Introducing our new weekly newsletter about the future of the business of defense.
Welcome to the Defense One Global Business Brief by Marcus Weisgerber, your new weekly source for all things about the business of defense. Come along as I talk to CEOs and factory workers, generals and sergeants, to suss out what’s next for defense firms and their customers. With eyes on the future, we’ll profile the people and projects that are changing how the Pentagon does business. Send your tips, comments, and random thoughts to firstname.lastname@example.org, or hit me up on Twitter: @MarcusReports. Oh, and don't forget to subscribe.
The failed coup attempt in Ankara and Istanbul last week sent shivers up spines at major U.S. defense contractors. Just how entwined is Turkey in the manufacturing of American arms?
There’s no better example than the F-35 Lightning II, the fighter jet set to become the backbone of a dozen militaries around the world. When I visited Lockheed Martin’s sprawling Joint Strike Fighter assembly plant in Fort Worth, Texas, a few months ago, employees took pains to tout the global nature of their production line. Just coming off the line was the U.S. Air Force’s 100th F-35, with wings made in Turkey.
Components made in Turkey also include center fuselages; Turkish Aerospace Industries splits the work with Northrop Grumman plants in California. And that’s not all: TAI “currently supplies production hardware that goes into every F-35 production aircraft,” according to Lockheed’s supplier website.
Turkey plans to build more than 100 F-35s for itself (under license, as it did its F-16s) and it will overhaul engines for European allies who buy the jet.
In addition to the F-35 work, Lockheed just finalized a deal to build Black Hawk helicopters in Turkey. Byron Callan at Capital Alpha Partners notes that Lockheed has the largest exposure of U.S. and European companies to Turkey. As The Street put it: “a souring in relations between the U.S. and Turkey could lead to both lost sales and disruptions in the supply chain.”
Marillyn Hewson, Lockheed’s chairman and chief executive, brushed that off during an earning call this week. “[W]e look forward to continue our business relationship there and across the number of programs that we have,” Hewson said. “We have not seen any indication that it will impact the F-35 or any of their other programs. And so, we'll continue to assess the situation and make sure that we'll share with you if there's any impact on our business.”
- The Obama administration has OKed $10 billion in arms sales to Turkey since 2009
- But the largest single deal — a $7.8 billion sale of PAC-3 missile interceptors approved in 2009 — is still in limbo
- Turkey has reportedly received its first Chinook heavy-lift helicopter from Boeing
Tanker on Track?
Even as rain dampened last week’s Farnborough Air Show in England, the metaphorical dark cloud over Boeing’s KC-46 Pegasus tanker began to lift. Successful refuelings of a C-17 cargo plane and A-10 attack plane indicated that hardware and software tweaks had fixed problems with the refueling boom.
That clears the way for the Pentagon to officially approve buying more planes from Boeing. (This was only technically in doubt; did you think they would cancel the deal and buy tankers from Airbus?) But officials must still decide how much to penalize Boeing for missing an Aug. 17 deadline to deliver the first 18 planes to the Air Force. Expect to hear more about the tanker when Boeing reports its second-quarter earnings next week.
Tom Kennedy, Raytheon’s chairman and CEO, chatted with Defense One at Farnborough about how the firm plans to grow this year. Kennedy also talked about the Third Offset — the Pentagon’s quest for game-changing technology — and offered this definition: “It’s to be able to make decisions faster and get effects out faster than your adversary.”
Q. Where do you see the largest growth coming in the next five years?
“I think the next big wave is really answering the question of the [Pentagon’s] Third Offset strategy. What it’s after, in terms of providing us the next generation of capabilities that enable the United States forces to have an advantage on the battlefield, especially with the near-peer threats. It’s in areas of hypersonics, where we just won a major contract with DARPA, a program called Hawk. And then also to invert the whole cost curve -- and that's where new types of weapons come in, like high-energy lasers and electronic warfare, in terms of countering the threat from a very affordable cost perspective.”
Q. Aside from hypersonics and lasers, what type of new technology stands out to you?
“The evolving of the next generation of gallium nitride [semiconductors] that has revolutionized the entire AESA radar marketplace. It’s changed the game. It has been instrumental in several of our key wins including the Air and Missile Defense Radar and Next Generation Jammer. We’re seeing that technology move forward, things like gallium nitride on diamond to be able to take the heat out of the gallium nitride, so you can get even higher levels of power out of the gallium nitride than we had before,” allowing a given radar to see farther.
“The whole area of … artificial intelligence, the man-machine interface. Getting machines involved in the decision making to speed it up, to be able to make these decisions much faster than our adversaries. You’re going to see a lot more in the area software, analytics [and] artificial intelligence.
“The other area is we’re seeing is the use of small [unmanned aircraft] — coordinated, being autonomous, [enabling them to] do swarm attacks. In fact, we’ve taken our Coyote UAVs and launched [lots] of them at the same time against a supposed adversary to see how we can use autonomy and cooperative flight between the different UAVs to do a swarm attack on a threat and react to what the threat is doing and change the swarm to affect its mission.”
“I think the other area…is this whole area of distributed lethality. Nothing, as I see it moving forward, is going to be able to just do one function. It’s this whole area of being able to do multi-function, multi-mission is something that is going to be in demand moving forward, not just in our domestic marketplace, but also internationally.”
It’s odd for rivals to play well in the sandbox, but that’s exactly what Airbus did in the middle of Farnborough, posting a two-minute video of company employees and executives congratulating Boeing on its 100th birthday. Of course, Airbus could afford the smiles; the firm beat Boeing in commercial jetliner sales at the weeklong show.
Tracking Bombs: For months, we’ve been following the shortage of American bombs caused by nearly two years of airstrikes against the Islamic State. To keep U.S. and allied aircraft flying against targets in Iraq and Syria, the Pentagon has begun raiding its stockpiles elsewhere. Companies have increased bomb production and now some more relief has been announced. The State Department has OKed the sale of 14,640 bombs and guidance kits to UAE, a member of the counter-ISIS coalition. The value of the deal: $785 million.
Tech Officer: For the first time in a decade, Boeing has a new chief technology officer. Greg Hyslop, who used to run the firm’s missile defense programs, more recently has led “the company’s enterprise technology investment strategy” and research and development. Hyslop replaces John Tracy, CTO since 2006.
Talking Earnings. Next week, Boeing, Northrop Grumman, United Technologies, General Dynamics, Rockwell Collins, L-3 Communications, Oshkosh, Raytheon, BAE Systems and Rolls-Royce all report quarterly earnings.