With the commercial aviation manufacturers and suppliers still reeling from COVID-19, Eric Fanning, president of the Aerospace Industries Association discusses ways in which it is trying to maintain the industrial base and position companies for a recovery.
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Below is a rush transcript of Aviation Week’s Sept. 10, 2020, Check 6 podcast.
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Jen DiMascio: Hi and welcome to Check 6, Aviation Week's podcast. I'm Jen DiMascio, the Executive Editor for Defense and Space, and I'm here with Pentagon editor, Lee Hudson, and a very special guest, Eric Fanning, the President and CEO of the Aerospace Industries Association. So here we are, we find ourselves six months into really the shutdown from the coronavirus pandemic. Eric, what can you tell us about AIA and how you've been responding and how the industry has been responding to the strain put on us, on it by the pandemic.
Eric Fanning: The first thing is AIA is almost a different organization. We've continued working on those issues that were important to the industry, the aerospace and defense, before COVID and then layered on top a series of things in response to COVID. And I think like most of us, six months into this, we're not where we thought we would be when this first hit. When the president had his prime time address and locked down travel to Europe and elsewhere, we realized right away what we needed to do in the initial phase, because we had just come out of the Singapore air show. So we were paying very close attention to this virus and had already put plans in place to go virtual should it come to that.
And our first work, we've spent more time with our members during this phase than we had all the previous two years I've been in this job. And the first things we focused on were liquidity, essentiality, and flexibility. Thinking we've got to figure out the best way to keep a really enormous industrial base and supply chain whole through this crisis was to keep it working. So we worked with the Hill, we worked with government agencies like the Department of Defense to figure out how we could keep the work moving so that it would be pouring through the company, the money would be pouring through the large companies all the way through the supply chain to some of the very, very small companies that are members of AIA. And a part of that, part of keeping them working of course was declaring these industries essential.
And then the third part, flexibility, which is what I think a lot of people don't realize, is each company has different needs and different strategies on how they're going to get through a crisis. Liquidity is kind of the key element of that, but making sure they have flexibility to enact whatever strategies they have. And so they were looking for funding, either government or private that maintain that flexibility. It didn't come with too onerous of restrictions and requirements attached to it.
We learned, as everyone else did, that this was going to be longer term than we thought. And so we have shifted into a recovery phase to really try and figure out what do we need to keep the industry, keep the lights on during this so that it can turn on more fully and faster when we get past this. And that's where we are right now. We've partnered with some agencies and firms to do research, to figure out what's the status of where we are now and what do we need to do going forward.
Jen DiMascio: That's interesting. So you've partnered with some research firms to get that information. When do you expect to see some results and how long do you see the COVID pandemic... How long do you see the situation continuing?
Eric Fanning: Well, it depends on what part of the industry you're talking about. So, if you neck it down, really, we're civil aviation space and defense, and this is impacting the sectors differently, although many of our members do work in more than one of those sectors. And the supply chain, while not wholly shared, is in a very large part shared. And so what impacts one part of the aerospace industry does risk having impact on the others. So on the civil aviation side, it's dire. We haven't seen anything like this in modern aviation history, and the international projections are that it could take years to get back to the travel levels that we saw right before COVID. That obviously has impacted our industry, the manufacturers, because the customers, the airlines, aren't flying because their customers, the passengers, aren't flying. And it's going to be a lot slower recovery than we imagined even six months ago.
So, our focus on the civil aviation side is keeping, again, keeping the companies as whole as possible. And a lot of that's focused on the workforce and the supply chain. So, we're working with Congress right now, as they think through the next wave of the stimulus package, both the House and the Senate, on a public private-partnership where each side pays some portion of the wages of workforce that would otherwise have to be furloughed. It keeps them off unemployment. It keeps them with the healthcare benefits, so there's an advantage to the government to participate. And then the companies, they participate obviously contribute the bulk of the salary and keep that workforce whole so that when things pick up it's intact.
