Air Force conference kicks off; Trump’s defense budget; Q&A with Airbus’ U.S. boss, and more.
Hello from Orlando and the Air Force Association’s annual Air Warfare Symposium. This was long a must-attend event, packed with generals and other senior officials in a mood to chat just a few weeks after the Pentagon announced its budget request. (Orlando in winter was a nice bonus.) Then defense cuts — and federal restrictions on attending out-of-Washington conferences — took the luster off. Less brass, fewer exhibitors, smaller crowds.
But now the pendulum is swinging back. The convention halls are filling up again, largely because the Air Force is buying stuff. Expect four programs to dominate the acquisition discussion this year:
- T-X, the new pilot training jet that will replace the T-38 Talon;
- UH-1 Huey replacement, the decade-plus effort to buy new helicopters to patrol ICBM fields;
- JSTARS, the project to buy new intel/radar tracking planes; and
- Replacement of the Minuteman III ICBMs.
Other stuff I’ll be watching: Usually the air chief, or the secretary, makes some sort of announcement at this show. Last year, they unveiled an image of the top-secret B-21 bomber. At a different Air Force Association conference, they named it the Raider. (Not that Raider. Or that one.)
Gen. David Goldfein, the Air Force chief of staff, has been talking a lot these days about threats in space. We also could hear more about his push to redo the makeup of Air Force squadrons. And I’m sure they’ll be a thing or two said about the F-35.
You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Are you at the Air Force Association’s Air Warfare Symposium too? Drop me a note at firstname.lastname@example.org or on Twitter @MarcusReports. As always, your tips, comments, and random thoughts are always welcome. Check out the Global Business Brief archive here, and tell your friends to subscribe!
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What Does Trump’s Defense Spending Mean for Firms?
The Dow hit 21,000 for the first time in history following President Donald Trump’s address to a joint session of Congress on Tuesday, the day after he said he would boost defense spending by $54 billion. You’d think that would mean sky's the limit for investors in defense. But some are already warning that might not the case.
On Wednesday — the day after Trump’s speech — Citi downgraded Northrop Grumman, Huntington Ingalls and General Dynamics from “buy” to “neutral,” meaning their stocks are not expected to drastically rise in the eyes of analyst Jason Gursky. How can this be?
While his spending hike might seem huge, Trump’s defense proposal is little more than the roughly $585 billion the Obama administration was proposing for 2018. More significantly, Trump’s $603 billion defense proposal is about 10 percent above the $549 billion budget cap, which lawmakers would have to repeal to grant the president’s wish. Of course, Congress also holds defense hawks like Sen. John McCain, R-Ariz., who say the Pentagon needs $640 billion.
The one real “known” right now is that the military is planning to expand. All of the services say they need more troops to meet global demands. People cost a lot of money, especially tens of thousands of them. And that takes away money for other stuff, like fighter jets, tanks and ships.
Q&A with Airbus’ U.S. Boss
There’s been much since President Trump’s election about Boeing, the U.S. company with the biggest export sales. Airbus — Boeing’s chief European rival — likes to point out that it is the largest buyer of American-made aerospace goods.
Over a decade, Airbus has been expanding its manufacturing in the U.S. It builds helicopters in Mississippi and Texas and commercial airliners in Alabama. This month, it’s about to break ground this month on a new satellite manufacturing factory in Florida. The satellites built there are for the OneWeb constellation, satellites that will provide global Internet coverage. The project is expected to create more than 3,000 jobs over the next four years.
I talked about the firm’s expansion plans with Allan McArtor, the chairman and CEO of Airbus Group, which oversees the European aerospace and defense manufacturer’s business in the U.S., Canada and Latin America.
“We’re the largest export customer of the U.S. aerospace industry,” McArtor said. “We buy about $16.8 billion per year out of the U.S. aerospace industry for things to put on our airplanes.”
Creating more manufacturing jobs in the U.S. certainly helps the company politically. “It makes a big difference on Capitol Hill when you go talk to senators and congressmen, that you actually created jobs and planed the flagpole” McArtor said. “It makes you a corporate citizen of the U.S.”
Q. You have a big day coming up, with OneWeb’s groundbreaking in March.
A. It’ll take us a little over a year to probably get that fully operational. The objective is to crank out these low-earth-orbit satellites. We’ll build 700 of them down there, get ’em launched and bring full internet connectivity to every schoolhouse in the world and every residence in the world. It’s a pretty awesome ambition really.
