Election 2020 Snapshot: Helping our aerospace and defense clients make sense of the U.S. election results - Hogan Lovells
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Election 2020 Snapshot: Helping our aerospace and defense clients make sense of the U.S. election results
Election 2020 Snapshot: Helping our aerospace and
defense (A&D) clients make sense of the U.S. election aerial systems and increasing cyber Although Biden has been relatively silent
warfare, artificial intelligence (AI), regarding space policy, his administration
and hypersonic missile capabilities. is expected to continue President Trump’s
The election of Joe Biden as the 46th President of the United States Moreover, defense spending will continue ambitious agenda of pushing human
likely will result in significant shifts in U.S. aerospace and defense to focus on competition with “near-peer” exploration of space. Based on the Democratic
countries China and Russia. Party platform, a Biden administration is
industry priorities, revocation of certain Trump administration also likely to leverage space, and in particular
policies applicable to government contractors, strengthened Small businesses are in a good position to NASA’s budget, for scientific research,
benefit from some of Biden’s pronouncements
“Buy American” requirements, and increased use of defense that signal support for aerospace and defense
including to study climate change using
space-based technologies.
and National Aeronautics and Space Administration (NASA) contractors. For example, Biden has signaled an
Finally, the aviation industry is looking for
budgetary authority to combat climate change. intention to leverage a “scaled-up” version
stronger prospects of reimplementation of
of the Small Business Innovation
Research (SBIR) program to fund small pandemic-related support under Biden, to
businesses and to commercialize cutting- the extent it does not occur earlier. At this
edge technology. This bodes well for those time, the prospects for an economic stimulus
companies that qualify for the SBIR program package being passed during the “lame
and whose technology is of interest to the duck” session of Congress are uncertain.
government (e.g., AI, cyber, robotics, advanced Additionally, Biden’s statements regarding
increased infrastructure spending
manufacturing, communication technologies,
extends to the nation’s airports, which
Government spending priorities batteries, and biotech, to name a few). will be welcomed by both airlines and aircraft
and resulting opportunities and The aerospace and defense industry will also original equipment manufacturers (OEMs).
challenges face opportunities and challenges as Biden
stimulate further merger and pivots the government to focus more on
acquisition (M&A) activity in the combating climate change. As perhaps
Under the Biden administration, U.S. defense the largest consumer of fossil fuels and
budgets are expected to face increased pressure, defense industry as companies look to grow
revenue and increase competitiveness non- producer of carbon emissions, the Biden DoD
with the expectation that Biden’s initial defense is expected to accelerate its research and use
budgets will be no greater than flat organically. M&A activity, however, may face
increased scrutiny under a Biden of green technologies, while subjecting its
compared to the current proposed defense contractors to green requirements. For
budget. It is worth noting that Michèle Flournoy, administration, pushed by progressive
Democrats who are seeking more aggressive example, the department is likely to hasten its
a former undersecretary of defense for policy in shift to more efficient consumption of energy
the Obama administration and one of the enforcement of antitrust laws.
sources at its bases (including use of efficient
leading candidates for secretary of defense, has Additionally, based on historical experience, microgrids); increase its focus on compact
publicly criticized the Obama-era budget we expect there to be increased bid protest nuclear fusion; and require the purchase of,
sequestration cuts in defense spending. If and claim litigation activity between and its contractors to use, environmentally
Flournoy becomes the defense secretary, she is contractors and their government customers friendly technologies.
unlikely to support major defense cuts, reflecting as contractors in low-growth defense
the consensus among defense establishment environments tend to be less willing to
figures across both parties. forego revenue without a strong justification.
While Republican representation in the Senate And, while spending on certain legacy
is expected to counter calls from progressive and nuclear programs is likely to face
House Democrats for significant decreases in increased scrutiny, Biden’s past statements
defense spending, the flat demand is likely to suggest strong support for unmanned
Regulatory changes Executive Order 13495 Nondisplacement of has threatened to respond in kind by is one of the world’s biggest markets for U.S.
Qualified Workers Under Service Contracts “carouseling” the European products subject aircraft. At the same time, it may benefit the
(EO 13495). EO 13495 required contractors to duties and raising the duties as high as defense aerospace sector if it leads to more
to offer a right of first refusal of employment 100 percent. Such an escalation could further sales to Taiwan and U.S. allies in the Asia-
President-elect Biden is likely to continue
to certain service employees who worked on complicate U.S.-EU trade in aerospace and Pacific region.
the Trump administration’s strengthening
predecessor contracts. other products that are subject to penalty
of regulations focused on contractor At the same time, absent any more
duties. While the sensible thing would be to
cybersecurity and supply chain Biden may also reinstate the Obama meaningful concessions by China or
settle the WTO dispute, a settlement poses
security, which include support of the new executive order that banned federal other action-forcing events, the Biden
technical challenges and has eluded the
rules requiring cybersecurity assessments contractors from discriminating against administration will likely leave the
parties during 15 years of litigation. If that
and restrictions on the use of certain Chinese employees on the basis of sexual orientation Section 301 tariffs and China Phase
dispute can be settled, a Biden administration
telecommunication and video surveillance or identity. Also, in a pre-election One trade agreement in place for the
may have an opportunity to work with the
technology. Biden has also signaled, pronouncement, Biden stated that he foreseeable future. There is bipartisan
European Union to craft new global rules on
however, a strengthened commitment would “require that companies receiving support for a tougher U.S. policy
aircraft subsidies, or tackle China’s growing
to “Buy American” procurement and procurement contracts are using taxpayer toward China, so any effort to unwind
aerospace industry.