And then a real emphasis on the industrial base, because there are thousands and thousands of companies involved in the civil aviation side. And as you know, a strategic risk mitigating element, they might... A lot of these companies try to do work both in the defense side and the civil side, so we have a lot of companies that are important to the defense industrial base that are suffering because of the decline in air passenger travel. And so, we're watching that very carefully and working with the Hill, working with the Pentagon to keep work flowing in the defense side, to help that industrial base that's getting hammered from the civil aviation side.
Jen DiMascio: In the initial CARES Act, they had passed the paycheck protection program for some of those companies on the civil aviation side. What's your prognosis for that continuing in another COVID relief bill?
Well, it's hard to give a prognosis, obviously. I mean, I don't know that anybody can really tell us what's going to happen. We're pushing hard as are a lot of other industries because that program was very effective, particularly for our smaller companies. And we surveyed our members and a number of them have taken advantage of it. It's allowed them to keep their workforce whole, which is important for a number of reasons. As I said earlier, so that when things start to pick up, they can react to demand faster.
But it's also a highly skilled technical workforce that takes a long time to build, and it's kind of a crown jewel of the country. The aerospace industry, very high paying jobs, prime exporter for the United States, making sure that we have research and development flowing into high tech products that benefit us in a lot of different ways. And so, we wanted to keep that workforce, which is the most important part of the industry, whole to the extent possible through this crisis. So that's been the focus on the civil side. And as I said, that shared supply chain has an impact on the defense industrial base as well.
Lee Hudson: Hi Eric. This is Lee, the Pentagon Editor with Aviation Week. I wanted to ask you about progress payments. Are those actually making the difference that the Pentagon was anticipating? And do you think that this is something that should remain permanent? This morning, Ellen Lord, the Pentagon Acquisition Executive, said that now there are only 30 companies that are shut down related to COVID, and which is a drastic reduction compared to the hundreds of companies earlier this year.
Eric Fanning: Well I think it's been very effective. It's not an easy thing to track, so we have been staying in close touch with members that are in tier three or tier four in the supply chain who tell us that that money is flowing through the supply chain. That was the whole intent of it. It's not efficient, probably effective even, to try and take care of all the thousands of companies in the supply chain and in the defense industrial base directly. The best way to do it is to keep the whole ecosystem working, so it has to be poured in at the top, and then you track to see if it's gotten down.
We've taken members virtually to the Hill, virtually to the Pentagon, smaller companies who can answer questions about whether or not it's been effective. And we're getting very positive responses to that question about whether this program is helping those companies, and whether they're seeing that money coming through that allows them to keep working and keep their teams whole.
I would say, Ellen Lord and her team have been great partners in this. Communication has been really open and a very collaborative effort to protect the defense industrial base. And she's got a real handle on what's happening there. But what we know now that we didn't know even a couple three months ago, is the extent of the crisis on the civil aviation side. And the defense side is continuing to work because the customer is continuing to buy, but what bleeds over from the civil side on the defense side is going to be a longer term impact and slower for us to notice. And so, I think with all that's happening, all the trouble that we're seeing and the slow recovery we're projecting on the civil side, we can't take our foot off the gas on the defense side, because again of that shared industrial base.
So we've sort of had three big strategic things we're focused on. One is a return to flight, showing people what's being done in airlines, in airports, what things were changing, and what things we're looking at in order to make sure that flying is safe. The other then, while that's happening, is to continue advocating for the defense budget, not just next year, but just getting authorization and appropriation this year. And then the third is because of what's shared between them, making sure that we're watching closely the industrial base and looking for problems as early as they develop so we can look for solutions to mitigate.
Lee Hudson: What do you think the rest of the fiscal year will look like? As you all know, the new fiscal year begins October 1st, do you think it's likely Congress will pass a continuing resolution that would continue funding for the Pentagon at fiscal 2020 levels? And if that's case, how will that impact the aerospace industry?
