Classified projects fuel Northrop growth; Pentagon craves artificial intelligence; Crunching budget numbers and a lot more.

Work on classified programs helped boost Northrop Grumman’s second-quarter earnings. It’s believed a sizable portion of the work was on the Air Force’s B-21 stealth bomber, but company executives can’t talk about it. And the number of classified projects appears on the rise.

“As we go forward and we see our customers very appropriately become a bit more sensitized to the security environment and the nature of the threat profile that we’re addressing, we do see the possibility — and I would say we framed it a little bit more strongly — the likelihood that an increasing fraction of our business may become restricted,” Wes Bush, Northrop Grumman’s chairman, president and CEO, said during the company’s earnings call on Wednesday.

“As you might imagine, there are some sensitivities to how much information, even when it comes to percentage types of information, we can discuss along those lines,” he said when asked by an investment analyst to quantify how much the firm’s classified workload has grown. “But we do see our customers increasingly thinking about how they classify their programs.”

Northrop executives disclosed that the growth was not just for aircraft. The firm saw a plus up in classified space projects, Northrop CFO Kenneth Bedingfield said on the call.

Executives as other firms have told me they’ve seen an uptick in secret space business, particularly as the military looks to better protect its satellites.

Meanwhile, Raytheon reported more than $900 million in classified deals in the second quarter of 2017. That includes $555 million in secret work for the Intelligence, Information and Services division; $137 million for Space and Airborne Systems; and $214 million for Missile Systems.

So as a whole, is the Pentagon classifying more projects than usual? I posed that question to Steven Aftergood who directs the Project on Government Secrecy at the Federation of American Scientists, a group that pushes for more access to government information. “I don’t immediately see evidence that more DoD programs than usual are being classified,” he said. “But it’s a perennial question.”

In the early stages of a program, “a new technology may warrant classification, particularly if it represents a qualitative advance over current systems. Secrecy can be justified to nurture and protect a technological lead,” Aftergood said. “The downside, of course, is that classification impedes oversight and independent evaluation. Programs that are useless or worse may last longer than they should if they are kept secret. And at a time of severe budget constraints, classification also adds significant financial costs.”

When Bush was asked about B-21 funding, the answer was predictable.

“We really can’t say anything about that at all,” the Northrop CEO responded. “Just to say that things continue to go well.”

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All-In on AI

The Pentagon is hungry for artificial intelligence. At the recent Defense One Tech Summit, Col. Drew Cukor — who leads the Defense Department team charged with laying out a plan to begin realizing the promise of artificial intelligence for the U.S. military — stressed how commercial technology is key in this endeavor.

“We will put an algorithm into a combat zone before the end of the year, and the only way to do that is with commercial partners,” Cukor said.

Right now the Pentagon is trying to automate much analysis of video recorded by drones over the battlefield. The hope is to create machines that can free up human analysts to do two or even three times as much as they can now, Cukor said.

So it seems only natural that think tanks and the large defense firms are looking for way to play in this space. The Center for a New American Security launched a new project called the “Artificial Intelligence and Global Security Initiative.”

The effort “will research the effects of the artificial intelligence revolution on the character of conflict, shifting power dynamics, and even fundamental elements of power.” Paul Scharre, Director of the think tank’s Technology and National Security Program, will lead the effort. Scharre spent five years in OSD “establishing policies on unmanned and autonomous systems and emerging weapons technologies.”

Another useful place for machine learning: cyber security. “As new threats are introduced, security teams alone cannot sustain the volume, and machines alone cannot issue creative responses. Human-machine teams make endpoint security more effective without draining performance or inhibiting the user experience,” according to a June report from the cyber security firm McAfee.

Sorting Out Defense-Budget Numbers

It can be difficult, with defense money often spanning accounts across multiple government agencies. Bill Hartung with the Center for International Policy has a new report that attempts to make sense of the various congressional marks on Capitol Hill right now. Check it out, here. The Center for Strategic and Budgetary Assessments’ Katherine Blakeley also has a new analysis out on the Pentagon’s 2018 budget request, which she says “grows the size of military slightly and boosts RDT&E efforts, but doesn’t move the needle on procurement.” The full report is here.

Pentagon’s Efficiency Numbers Don’t Add Up

That’s according to the Government Accountability Office. And that’s not good at a time when military leaders keep talking about needing more money to boost readiness. The 2016 NDAA says the Pentagon must find at least $10 billion in cost savings at headquarters, administrative, and support activities between 2015 and 2019. The Defense Department claims it has found $13.1 billion between 2015 and 2021. But there’s a problem. Its “projected cost savings estimate is unreliable because [Pentagon]-provided documentation, when compared with best practices for cost estimates, was not sufficiently detailed to support the estimate,” GAO says. More in the report here.

Big Takeaway From Ellen Lord Confirmation

President Trump’s pick for the Pentagon’s undersecretary for acquisition, technology and logistics told lawmakers: “My industry experience suggests that an 80-percent solution, rapidly delivered, is typically far more useful than an elegant solution delivered late. If confirmed, I will leverage my industry experience to change how we attract, develop, retain and utilize our acquisition, sustainment, research and engineering workforce so that our government can partner with our defense industrial base to be more efficient and effective.” Former Defense Secretary Robert Gates pushed for the on-time, on-budget 80-percent solution when it came to arms projects. As of now, no hiccups are expected in Lord’s confirmation.

The Pilot Demand is Real

In a new forecast, Boeing says 637,000 new commercial airline are needed between now and 2036. Boeing’s study found 117,000 of those new pilots are needed in North America. That follows a CAE study that said 255,000 new pilots would be needed over the next decade. This matters for defense since the Air Force is short 1,200 fighter pilots. Something else to watch: The Air Force’s shortage of some 4,000 aircraft maintenance workers. Boeing’s study said 648,000 airline maintenance technicians are needed over the next 20 years.

Foreign Arms Sales 101

With all of the increased focus foreign arms deals — particularly following the $110 billion package the Trump administration offered Saudi Arabia in May — there are two new fact sheets that could prove handy these days. The State Department released two documents this week, one outlining the differences between foreign military sales and direct commercial sales and the other on the security assistance role played by State’s Political and Military Affairs Bureau. While we know Global Business Brief readers are pretty savvy in this area, a refresher course never hurts.

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