Defense industry groups argue that the DOD awards are crucial to ensuring that important niche manufacturers don’t wither away during the economic shock caused by the pandemic. Companies that sell aircraft parts for both military and commercial jets, for example, have been financially wrecked by a global slowdown in air travel.
“As you lose some of these capabilities, some of them are gone forever, and it comes at a very high price to reconstitute them,” said Wes Hallman, vice president for policy at the National Defense Industrial Association, a trade group.
More than a third of the awards were for less than $5 million and went to smaller firms such as the American Woolen Co. in Connecticut, which received $2 million to help make Army dress uniforms. Executives at the company did not return voice mails and emails. A batch of small awards went to companies working on drone technology.
“At the root of this was an enormous unprecedented crisis we were facing, and the need for government to move quickly, which it did,” said Eric Fanning, a former Army secretary who is president of the Aerospace Industry Association.
But hundreds of millions of dollars also flowed to several large, established companies, such as GE Aviation, a subsidiary of General Electric, which received two awards worth $75 million in June. A subsidiary of Rolls-Royce received $22 million to upgrade a Mississippi plant.
Rolls-Royce did not respond to specific questions about the award.
“This funding pulled planned work on existing signed contracts between GE Aviation and the U.S. Government forward and is an important way to help ensure our engineering activities and supply chain, which includes many small and medium-sized companies, can continue to deliver for the Armed Forces, sustain jobs and support the economy,” said Perry Bradley, a GE Aviation spokesman.
Critics say it’s unclear why the defense industry should have gotten what amounts to a dedicated bailout fund when few other sectors of the economy got the same treatment.
And government data shows that at least 10 of the approximately 30 companies known to have received the Defense Department DPA funds also received loans through the Paycheck Protection Program, another relief package created by the Cares Act. That program, overseen by the Small Business Administration, offered millions of firms forgivable loans if they used the lion’s share on payroll.
For instance, Weber Metals, a California-based subsidiary of German firm Otto Fuchs, received between $5 million and $10 million through PPP in April to support 412 jobs, and then got an extra boost through a $25 million DOD relief award in June. Weber officials did not respond to requests for comment.
Defense Department spokeswoman Jessica Maxwell said the two bailout programs are not “in conflict or duplicative,” because a PPP loan does not make any directive with respect to supporting national defense.
ModalAI, a small California company that builds drone flight controllers and computing platforms, received $3 million through the Pentagon program for an 18-month effort to develop a new flight controller. In April, it received a PPP loan of between $150,000 and $350,000.
Chad Sweet, chief executive and co-founder of ModalAI, said the company’s proposal was long-planned — it started applying for the Pentagon funding last summer, several months before the pandemic hit. The process gained steam in March and April.
The Defense Department asked ModalAI for documentation on how its business was affected by the pandemic, as well as information on other relief funding it has received. The Pentagon then made the decision unilaterally that ModalAI’s award would come out of the Cares Act funding.
“I don’t know how they made that decision,” Sweet said. He said his firm has been able to hire about five to seven employees as a result of the DOD award.
The Pentagon did initially plan to spend the bulk of the $1 billion fund on medical supplies. In April, Lord told reporters that three-quarters would go toward medical resources, and the rest to defense contractors.
But in June, she told lawmakers during a congressional hearing that the department soon realized that defense contractors had “critical needs as well.”
So DOD lawyers approved an arrangement whereby some $17 billion in HHS funding would be used for the medical industry instead, freeing up more money for defense contractors.
“So it expands the pool, and allows us to use even more money while taking the balance of the $1 billion that came through for DPA Title III, and use a portion of that for the defense industrial base,” Lord said at the hearing. Ultimately, in the spending plan that the Pentagon presented to Congress in June, it set aside $688 million for the defense industry.
Thomas Spoehr, director of the Heritage Foundation’s Center for National Defense, said Pentagon officials contend that they have thrown all the money they can at the effort to produce the medical supplies needed to combat the pandemic.
“Their belief is that any investment that could be made to increase the production of covid-19 items has been made,” he said.
One midsize company that benefited from the DOD awards was SolAero Technologies, an Albuquerque firm that makes satellite solar power systems and employs about 320 people.
When the pandemic hit, the firm was squeezed between the huge companies it supplies, which slowed down production, and the smaller, often cash-based businesses that make up its own suppliers, which it was trying to support, chief executive Brad Clevenger said.
Around March, the company heard from Lord’s office, which was contacting defense contractors to understand how the pandemic was affecting them. SolAero worked with the Pentagon to find out whether the company was eligible for other relief programs, which it was not, Clevenger said.
In late May, the Pentagon announced a $6 million award to SolAero to expand production. Clevenger praised the process, which he said involved multiple layers of review but still delivered needed help in two months.
In its news release announcing the deal, the Defense Department said the funding would “enable SolAero to retain critical workforce capabilities throughout the disruption caused by COVID-19 and to restore some jobs lost because of the pandemic.” Clevenger estimated that the award saved the jobs of 25 SolAero employees.
But the Pentagon did not impose any requirement that SolAero refrain from layoffs as a condition of receiving the money, only that it deliver on the agreed project, Clevenger said.
“How we do that, with what workforce, is up to us,” he said.
