Testimony by John J. Hamre before the House Science Committee

John J. Hamre

President and CEO,
Center for Strategic and International Studies

Member, Commission on the Future
of the
United States Aerospace Industry

Before the Committee on Science
U.S. House of Representatives
Washington, D.C.

March 12, 2003

Mr. Chairman, distinguished members of the Committee
on Science, thank you for inviting me to join Aerospace
Commission chairman Robert Walker, and my colleague
and friend John Douglass, to testify before you today
on the work of the Commission on the Future of the Untied
States Aerospace Industry.

Mr. Chairman, let me note that I signed the report,
and I stand by the recommendations of the report. I
would like to take this opportunity to thank Chairman
Walker for the enormous energy he gave to this effort,
and for the patience he had in bringing together the
thinking of such a diverse and talented panel. I believe
that it is best to let Chairman Walker speak on behalf
of all of us to the recommendations of the Commission.
I will deal briefly only with the questions you asked
of me in your letter of invitation. Naturally, I would
be delighted to answer any question you pose, and provide
any additional information for the record that you and
the Committee may desire from me.

First, you asked what fundamental issues did the Final
Report fail to appropriately examine. The Commission
was chartered to examine fundamental factors that needed
to be addressed to ensure the long-term viability of
the aerospace industry. I believe the Final Report did
this. My concern then-and this concern has only grown
with time since we concluded our work-is with the deteriorating
financial health of the aerospace industry. To use a
medical analogy, the aerospace industry is in the intensive
care unit on life supports.

I personally depend on this industry every week. I
cannot live without a reliable, safe, efficient and
profitable commercial airline industry, yet since we
finished our report several major carriers have declared
bankruptcy and more are likely to follow. We cannot
rely only on the current fleets of aircraft. Right now,
the flying inventory is quite new because the recession
in the industry has caused the airlines to mothball
their oldest aircraft. But the replacement rate is uncertain,
and the viability of U.S. producers is challenged. We
must have new production aircraft on an indefinite basis.

Mr. Chairman, I personally consider this situation
to be a crisis. This industry is essential to America’s
vitality and productivity. Our future national economic
health and security depends on a healthy and viable
aerospace industry. And in all honesty, this industry
is in enormous trouble. Along with commercial aviation,
our satellite industry is imploding, with far too much
capacity for the limited market we forecast for the
next decade. The launch industry is similarly confounded
by surplus capacity.

Solving this problem requires immediate action. The
focus of our Commission was on a longer-term perspective,
and it is because of this that I don’t believe we have
a crisp checklist of actions that the Committee should
take. So at this stage, I can only offer my personal
observations.

First, the airline industry itself has to get its own
house in order. Unfortunately this means tackling the
unbearable cost structures of the current business,
and probably developing modified business models for
the future. I have to defer to others to develop those
strategies. I do believe that it has to be led by the
industry itself, in the context of the market place.

Second, the Federal Government has got to put more
energy and resources into the modernization of the air
traffic control system. The FAA’s modernization plan
is essential, but it is not by itself sufficient for
the long run. While the recession currently has eased
the pressure on the system, the modernization program
will only carry us another decade or so. New approaches
are essential. Here I think the Commission report provides
useful direction, and I commend these approaches to
the Committee for consideration. I especially recommend
that the Committee devote time this year, as you prepare
your legislative agenda, to the need for a long-term
solution to air traffic control.

Third, the industry is burdened by an uneven patchwork
of costs and restrictions that have been imposed since
September 11. Admiral Loy has done a splendid job standing
up the Transportation Security Administration, but the
overall architecture of security, and the burdens that
are placed on the industry, need to be dispassionately
examined. Most importantly, how should we finance the
security we want in aviation? Do we put it on the back
of the airlines? Do we provide it as a government service?
In a post September 11 environment, how do we strike
a balance between security and efficiency? We don’t
have a clear philosophy here, and the uneven patchwork
of regulations and obligations needs to be rationalized,
in my view.

Fourth, we desperately need to modernize Government
regulation of this industry. Here let me refer to the
second question you posed. You asked for my views on
export control and technology regulation. Frankly, our
approach to export control and technology regulation
is obsolete, stuck in a cold war mentality that fails
to comprehend the threats of our day.

I want stronger export controls on things that matter,
not a rigid adherence to bureaucratic rules that buy
very little security and merely satisfy the imperatives
of a bureaucracy. The failings in this area are profound.
We make virtually no distinction between cutting edge
technology and old, prosaic technology. We make our
best allies go through the same process as we do the
worrisome countries. We spend an enormous amount of
time and energy regulating trivia, which soaks up the
talent and resources of our government regulators. They
should be spending their time on truly important matters,
and not waste their time on five ton trucks and portable
generators. The Commission has outlined solid and constructive
recommendations in this area, and I would commend them
to you and to the Committee staff.

Mr. Chairman, let me address the last question you
raised in your letter of invitation, and that is how
do we encourage greater exports without compromising
critical technologies. Here we need reasoned judgment,
not the blind paranoia of mid-grade government examiners.
We have the naïve idea that it is a simple matter
to reverse engineer any product to extract critical
technology. Frankly, that is just not correct. Reverse
engineering is enormously difficult. If you ask any
high technology producer of virtually any product, they
will tell you it is nearly impossible to build a product,
even if you give them the complete drawings. The manufacturing
art is essential, and that is not compromised routinely.
Indeed, our companies have an intrinsic and reliable
incentive not to compromise that art. If the government
approached the industry as partners, rather than as
wayward mischievous children needing discipline, we
would get stronger security.

There are ways to do that. I would commend to the Committee
work that we have done at my research institute, the
Center for Strategic and International Studies (CSIS).
With your permission, I would like to submit two CSIS
reports to complement your hearing record: "Preserving
America’s Strength in Satellite Technology" and
"Technology and Security in the Twenty-First Century:
U.S. Military Export Control Reform". These reports
outline a comprehensive new approach that would provide
stronger security and impose less burdensome regulation
on a troubled industry. Under existing regulation, we
are burdening an industry with choking regulation that
buys very little security and is isolating our industry
from market opportunities and competitive forces that
are critical for its long-term health. This is especially
true in the area of satellite technology. Our current
regulations are creating a protected market for foreign
competitors, and constraining American producers to
a market that is too small to maintain their profitability.
Under our current approach, we have in place all the
incentives to create the satellite manufacturing equivalent
of Airbus.

We need well-designed and sensible controls on technology.
I do want a strong export control system. But it needs
to be well designed and it needs to comprehend the changes
that are taking place in our economy. Our current system
is neither well-designed nor flexible to change.

Mr. Chairman, distinguished members of the Committee,
thank you for inviting me to participate in this important
hearing. I would be pleased to answer any questions
you might have when the time for questioning begins.