Eric Fanning: Well, I long ago gave up trying to guess what would happen. I mean, in the eight years I was in government, my previous run, we never once had regular order, and we never once started the year without a continuing resolution. It is remarkably disruptive in ways that I think people don't understand and actually very expensive. It's a very inefficient way to budget. You're not getting the bang for your buck if you had regular order. And so I'll just take this opportunity to jump on that and say, one of the things that would be most helpful for industry and for the taxpayer and for the war fighter is to get back to regular order, so there's some predictability and stability to that process.
What I've learned... Most of my life was in government, what I've learned working at AIA and about industry is it's in some ways a simple industry responds to demand, but you're building big complicated things, and it's not a demand you can turn on a... A signal that you can respond to on a dime. And so I think trying to get back to that predictability so industry set itself up to deliver for the customer is much better for everybody.
We do hope there'll be a CR. We expect there'll be a CR. The problem is it's, we're in a really polarized environment right now, particularly two months before an election, so everything is politicized even more than it was in a particularly politicized environment. But it's not in anyone's interest to have a government shutdown. Neither side wants that. It's just a matter of what the CR looks like. So I do expect to get a CR, I just don't know what it will look like. But we're very hopeful that we do, and that there's not a shutdown. As I said, that's not in anybody's interest.
Lee Hudson: Absolutely. Another thing Ms. Lord touched on this morning was she said that the aircraft propulsion industry in particular was hard hit by COVID. Are there any other measures that the Pentagon could take to ease that strain on that industry?
Eric Fanning: Well, part of that too, is that's a part of the industry that has a lot of overlap on the commercial and the defense side. And I think that's one of the reasons that she's focused on that. She and her team did a lot of work to map out the industrial base for a number of reasons. Where there could potentially be supply chain problems, where there might be security problems because of where materials or equipment was coming from. So we kind of entered into this with a lot of data on the defense side that allowed them to sort of jump a couple of steps ahead in analyzing where they worry that the risks are in the industrial base.
But it's an enormous entity ecosystem. And a lot of times it's not in the interest of companies to share information. Sometimes you don't know you have a problem until there's padlocks on the gate, because a smaller company might be afraid if they show there's a problem that it's customer might be trying to find a way to engineer them out of a process or out of the product. So it's not as transparent as you would like in a situation like this, but everybody is coming together, cooperating, sharing data, sharing information, to try and find where the problems are as early as they could be. But that, going back to something you asked about earlier, the impact on the defense side is going to be slower to materialize because it's coming in from the civil side,
Jen DiMascio: Eric, you mentioned that you're looking for some wage sharing via a public-private partnership. How would that take shape? What's your proposal on that front? And what are the prospects for it?
Eric Fanning: Well, we've got good bipartisan support in both chambers for this. Part of it is just explaining what it is and what it's not. So on the civil side, you obviously can't build anything without a workforce and this is a highly skilled workforce and so, you want to keep it together. Otherwise, you're not going to be able to ramp up when we get back to recovery and back to people flying again.
The industry's contracting, it already has. There's probably globally a 50% decrease in aircraft production, 2020 over 2019. Airlines globally losing $400 billion this year. So it's a real problem on the civil side, and it is going to contract. And so the workforce is going to get smaller, but you want to try and maintain some proportion. You've got some workforce that's continuing to work, some workforce that is just going to be caught in the contraction of the industry, but then you've got a segment that you want to keep it warm so that when you start to ramp up, you can turn back and get the factories producing faster than if you had to rebuild that workforce. That's the set we're looking at.
So it's a certain percentage, a relatively small percentage of the industry. The idea is that instead of having them go on unemployment, lose their benefits, lose healthcare during a time of COVID, that this would keep them on the company roles, but they would be at risk of being furloughed or laid off if there wasn't some support. So the idea is it's a win-win for government because they're not... And this is at all levels of government collectively, unemployment not being paid. You've got people that are keeping their healthcare. And then they're ready to go back to work when the uptick happens, whenever that happens. It hasn't... What the ratio is, and what the scoring would be is all being worked out right now.
Jen DiMascio: Do you have an estimate of how much that would cost?
