is the beginning of a fundamental change in the way our Department of Defense will procure and support its weapons systems. Supply-chain management is key to that shift.

I offer the following thoughts regarding how we in government and industry collectively drive that fundamental change:

I believe that the United States of America stands to benefit a great deal from privatizing supply-chain management with contracts based on weapon system performance. This is the next great step in readiness enhancement. I look forward to working with you to provide our war fighters with the best value solution.

Thanks for listening.