AEROSPACE ISSUE PAPER

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1 Requests: AEROSPACE ISSUE PAPER Will Garrett Vice President Economic Development The Greater San Antonio Chamber of Commerce (210) Maintaining and Growing Military Sustainment Jobs in San Antonio 1. Review current law to provide for more flexible and creative partnering approaches between government depots and industry that allows industry workload share in states away from the government depots without adversely affecting the 50/50 requirement. 2. Encourage government adoption of dual-sourcing initiatives where Core workload is shared with industry to insure industry viability and provide surge capacity and risk mitigation against having single sources responsible for national security interests. This shared workload model was used in the past, but currently most Core workload is 100% performed in a government depot. 3. Utilize performance-based logistics that offer savings and benefits to the taxpayer as well as the United States Air Force. Regulatory Background: The assignment of military sustainment workload (also known as MRO - maintenance, repair, and overhaul) to industry or to government depots is governed by U.S. law. Two significant elements of the law govern the type and amount of work that can be placed in industry. The first element, the Core designation, requires workload with such designation to be performed, in whole or in part, in a government depot. The rationale for the Core designation is to ensure the government retains the internal capability to perform sustainment activity on critical weapon systems. The other element, known as the 50/50 statute, requires not more than 50% of the total depot workload by military service, on a dollarized basis, be performed by contractors. The Core element is a partial, but not sole contributor to the 50/50 work split calculation. Sustainment (MRO) Workload Environment Changing: The Department of Defense has designated most of the USAF s new weapons system as Core, requiring them to be worked, at least partially, in government depots, also known as Air Logistics Centers (ALCs).

2 ALCs are investing heavily in new capacity and workload which is redundant to existing industry capacity. OC-ALC, for example, is currently adding 1,000 workers (and may need 700 more) and new engine test facilities to support workloads, much of which was previously performed at private industry sites. Their engine workload is expected to grow by 47% in To facilitate consolidation of workload at OC-ALC, Oklahoma City and the state of Oklahoma have offered significant enticements for industry to move their operations into the ALC. Lake Charles and the state of Louisiana are offering similar inducements to grow aerospace workload within their communities. Industry is currently working on many of the older legacy weapons systems. However, the older legacy systems will be phasing out over the next few years, leaving most of the workload and jobs concentrated in one of three USAF ALCs located in Oklahoma, Georgia and Utah. Industry will be left with a declining share of MRO workload, resulting in widespread job loss at industry MRO centers of excellence and loss of private sector capabilities and innovation. Once the business base is no longer viable, industry will have no choice but to close operations and seek partnerships with the Air Logistics Centers in their respective locations or pursue business opportunities unrelated to MRO support for the DoD mission.

3 Preservation and Expansion of Aerospace Defense Workload At Port San Antonio February 2010 Lt. Gen. (Ret.) Lew Curtis, Advisor and Mr. Jack Deschauer, Patton Boggs Attorney Issues: - Strongly urge DOD and the Military Services to adopt a comprehensive industrial base strategy which exploits and integrates the strengths and capabilities of both the organic depots and the private sector MRO providers. - Ensure that the Section 322 Report addresses the full scope of DOD depot level capability and not just the organic side. - Preserve the ability of the private sector MRO's to compete fully for 50% of the work. - Be very vigilant of any Congressional language relating to the restrictions in Title 10, specifically Sections 2460, 2464, 2466 and Block any Congressional adds for industrial facilities at the ALCs which will directly compete with the capacity at Kelly - Maintain a level playing field between the public and private sector that preserves the industrial capacity and capability of both sectors. A robust private sector depot level maintenance capability is critical to DOD readiness. - Currently the private sector performs over 45% of the depot level maintenance on DOD systems. - DOD organic depots cannot provide 100 per cent of the depot level maintenance. - The private sector can add capacity and capital in response to increase demands much more quickly than DOD. - Contractor Logistics Support is cost effective and can save Operations and Sustainment funds for investment in new weapon systems. A Rand Study in 2009 "Contractor Logistics in the U. S. Air Force" found that in the case of the F 117, the cost per flying hour rose over 10 years by single digits for the fleet supported by CLS, while those fleets supported by organic depots had flying hour cost increases from over 20 percent to over 40 percent in real terms. - The competition among private sector Maintenance, Repair and Overhaul (MRO) companies provides a beneficial indirect competition on organic depot costs by providing the military with realistic "should cost" figures to compare. - Dual Sourcing workloads between government depots and industry has demonstrated significant benefits for the government. It provides assured capability for critical workloads by providing protection from the effects of natural disasters such as fire or flood or tornado, and human actions such as terrorist acts, or environmental issues. In addition, both the government and contractor 1