Q. Can you talk about the manufacturing work?
A. This is a whole different way of making satellites. Historically to build a satellite it takes years to do, they cost hundreds of millions of dollars and they’re designed to never, ever fail. These satellites are more like consumer electronics. If one fails, you just launch a few more and they interconnect, one with another. They tell me we’re going to be able to build 15 per week. These will last for about five years or so and then we deorbit them and make sure there’s no clutter left behind and launch some more.
Q. Is there potential for growth, of bringing other satellite projects for Europe?
A. Oh yeah. Like anything, this will be a first-generation constellation of satellites. There will be a second generation behind it and a third and a fourth. The military has shown a substantial amount of interest in constellation of satellites. You can imagine that if we can just preserve some of the capability of the large military satellites, if one of them were compromised, it certainly reduces the incentive for anybody to try to compromise a satellite. We expect the military to follow this very, very closely and possibly enter into their own constellation contracts at some point.
Q. What are some pursuits you’re watching?
A. We always have our antenna up for possible acquisitions. We want to grow in the U.S. either organically or through acquisitions. Don’t have anything on the burner right now, but we’re always watching the marketplace. I could see the possibility of some [aircraft] conversions in the U.S., meaning either passenger to freighter operations or converted into military operations at some point. Who knows, we might even be back in the tanker business some day.
Q. You joke about the tanker, has there been any discussion about that?
A. No, except among ourselves. We obviously follow the progress or difficulties of the current tanker contract. We also are quite proud of our own MRTT. The Australians are just delighted with their tanker fleet. We’ve been winning every international tanker competition there is, except for the countries you would expect to be hyper-related to the U.S. [namely South] Korea and Japan. Everything else, we’re selling our tankers. They’re currently flying, right now in the Gulf area refueling all the U.S. fighter assets. While some are struggling to get their first tanker in the air and operational, we’ve got an operational fleet. So who knows. Maybe the Air Force at some point will say: ‘Let’s buy some of those tankers that are working.
Sikorsky’s To-do List
Lockheed’s Sikorsky became the first company to detail its bid to replace the Air Force’s UH-1 Huey ICBM security helicopters, some which date back to the 1960s. It’s no surprise that they’re pitching a Black Hawk — in fact, a configuration already used by the Air Force for security and range support at the Nevada Test and Training Range and testing at Area 51. The Air Force bought three HH-60U helicopters in 2011 to replace some of the HH-60G Pave Hawk combat-search-and-rescue helicopters lost over decades of use.
Speaking of search-and-rescue, Mehta says Sikorsky is “ahead of the contract schedule” in its work to build a fleet of new Black Hawks for that high-tempo mission. The Air Force awarded the firm the contract in June 2014. Per the terms of deal, the company has to deliver the first helicopter within 75 months. Sikorsky gets an incentive bonus if it delivers that helicopter within 69 months. “We’re still tracking favorably toward that,” Mehta said.
Armed Black Hawk Update
Remember back at the Farnborough Air Show when we told you about a new armed version of the Black Hawk? Sikorsky’s prior owner, United Technologies, did not offer armed versions of the helicopter, but that changed when Lockheed purchased the firm. The United Arab Emirates is the only one to buy the package so far.
New Marine One to Fly This Summer
For all of the buzz about the cost of a new Air Force One, talk of the new Marine One has flown under the radar. The aircraft, a S-92, will fly in a modified Marine One configuration this summer, Mehta said. By the way, Trump already has three of his own Sikorsky S-76 helicopters, so he’s familiar with the company’s products.
Northrop’s Aerospace Division Gets New Chief
Northrop Grumman’s board of directors has elected Janis Pamiljans corporate vice president and president of Aerospace Systems. On April 1, Pamiljans will replace Thomas Vice, who will retire. Pamiljans began his career on the B-2 bomber program, and has led many of the company’s major manned and unmanned aircraft programs. He is currently the general manager of Strategic Systems at Aerospace Systems. Vice was a major player in Northrop’s effort to win the contract to build the B-21 stealth bomber. He was also a major player in the company’s pursuit of the new T-X pilot training jet for the Air Force, which the company recently said it would not bid on despite building a prototype jet on its own dime.