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Statement by

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.


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