4 benefit by benchmarking themselves off each other and the existence of the dual sources of repair is a powerful engine for continuous improvement. The KC 135 PDM program is a prime example of this process. The workload has been split between contractor and organic sources for decades. In spite of being the oldest set of airframes in the Air Force, the KC 135 has the lowest rate of growth in depot support costs of any Air Force supported aircraft. - The private sector capacity is a critical part of the United States industrial base providing for tens of thousands of jobs in the aerospace sector which are essential not only for our military strength but the strength of the US economy and our ability to compete in the global marketplace. - DOD does not currently have a Depot Maintenance Industrial Base Strategy that includes contractor depot maintenance. There is a DOD strategy for military depots, and the Navy has a strategy for their management of both their organic and contractor shipyards, but neither DOD nor the Air Force have a formal strategy for the type of military MRO work done at Kelly. The NDAA Section 322 Study on Future Depot Capability is critical to the future of Port San Antonio - Congress directed an independent study on the capability and efficiency of the depots of DOD to provide the logistics capabilities and capacity necessary for national defense. - The study will address recommended changes to; public law, determining core logistics requirements, business rules. - The study is focused on organic depot but will examine the entire depot maintenance workload including contractor depot maintenance - The recommendations of this study and their implementation can have a profound impact on the future of the military MRO workload at Kelly The Importance of Port San Antonio - The transformation of the former San Antonio Air Logistics Center into a thriving commercial MRO center preserved more than $275M in DOD capital investment in facilities, plant and equipment that are now being used to support Air Force maintenance requirements. - The private sector companies, led by Boeing, Lockheed Martin, Pratt & Whitney and Standard Aero had made an additional investment of $165M of their own capital to bring their facilities up to the highest standards in order to successfully execute their programs. This capital investment provides direct value to the Air Force. - The 13 major MRO companies and the support contractors have a highly skilled workforce of over 4,300 aerospace industry workers. The associated apprentice and education programs provide a continuing pool of highly skilled workers into the future. This pool is available to both private industry and the government depots - If the opportunities to compete for DOD, especially Air Force, depot level work shrink, the capital investment and skilled workforce would disappear. America cannot afford to lose an additional halfbillion dollars in industrial infrastructure and human capital. - The Air Force plans for a government/contract workload split of 55%/45% to ensure they do not exceed the 50% contractor workload requirement of 10USC2466. This study provides the opportunity to modify the process specified by 10USC2466 to allow the services to more effectively plan and implement workload shifts so that they can plan for 50% contractor workload instead of 45%. 2

5 THE TRADE CORRIDOR PROJECT Connecting the Region and Creating New Economic Opportunities OBJECTIVE To secure $12,000,000 to complete the next phase of the regionally significant Trade Corridor project that extends through Port San Antonio. The Trade Corridor project will complete a major north-south corridor connecting the northwest suburbs to the southern portions of the metropolitan area, connecting the region, enhancing access to jobs and development sites and stimulating investment and economic growth. Within Port San Antonio, it will open 150 acres of developable land and provide the highway capacity for continued expansion of the Port an economic engine for the region. ABOUT PORT SAN ANTONIO Port San Antonio is a political subdivision of the State of Texas with a Chairman and Board of Directors appointed by the City Council of San Antonio. Port San Antonio, the former Kelly AFB, is a 2,000 acre transit-oriented, mixed-use development under the single ownership of the Port Authority of San Antonio. The Port is the largest commercial and industrial real estate development and management firm in the city. It is through the leasing of its buildings and land that the Port generates its revenue and is operationally self sustaining. No government funds are used in the operation of Port San Antonio. The Port has achieved significant success as an aerospace hub and international logistics platform with 76 customers employing approximately 14,000 people. The property is within five minutes of downtown San Antonio, the seventh largest city in the country. An economic impact study updated in March 2010 found that the Port is responsible for $4.2 billion in economic benefits for the region, with that number continuing to grow. Fourteen aerospace related companies at Port San Antonio - including companies such as Boeing, Lockheed Martin, Pratt & Whitney and Standard Aero - alone employ over 4,300 highly skilled workers. ABOUT THE TRADE CORRIDOR PROJECT The project will connect US90 and Interstate 35 through Port San Antonio and provide what is essentially a missing link to create a continuous north-south Trade Corridor from northwest San Antonio, extending through the Port and connecting to the southwest quadrant of Bexar County. The Trade Corridor will link San Antonio s fastest growing residential sectors with new and growing job generators at the Port and southward, stimulating further economic development, investment and job creation. As depicted in the attached map, the Trade Corridor project is made up of five phases. Funding has been secured and work is either complete or ongoing for the first three phases. This request is for Phase IIIB to complete a vital 1.2 mile segment of the Trade Corridor through Port San Antonio. It will continue the progress that has already been made, take the region another significant step forward towards completing the entire Trade Corridor, and have immediate economic benefits by opening space within the Port for new tenants to bring even more jobs beyond the 14,000 already created at the Port. January 2011

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