Pentagon wants Mexico to open defense supplier factories that closed due to coronavirus

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H/O: Ellen M. Lord 200420

Ellen M. Lord, undersecretary of defense for acquisition and sustainment, speaks during a news conference on the Defense Department’s COVID-19 acquisition policy updates at the Pentagon Briefing Room, Washington D.C., April 20, 2020.

DoD photo by U.S. Air Force Staff Sgt. Jack Sanders

WASHINGTON — The Pentagon is encouraging Mexico to open some of its manufacturing facilities during the coronavirus pandemic in order to support a crucial supply chain for U.S. defense companies.

“I think one of the key things we have found out are some international dependencies,” Ellen Lord, Defense undersecretary for acquisition and sustainment, told reporters at the Pentagon earlier this week. “Mexico right now is somewhat problematic for us,” she added.

Many of the U.S. defense firms, especially aircraft manufacturers, rely on Mexican suppliers that have closed due to the coronavirus outbreak. Aerospace defense giants such as Lockheed Martin and Boeing, as well as Honeywell and Textron, rely on Mexican production.

Lord said she discussed the impacts on the defense industrial base with the U.S. ambassador to Mexico, Christopher Landau, last week. She said she expects to get in touch with Mexican Foreign Secretary Marcelo Ebrard to reopen international suppliers.

“These companies are especially important for our U.S. airframe production,” she said. Increased production of the items needed will ensure the U.S. government gets dedicated long-term industrial capacity, she added.

The pandemic is affecting the Pentagon in unprecedented ways, said Andrew Hunter, director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies.

“For the part of defense industry that does work in the commercial aviation sector, they are in the same crisis that you see across the commercial aviation sector. Here there is both a supply shock and a demand shock because the airlines can’t afford to order or even take delivery of previously ordered airplanes,” Hunter told CNBC.

“Many firms in the supply chain for the less affected part of the defense industry are also suppliers for commercial aviation, so there is a risk of the commercial aviation ‘contagion’ spilling over to a much broader swath of defense industry,” he added.

Lord and other Pentagon officials have attempted to maintain production among supply chains and ultimately eliminate reliance on the foreign supply chain during the pandemic.

Currently, the Department of Defense is seeing the greatest impacts among shipbuilding, space launch subsectors and aviation, Lord said, adding that she expects to see a three-month delay in workflow which may cost the Pentagon billions.

While the initial $1 billion relief for DPA Title III from the CARES Act has been helpful, Lord said, she expects the Pentagon to receive additional relief from another relief bill.

— CNBC’s Amanda Macias contributed to this report.