supply chain requirements. Although the dollars to support good American jobs, the Section 301 tariffs faces serious
Trump administration issued several policy including a commitment to pay at least On Biden’s trade policy more generally, it challenges, at least in the short term.
announcements aimed at strengthening “Buy [US]$15 per hour, provide paid leave, remains to be seen who Biden will nominate
American” policies, Biden has been critical of maintain fair overtime and scheduling as his trade representative, or for other key Where Biden’s policies on China
those announcements as ineffective. practices, and guarantee a choice to join a administration posts responsible for trade may differ from the Trump
union and bargain collectively.” and investment policies. Biden has, however, administration’s are with respect to
In his “Made in All of America” policy climate, where the Biden team has
said that he will not pursue trade agreements
paper, Biden stated a commitment to For trade and its impact on commercial said a Biden administration would
during his first year in office. Significantly, fast
“[l]everage federal buying power and the full aerospace, one major development to watch seek to find common ground,
track Trade Promotion Authority expires on
range of government authorities, including is the outcome of the longstanding World although it remains to be seen if
June 30, 2021, which could preclude any new
the Defense Production Act, BARDA, and Trade Organization (WTO) dispute between this is possible. Biden also has
major trade deals unless Congress renews
federal procurement, to make sure that we the United States and the European Union said that he will work closely
the authority.
make critical products in America.” Biden’s over aircraft subsidies, which may or may with allies to confront China on
pronouncement, if implemented, will not be settled before Biden takes office. Elsewhere on international trade, Biden is trade, national security, and
provide a significant competitive advantage While the United States has had punitive expected to continue to put pressure on China. human rights issues.
to two audiences: 1) those companies in the duties in effect on US$7.5 billion of EU For example, Biden is likely to continue to
federal government market that offer U.S.- aircraft, aircraft parts, cheeses, whiskies, expand export control restrictions to counter
made products, and 2) potentially countries alcoholic beverages, woolens, and hand tools Chinese efforts to acquire strategic technology
with reciprocal trade agreements covering since October 2019, a WTO arbitrator just from the United States. He also is likely to
government procurement – if the enhanced authorized the European Union to impose maintain or expand sanctions in response
requirements extend beyond strictly U.S.- sanctions on US$4 billion of U.S. products, to Beijing’s actions in Hong Kong and its
made end products. which they began imposing on November 10. detention of religious and ethnic minority
This includes a levy of 15 percent on aircraft. groups in Xinjiang. Relatedly, Biden is likely
Biden reportedly is eager to repeal several
to defer action on the Section 301 tariffs
labor-related requirements that Trump While some member states reportedly imposed on Chinese goods with respect to
imposed on government contractors. For supported suspending the duties to intellectual property/forced technology
example, Biden is expected to rescind the encourage settlement talks, the European transfers, as well as restrictions on certain
Trump Executive Order on Combating Race Union reportedly has decided to go ahead Chinese-made telecommunications and video
and Sex Stereotyping, which prohibits federal with the duties instead, while making it technology items and services. The continued
contractors from conducting certain diversity clear it is prepared to remove them if the deterioration of U.S.-China trade, economic
training. Also, Biden is expected to reinstate case can be settled. This risks a further and security relations, and the expansions of
Obama-era procurement policies that had escalation of the dispute, since United States U.S. export controls pose challenges for the
been revoked by Trump, including former Trade Representative Robert Lighthizer U.S. commercial aerospace sector, since China
Our Aerospace & Defense team Key contacts
Our Aerospace & Defense team includes
more than 75 industry-leading lawyers
with corporate, regulatory, government Mike Mason
affairs, investigations, commercial, and Partner
litigation experience. We work closely with Washington, D.C. CLICK HERE to
+1 202 637 5499
some of the largest and most established mike.mason@hoganlovells.com find out more
aerospace and defense companies in the on our election
United States, Europe, and Asia. We advise 2020 insights.
dozens of middle market businesses,
emerging companies, new ventures, and Ajay Kuntamukkala
global entities, along with investment Partner
banks and private equity firms that are Washington, D.C.
active in the industry. We actively monitor +1 202 637 5552
ajay.kuntamukkala@hoganlovells.com
governmental and industry developments
so that we can provide timely and on-target
strategic advice to clients. We offer practical
advice on industry-specific considerations
Stacy Hadeka
that have a material impact on our clients’ Senior Associate
operations and strategic plans, including Washington, D.C.
the challenges presented by government +1 202 637 3678
contracting regulations, national security stacy.hadeka@hoganlovells.com
issues, and regulations that impact
commercial aerospace companies.
Ari Fridman
Senior Associate
Washington, D.C.
+1 202 637 5449
ari.fridman@hoganlovells.com
Kelly Ann Shaw
Partner
Washington, D.C.
+1 202 637 5743
kelly.ann.shaw@hoganlovells.com
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