Welcome back from the short Thanksgiving holiday — and to my favorite time of the Washington year.
Let’s dive right in, because we have a growing situation on our hands. If Congress doesn’t pass a budget by the end of next week, the government will shut down. By now, you’ve likely heard that President Trump tweeted “I don’t see a deal” just before Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi were to attend a White House meeting.
The Democrats withdrew, and Trump later accused their party of sidelining military spending. It was a rare spotlight on defense funding for the administration and Republicans on the Hill, who have been focused on their tax bill.
So what does that mean for the defense budget? Possibly another short-term continuing resolution. And if that CR turns into another, or gets extended, it could affect 2018 orders, according to Marillyn Hewson, Lockheed Martin’s chairman, CEO, and president.
But Hewson also noted that her firm’s order backlog currently stands at a record $104 billion. “We’ve got a lot of work on contract today so we’re not going to see any near-term impact of a continuing resolution,” she said Wednesday at a Credit Suisse investors conference in Florida. “What we would be concerned about is if it extended much longer because it will impact the ability for the Department of Defense to kick off new programs. So it could affect some of our orders for new programs and things of that nature.”
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Allies Buy $41.9B in U.S. Weapons in 2017
That’s the number out of the Pentagon and State Department this week, which includes contracted sales of arms, training, maintenance and sustainment. Of that total, $6.04 billion were funded by the State Department’s Foreign Military Financing; $3.87 billion in cases funded through the Defense Department and $32.02 billion funded by partner nations themselves through Foreign Military Sales.
And those figures could rise. In early October, Cowen analyst Roman Schweizer noted that the number of foreign military sales announced but not finalized in fiscal 2017 totaled $73 billion, which he called “a new record that suggests a healthy pipeline of foreign contracts for U.S. defense primes. While we remain positive on FMS for U.S. companies and FY18 is off to a fast start, we see developments in Europe and the Middle East with long-standing allies and key customers of U.S. hardware that bear watching.”
Just this month, the State Department approved requests for:
- A $10.5 billion deal with Poland for Patriot missile interceptors.
- A $1.1 billion deal to build facilities for Qatar’s new F-15 fighter jets.
- $415 million in Paveway laser-guided bombs for Singapore.
- A $250 million deal for the High Mobility Artillery Rocket System for Poland.
- $250 million in AMRAAM, also for Poland.
- $170 million worth of AMRAAM missiles for Norway.
- $140 million in AMRAAMs for Canada.
- $75 million in Javelin anti-tank missiles for Georgia.
Trump Keeps Talking About the F-35
That’s good news for Lockheed, Northrop, BAE and all of the firms making billions of dollars on the expensive fighter jet project. The president most recently mentioned the jet during a Thanksgiving speech to Coast Guardsman in Florida.
“[W]e’re ordering a lot of planes, in particular the F-35 fighter jet, which is, you know, almost like an invisible fighter,” Trump said.
That makes at least three public mentions of the jet in recent months. In his Oct. 3 meeting in Puerto Rico about the Hurricane Maria relief effort, for example, he said, “[W]e cut the price very substantially — something that other administrations would never have done, that I can tell you.” (This oft-repeated claim is untrue; see this chart of the F-35A’s declining price tag.)
What does this all mean? Clearly whoever is briefing Trump on the F-35 has been focusing heavily on the jet’s stealthy characteristics. Regardless, the president’s frequent mentions of the warplane show it’s at the forefront of his mind, particularly as F-35 production is about to increase significantly.
That’s good news for Lockheed. Just how important is the F-35 to the firm as it looks to grow?
“Our strategic imperatives that we’re focused on particularly is on the F-35 program, as it’s our largest program,” Marillyn Hewson, Lockheed chairman, CEO and president, said Wednesday at a Credit Suisse investors conference in Florida. “The F-35 today represents about 25 percent of our sales in the company and we see it as our big growth project moving forward for the next five to 10 years.”
Hewson noted that nearly 50 percent of the F-35 orders over the next five years are for foreign militaries.
This Weekend: Reagan National Defense Forum
Two names noticeably absent from the speaker’s list: Defense Secretary Jim Mattis and Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff. Still, plenty of Pentagon folks will be there for the annual get together, which has been dubbed the “Davos of Defense” — a play on the nickname for the annual World Economic Forum in Switzerland. Deputy Defense Secretary Patrick Shanahan is the top OSD attendee, along with the secretaries of the Army, Navy and Air Force. Gen. David Goldfein, the U.S. Air Force chief of Staff, and Gen. Robert Neller, commandant of the Marine Corps, are the only two Joint Chiefs in attendance. Undersecretaries for intel and acquisition will be there too. Gen. John Hyten, head of U.S. Strategic Command, is the only combatant commander on the list.
Industry is a different story. The heads of more than 20 defense firms, to include Lockheed, Northrop, Boeing defense, BAE, Harris, General Dynamics, Huntington Ingalls, Booz Allen Hamilton, Rolls-Royce North America and more will all be there.
Other notable attendees: CIA Director Mike Pompeo and National Security Advisor Lt. Gen. H.R. McMaster. Most random participant: Lee Greenwood, singer of the patriotic hit “Proud to be an American.”
I’ll be there at the Reagan Presidential Library in Simi Valley, so make sure you follow me on Twitter for the latest.
Orbital ATK Shareholders Approve Northrop Buy
This checks another box on Northrop Grumman’s to-do list. The purchase of the rocket manufacturer still needs government approval, but Northrop anticipates the deal will close in the first half of 2018.
Turning the Lights Back On
Hurricane Maria hit Puerto Rico on Sept. 20. On Nov. 22 the Pentagon awarded Louis Berger — a services firm that specializes in infrastructure rebuilding following disasters — an $860 million deal to get “critically needed temporary power” to Puerto Rico and the Virgin Islands. The firm has been supporting the broader federal government — FEMA, the Postal Service, Defense Logistics Agency and Army Corps of Engineers — in both U.S. territories since the storms hit. In October, the firm touted the shipment of 200 commercial power generations to Puerto Rico.
Jason Gursky has been named the head of investor relations for Maxar Technologies, the company born from MacDonald Dettwiler and Associates’ acquisition of satellite imagery firm DigitalGlobe. Gursky was most recently senior U.S. aerospace and defense analyst with Citigroup.
Citi’s Jon Raviv has assumed Gursky’s aerospace and defense coverage. Raviv, who has covered services firms, has been at Citigroup for seven years and previously worked for The Cohen Group, a Washington-based consulting firm, and Lehman Brothers/Barclays Capital.
The White House announced on Nov. 21 that it plans to nominate Phyllis Bayer to be assistant secretary of the Navy for installations, energy and environment. She most recently served as chief of staff in the office of the assistant secretary of defense for readiness.