Lockheed Martin’s second-quarter earnings call this week made it abundantly clear that the F-35 Joint Strike Fighter and a diverse set of deals with Saudi Arabia are expected to account for a sizable percentage of the company’s sales in the coming years.
The company’s Aeronautics division posted an $850 million gain over the second quarter in 2016. That doesn’t even include the $4.5 billion-plus F-35 sale announced earlier this month, nor another international F-35 deal expected “later this quarter,” Lockheed chairman and CEO Marillyn Hewson said on the earning call.
Lockheed CFO Bruce Tanner noted that the F-35 is “the biggest driver of Aeronautics — for that matter, sales for the corporation.” That’s only getting truer as the company puts the wraps on F-16 fighter jet production — Tanner said Lockheed has no plans to build them after this year — and overhauls of the C-5 cargo plane.
Then there’s the Saudis. Lockheed products account for more than $28 billion — upwards of 25 percent — of the $110 billion arms deal that the Trump administration announced with Riyadh in May, Hewson said. That deal includes THAAD missile-defense batteries, PAC-3 missile interceptors, ships, and C-130J cargo planes.
“The [Saudi] request touched each of our four business areas, demonstrating the breadth and depth of our offerings and the growth potential that our portfolio brings,” she said.
Tanner said those sales could start coming in “between now and the end of the year.”
You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Today, the Global Business Brief turns 1! Thanks to the tens of thousands of you who subscribe and read each week. This space is still a work in progress, so thanks for bearing with me as I’ve worked to hone its focus. As always, send you tips, feedback and random thoughts to firstname.lastname@example.org or on Twitter @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!
From Defense One
Mattis on 2018 Budget: ‘We Have Got to Get a Bill Passed’ // Marcus Weisgerber
Congress is working up budgets that bust spending caps, with little evidence of a deal to avoid automatic cuts.
Russian Weapons Maker To Build AI-Directed Guns // Patrick Tucker
Kalashnikov’s upcoming product shows how the US and Russia are on wildly different paths to autonomy.
How Will The Pentagon Create Its AIs? The Algorithmic-Warfare Team Is Charting a Path // Bradley Peniston
Over the next 36 months, an algorithmic-warfare team will draw up a model for splitting the work between government and industry.
L3 CEO Strianese to Retire
Big news out of New York late Wednesday. Chris Kubasik has been elected the CEO of L3 Technologies after current CEO and Chairman Mike Strianese announced he would retire at the end of the year. Strianese will remain chairman. Kubasik has long been seen as the heir apparent at L3.
One-on-One with NDIA’s Hawk Carlisle
Hawk Carlisle, who recently retired as the four-star commander of the USAF’s Air Combat Command, last month became the president and CEO of the National Defense Industrial Association. As head of a trade organization of more than 1,650 defense companies and 84,000 individual members, Carlisle will be among the industry’s top voices. We spoke last week; here are some excerpts from the interview:
Q. What are your top priorities?
A. I don’t work for any one company; I work for the defense industry. To me, it’s the opportunity to still participate, albeit in a different role. I want to strengthen and take advantage of and expand on the network of chapters and divisions and everything they’re doing. I want to get that connective tissue that probably isn’t as strong as it could be between us here inside the Beltway and the organization down to the chapters and and divisions and let them go out and do what they do and execute. I want to be [the place people] turn-to to put on events … where we show off industry’s capability. I want NDIA to be the place that people realize and turn to for having those big discussions when we talk about the really tough issues.”
Q. What do you expect those big discussions to center around?
A. The budget’s going to be one of them. The technology insertion, Third Offset, how do we get to it? Our ability to interoperate and work with our partners: how do we do acquisition and regulatory reform so we can get capability to the warfighter faster [and] we can share capability with our partners. I think we need to make it easier for our closest friends and allies to buy our equipment. It’s incredibly difficult now. We have to find a way to make that easier. I think the balance between the joint warfighting capability; there’s a capacity versus capability discussion. How much capacity do we need based on where the world’s going to be in five years and then what capability do we need to deal with that? That’s a trade-off.
Q. Talk about some of the challenges facing the military right now.
A. People love what they do in the military, but they’re burnt out. We’re just asking too much of them and their families. Although they’d love to stay with us and keep doing it, the pace is just burning them out. Right now, my point would be: we don’t have the capacity we need for what the nation’s asking the military to do to date. It has to grow unless we’re going to significantly reduce the amount we’re doing. Personally, I don’t see that and I don’t think we should. As a global leader, our country needs to be engaged. We’re at a fighter pilot crisis. We don’t have enough ships in our Navy to meet the demands of the combatant commanders to control the high seas.
Q. Does the Pentagon need to change how it calls for repealing the Budget Control Act caps?
A. If you’re not on the Armed Services Committee in Congress, you have less understanding of what the real toll has been of the [Budget Control Act]. To me, it has to be an education and I’m not entirely sure how to get the other 380 members that aren’t on the HASC or SASC to understand what it’s doing. And the electorate. The American population is in fact pretty comfortable because it doesn’t reach their doorstep. We never, ever, ever want it to reach their doorstep; that’s why we do what we do in the United States military. We want to keep it that way. But we need to educate that we are on the precipice of not being able to accomplish the missions that this nation demands the military be able to do.
