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Specialty Metals Compliance: What’s the problem? Jeff Green J.A. Green & Company, LLC March 2007

Specialty Metals Compliance: What’s the problem? Jeff Green J.A. Green & Company, LLC March 2007. OVERVIEW. 1. Why are specialty metals critical? 2. Supply chain management 3. Concern with DPAP guidance 4. What’s the real problem here? 5. A workable compromise.

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Specialty Metals Compliance: What’s the problem? Jeff Green J.A. Green & Company, LLC March 2007

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  1. Specialty Metals Compliance:What’s the problem?Jeff GreenJ.A. Green & Company, LLCMarch 2007

  2. OVERVIEW 1. Why are specialty metals critical?2. Supply chain management3. Concern with DPAP guidance 4. What’s the real problem here?5. A workable compromise

  3. Why Are Specialty Metals Critical? • Titanium • 9th most abundant element in earth’s crust • High performance specialty metal • Superior physical properties • Rare Earth Magnets • Four primary types used by DOD • Magnequench sold to Chinese in 2000 • Many don’t even know they’re covered

  4. Fighters & Transports C-17 Military Transport F-18 E/F F-16 F-15

  5. Rolls-Royce Jet Engine Titanium Nickel-based superalloys Steel

  6. M777 Lightweight Howitzer 7,000 lbs. of titanium per gun 1,000 + anticipated production units

  7. High Performance Magnets • Aegis Radar - used widely by Army and Navy • Valves in nuclear submarines • Hellfire missile guidance systems • Military aircraft, including F-18, F-22, F-35 • Power klystrons • ground-based earth-to-satellite communications amplifiers and troposcatter communication terminals • Minuteman IV ICBM

  8. High Performance Magnets Consider number of US producers: • 3 alnico magnet producers • 1 samarium cobalt magnet producer • 0 neodymium iron boron magnet producers • 2 electrical steel producers (mills) If domestic magnet industry disappears, China will become a critical US defense supplier.

  9. Supply Chain Management • Basic manufacturing ensures components are accountable • Quality assurance • Accounting – how do you pay? • Auditing = accountability • Customer specifications – production changes • Accountability • Defense contractors are sophisticated • This is law

  10. Concerns With DPAP Guidance • Dec. 6th guidance • Applies to all tiers of primes and subs • Lacks transparent waiver process • Adds arbitrary “third-tier” exemption • Jan. 17th guidance • Expands definition of “required form” • Adds consideration of “end item” price • Joint Aeronautical Logistics Commanders • Corporate-level multi-service waivers

  11. What’s The Real Problem? • Compliance with the specialty metals provision has a cost • But isn’t this passed-through? • Leveraging DOD volume against the commercial production line • Outsourcing our strategic materials to the lowest bidder

  12. A WORKABLE COMPROMISE 10 U.S.C. 2533a and 2533b Separates specialty metals and textiles Bitter battle between House/Senate and Aerospace/Specialty Metals Results- 4 year “get-well” period Non-availability waiver for “form” Exemption for “commercially available electronic components”

  13. SUMMARY 1. Why are specialty metals critical? 2. Supply chain management3. Concern with DPAP guidance 4. What’s the real problem here?5. A workable compromise

  14. QUESTIONS? For additional information contact:J.A. Green & Company, LLCJeff Green – (202) 641-3215jeff@jagreenandco.com

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