During a House Financial Services Committee on Wednesday, Rep. Warren Davidson (R-OH) spoke about the dependence on taxpayer dollars to fund projects in the defense industry.
00:00Thank you both. So we'll now turn to member questions. I recognize myself for five minutes.
00:05You both highlighted the need to surge and surge capacity. And, you know, Mr. Faxson,
00:11you've certainly been part of that supply chain over the last few years as we've
00:16surged things to various areas, Ukraine in particular, with munitions.
00:21I wonder if you could highlight how you could use capabilities that are in DPA
00:25to possibly refine and provide a bridge for capabilities with the existing kind
00:32of status quo acquisition programs.
00:36If you look at arsenals or other programs,
00:39how do you use the private sector to provide surge capacity and how can DPA help
00:45us do that?
00:46That's a good question. Thank you.
00:48One of the concepts that we had is it really,
00:51if you look at the defense industrial base,
00:52it was undermined by the commercial industrial base.
00:54All of our factories that made sewing machines made 45s in World War II.
00:59So there was a conversion of the commercial industrial base to the defense
01:02industrial base.
01:03Now we're focused very intensely on the industrial base, which is fine.
01:07I understand this committee,
01:08but if we were to invest in a facility to increase defense industrial base,
01:13if we added funding to increase commercial and a modern technology driven
01:17cost-effective factor of the future,
01:20that commercial aspect not only offsets financial requirements for that,
01:23that facility to maintain its solvency,
01:25but it also can be converted back to defense if necessary.
01:29And if the defense gets good and everything gets better,
01:31then you take the defense and you convert it back over into the commercial
01:34industry.
01:35This supports our reshoring efforts that the terrorists and the current
01:38administration is pushing.
01:39It develops the commercial industrial base.
01:41So this is the seed for private investment to grow that commercial sector.
01:45I think focusing strictly on defense has limitations.
01:48And I think that the financial obligations later is going to be the word
01:51sustainment.
01:52They're going to have their hand out for sustainment of these facilities.
01:55If we build a factory such as the artillery factory that we proposed,
01:58it would serve as a model to any other component.
02:01It could be aircraft.
02:02It could be automotive.
02:02It could go in a washing machine,
02:04but the automation necessary takes funding to develop.
02:08It's a bleeding edge.
02:09Following it will be a leading edge.
02:11So DPA funding to support a known requirements,
02:14such as modular artillery components,
02:16not your standard 795 deep forge,
02:19but your modular artillery rounds,
02:21that manufacturing technology,
02:23we would open our doors and have competitors and other industries come in
02:26and view it and duplicate that mentality and put that into other
02:30commercial applications.
02:31That's how DPA funding could set a tone for a commercial base.
02:35Yeah.
02:35Thank you for highlighting that.
02:37And you look at the capability of flexible factories and the adaptive nature of
02:42some of the technology you guys are employing on your factory floors really is the tip of the
02:47iceberg in terms of what's possible.
02:49And if we can incorporate that with our approach here,
02:52I really think we can respond to the times we're in.
02:56Mr. Fallin, you highlighted how Title III helps you turn around a project faster.
03:03Instead of three years, you can do it in the first year.
03:05How does that cost-sharing approach not just attract companies like Beehive or other private sector operators,
03:12but also the suppliers of capital, whether that's banks or venture or other sources of capital,
03:18to have the confidence that this has got scalability?
03:22Yeah.
03:22So banks, I mean, banks and other investors, they're trying to evaluate companies for risk in order to make investments.
03:27And the cost of that investment depends on the perceived risk of the company.
03:32So I would say when there's government investment in projects, it has a double benefit.
03:37One is it reduces the amount of capital you need to go raise.
03:40And second of all, it shows alignment with government priorities and pull from the government for the products that you're manufacturing.
03:46And so it reduces the perceived risk of the company.
03:49And so, therefore, you're able to raise capital more quickly at a lower interest rate and have better runway for the company in the future.
03:57Yeah.
03:57So it's one thing, though, to send a demand signal.
04:00I mean, clearly the government wants these things.
04:02So why isn't demand enough?
04:04Why do taxpayers need to provide seed capital to certain sectors?
04:08And how do you strike the balance between that and just turn it into a planned economy where you've got some central planner picking winners and losers?
04:16How do you get that right?
04:18Yeah.
04:18I think the defense industrial base has been through cycles.
04:21And, you know, we hear about, you know, forecasted ramps and production demand.
04:25But these are very, very expensive systems to ramp up for, right?
04:29You're talking tens or hundreds of millions of dollars of investment.
04:32So private industry will naturally want to wait until the signal is here to start investing because, essentially, they're borrowing that money until the demand arrives.
04:41And sometimes it doesn't arrive.
04:43So I think, you know, basically this allows us to go out and secure, make those investments, secure that, and not have to carry the risk of those investments actually getting put into full production at the timing expected.
04:56We'll have a second panel, but I'll yield my time and recognize the chairman of the full committee, Mr. Hill.
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