During a House Financial Services Committee hearing on Wednesday, Rep. French Hill (R-AR) questioned Consolidated Boring Inc. Chairman, Robert Faxon, about the Defense Procurement Act.
00:03Mr. Faxon, just continuing that same theme, you made some comments in your prepared statement about multi-year and sustained funding.
00:11Those were comments that you made.
00:12And then the speed of war.
00:15Mr. Moore and I were at a meeting earlier this week out in Wyoming where that topic came up with some Silicon Valley presenters that they were very impressed with the Trump administration's approach to this issue,
00:29which is, you know, we're going to start working.
00:32We're not going to talk about it.
00:33We're going to take action and being a much more action-oriented administration.
00:39But you've got to balance that with the comments Mr. Davidson just made about things that we need in the supply chain ramp up so that it's not government directing things, you know, that maybe don't have long-term viability.
00:55So how do you balance all that?
00:56I just want to let you continue your conversation you were having with Mr. Davidson.
01:01You've got 47 years of manufacturing experience.
01:04So what does DPA need to have changed in either the statute or its policy to balance that better?
01:13I think components of that answer – thank you for the question.
01:16The components of that are actually built by several of the questions that already came up.
01:20What is the requirement of private investment versus DPA funding?
01:23How do those go together?
01:25What is the longevity?
01:26What is the risk?
01:27And quite honestly, if you look at normal business growth, if you're double-digit on a CAGR, you're doing really well at 10%.
01:33We're asked to quadruple in a year.
01:35So these ramp-up cycles aren't conducive to your typical business growth.
01:39As a matter of fact, if you try to do that in a normal manufacturing business – and I'm not talking about a high-tech or something like that,
01:44but in hardcore manufacturing and high-capital businesses, if you go to the bank and say, I'm going to quadruple in a year, I think they'd rip up your application and throw you out.
01:52So these ramp-up rates are a key component.
01:54The industrial base of it, when we look at what the longevity is, how long will you commit to how many rockets you want to buy?
02:00We don't really have that, and we don't make this back in a year or two.
02:04In fact, our investment in the factory, because of vertical integration and cost savings, offers approximately a 10% per unit cost reduction.
02:11So if you really looked at a business cycle of ROI for what we're asking for, the government, at that pace, would be paid back in 10 years on cost reductions of purchased products.
02:21So financial feasibility is not just welfare, give me money and I'm leaving.
02:25It's I'm going to give back to you.
02:27Now, if the government doesn't require that quantity over that period of time, you don't get your return on investment.
02:33That's true, but you're the one asking for it.
02:35I don't go broke because the bank wants me to answer for it when I'm not really the one who's demanding the product.
02:40So that circle of debt, longevity, and flexibility with the commercial viability, I can't emphasize that enough.
02:48Leading-edge technology, whether it's software, hardware, physical presses, or technology, is in most cases transferable.
02:55And when we're going to reshore things, we're not going to do it at twice the cost.
02:59We're going to have to be competitive to make that successful, no matter what anybody says.
03:02They say buy American, but there's a price tag associated.
03:05We have to be more competitive.
03:06If we can take these specific demands, put them in a true ROI, and if it does or doesn't pan out, we still lead engineering and manufacturing to a higher level and a higher capability level.
03:17Can I get you to break that down and use a practical example?
03:20You cited in your testimony, for example, that normal production of motor cases was 350 to 400 or something like that, but the demand was 3,000.
03:28Yes.
03:29So talk practicality here.
03:33To get up to a 3,000 motor case run rate, what kind of investment had to be made, and over how many months did it take to achieve that?
03:41Just to use that practical example you referenced in your testimony.
03:44High level, our original was around the $80 million investment for $1,300, which is roughly $110 per month.
03:50When you look at the scalability for that, you want to start with a green field for the efficiency and the long-term return.
03:56You don't want to put a Band-Aid on something you currently have.
03:58You go ground up.
03:59So the facilitization in the first year is pretty much non-return on quantity.
04:03There's minor input improvements.
04:05In year 1 to 2, certain pieces of equipment can be acquired, take our original capacity, and supplement that within year 1 to 2.
04:12That helps significantly.
04:14In year 2, most equipment is on the floor and gets evaluated and run off in year 2 to 3.
04:18So you have a small incremental step in year 1 to 2.
04:22Year 0 to 1 is not really a high return.
04:24Year 3 is where you really see your highest return, and that's where you consolidate all the equipment.
04:29These machines, in some cases, will take weeks and months to move and years to get.
04:34So what you don't want to do is incrementally fund four small steps and not get to where you want to be.
04:39What we are offering and what I think needs to happen with companies like ours, because I'm familiar with them, great company, we're offering a national asset.
04:46We're offering something for the next 30 years, not four.
04:49This is not a five-year investment.
04:51This is setting a tone and a departure from typical manufacturing.
04:55We're not going to win if we keep doing what we've done.
04:57If we buy what we've had 10 years ago and it lasts 20 more, this world doesn't stay still for 30 years.