Melcher to Leave AIA
Right after we hit send on last week’s Global Business Brief, the Aerospace Industries Association announced that Dave Melcher, its CEO and president since June 2015, would step down on Dec. 31 to “to pursue other interests.” The association has already begun its search for a new CEO.
Lockheed’s New Small-Satellite Effort
A visit to Sunnyvale, California, last year got me a look at an Advanced Extremely High Frequency satellite, a seven-ton beast under construction in Lockheed Martin’s multi-story satellite factory. But a new company project — so new it lacks a formal name — is designing satellites that measure just 1 meter in each dimension, about the size of a dishwasher. The goal is cheap but powerful devices that can launch quickly and handle diverse missions for the military, NASA, and commercial firms, according to Mike Drews, advanced programs director at Lockheed Martin Space Systems.
Drews said Lockheed has invested “tens of millions of dollars” this year in the project, which he called an evolution of the LM 300 bus that has been used since 2001 as the basis for small satellites built for the Air Force, NASA, DARPA, and classified customers. Over the decades, Lockheed says, it has built more than 150 sub-1,000-kilogram satellites.
“What we wanted to do was be actually able to have those small sats do even more in the future,” he said.
Unlike the massive AEHF satellites, which often ride solo atop rockets into space, multiple small satellites can be bundled in a single payload. Earlier this year, San Francisco-based Planet Labs put 88 imaging satellites into orbit with one launch.
And although Planet’s satellites are a bit smaller than the new one being developed by Lockheed, it shows how quickly a constellation can go up.
“If you really look at the proliferation of constellations and also the more affordable launch capabilities, we’re looking at a lot of multi satellites on the same launch concepts,” Drews said.
Potential missions for the new Lockheed satellites include remote sensing, communications, navigation, and indication and warning, he said.
In recent years, the Air Force has been seeking greater resiliency in its orbital assets — that is, the ability to withstand enemy attack.
Compared to other small satellites, Drews said, Lockheed’s will be able to scoot more quickly from orbit to orbit.
“If I was going to think of a niche for Lockheed in the small-sat market, it’s not just that they’re small or affordable, but they deliver a high maneuverability and a high software complexity in terms of the missions that they can do,” he said.
Drews said future satellite missions will increasingly be “hybrid architectures of, say, larger satellites that are augmented by smaller satellites or work in collaboration with smaller satellites…The new missions that the government needs will require more like on the order of half a dozen or dozens of systems like this.”
In many cases, the smaller satellites can be built faster.
“The missions we’ve already done over the past 16 years have been pretty diverse,” Drews said. “But we’re seeing even more need to host more payload, more mission capability on a single platform, but still kind of keep the price point low.”
Project start time to launch can take as little as 26 months, “which is pretty quick for something that’s not a cubesat,” he said.
Is the Pentagon Buying More Commercial Items?
Amid a push by House Armed Services Committee Chairman Mac Thornberry, R-Texas, to get the Pentagon to buy commercial items using e-commerce, the Government Accountability Office has a new report that looks at the Defense Department’s commercial buying practices. GAO: “We found that, as a portion of DOD’s total contract spending, contracts awarded using federal procedures to purchase commercial items (for both products and services) have declined slightly between fiscal years 2007 and 2016, roughly in line with the decline in DOD’s total spending.” Read the whole thing here.
Trump to Attend Ford Commissioning
President Trump will host what’s being billed as a “Made in America Certification Event” and attend the commissioning of the USS Gerald Ford — the Navy’s newest aircraft carrier — this weekend in Newport News, Virginia. “Expect potential Trump Executive Order on health of Defense Industrial Base,” Jim McAleese of McAleese and Associates wrote in a note this week. It’s be Trump’s second time aboard the Ford, which Bloomberg notes still needs a lot of work before it’s battle-ready.
Air Force Pays the Bills for Army and Navy
McAleese also noted that the House Appropriations Defense Subcommittee — in its review of the Pentagon’s 2018 spending request — has targeted Air Force coffers. What did the lawmakers cut? Personnel, operations and research accounts. They also “‘salami-sliced’ lower-priority” Air Force procurement by $2.7 billion, he wrote: The subcommittee did add $1.1 billion to the service’s aircraft buying accounts, “but appears to have diverted the remaining +$1.6B in USAF cuts, to potential Army & Navy plus-ups.”
Protecting Troops From Rogue Drones
Small drones, packed with explosives, have been used by ISIS on the battlefield. Back in the U.S., these small drones have been spotted around military bases, and in one instance, an F-22 fighter jet almost collided with one while landing. While commanders stateside want more authorities to shoot these drones down, the Army has awarded Leonardo DRS a $16 million contract to build a counter-drone system. “The technologies will be fully integrated on two MRAP All-Terrain Vehicles for a mobile C-UAS capability designed to detect, identify, track and defeat unmanned aerial threats,” the company said in a statement. The contract is considered an urgent operational need, meaning it gets fast-tracked through the acquisition process.