Eric Fanning: We don't. That's part of the negotiation. What percentage are you allowed to have? What is the ratio that government industry pays? How long does it last? They're negotiating this now, but it's still at the early stages.
Jen DiMascio: Is it in either the House or the Senate bill, currently?
Eric Fanning: There are supporters on both sides, but I wouldn't... I don't think that we're... We're not over the line yet.
Jen DiMascio: Well, we've talked about a lot of pretty depressing subjects here. Are there any bright spots in the industry for you from your perspective?
Eric Fanning: Well, I think so. When we got into this, even just a couple three weeks into it, we organized around three lines of effort. So one was our people, the workforce, taking care of them. The second was the industrial base. And then the third was what can industry do for the country? And there were a lot of interesting things in all three of those. On the workforce side, because we were working through this, we really didn't stop working because of the essentiality declaration. We were able to put together best practices early on. And we shared them across the industry, but we've also been sharing them outside of industry for sectors that maybe didn't continue working, and so went back to work well after the virus hit. So we were able to help government agencies, other industries, figure out some of the best practices that we were already implementing to keep workforce safe.
And on what we can do for our country side, which was a little harder to figure out, we are manufacturers, but we manufacture kind of big things with very specific purposes. You can't turn a tank factory into a toaster factory overnight, but what we were able to do, we partnered with a sister association. The Advanced Medical Products Association makes ventilators and other things, high end medical equipment and said, "Where are you having problems with your supply chain? The demand has gone up obviously, and the supply chain is disrupted because it's global. How can we help you plug those holes? Are there things we can make for you? Can we lash you up with our supply base?" And so we built kind of a digital portal where the medical devices industry could say... The companies there could say, "This is where I'm having a problem," and we could lash up with companies that were volunteering on our side. And we've been focused primarily on ventilators, but expanding that to other equipment as well.
So there are bright spots that have come out of this. And I would say on the workforce side too, is we are seeing very safe conditions and very few instances of COVID in a lot of the factories installations. I tell my team, we're still working virtually and will for a long time, because while I think we could figure out ways to go back to the office safe, I can't control what people are doing when they're not in the office. And I don't want everyone on my team being exposed to the one person who takes risk. And that tends to be when we see problems they develop. But the conditions in the installations, the factories and so forth, have been really safe. I mean, the companies are taking it very seriously for a number of reasons, primarily because of how important the workforce is to them.
Jen DiMascio: Thanks. I have just one follow-up and we're about out of time, so I guess this will be the last question, but I mean, it's really interesting to me how well the industry has done being an essential industry, first of all, and then figuring out how to do that in a way that we haven't seen a lot of other COVID outbreaks, either there, or after some initial outbreaks within even the deployed forces of the US military, that's really lessened. It seems like the government and the industry has found a way to operate. Why isn't that being kind of deployed on a more massive national scale within this pandemic?
Eric Fanning: Well, why certain things aren't being scaled is probably a question for others. I would just say about the aerospace industry. First of all, these facilities were also already working with stringent safety protocols in place because of what they're building, the sophistication of what they're building and the conditions that were needed in order to build this equipment. So in some ways it was easier for them because they already were thinking that way in a very advanced state. They also, I think like everybody else, just take it very seriously. In this environment, if you have responsibility, you're trying to balance keeping someone working, keeping someone in a job, so they have an income and they have their benefits while making sure that person is safe. It's just, it's an enormous responsibility that the leadership takes very seriously.
But there is also, workforce is the critical element. If you talk to the CEOs of AIA and ask them what their strategic concerns are, it always comes down to the hunt for talent in the workforce. And they realize they can't do what they do without that workforce. And so, they were already in the mindset of thinking about how to protect them. But I think it's just a part of the fabric of the industry that allowed us to absorb this new threat, this new danger very quickly.
Jen DiMascio: Well, thanks. That's a good point to end on. Join us again next week for another edition of Check 6, which is available for download on iTunes, Stitcher, Spotify, and Google Play. Also, if you like what you're listening to, please give us a positive review. We'd love to hear your feedback. Thanks very much.
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