Defense stocks slide; A few surprises in Heritage’s budget recommendations; Boeing bomb production soars; and more.
It’s becoming clear that President Trump’s proposals to boost defense spending face more hurdles than many anticipated. Moreover, investors were rattled by the administration’s failed effort to execute a top legislative priority: repealing and replacing Obamacare.
Between March 15 and 28, the Dow Jones Industrial Average slid 1.19 percent, while the S&P 500 fell 1.12 percent. Most top defense firms fell even harder. Over that time, shipbuilder Huntington Ingalls fell 4.3 percent; Northrop Grumman, 2.7 percent; and L3 Technologies, 2.1 percent.
But Boeing, Lockheed Martin, Harris, and United Technologies all fell less than 1 percent, and executives don’t seem rattled.
Here’s Lockheed CEO Marillyn Hewson, talking on March 21 about the company’s performance in the recent years of political turmoil and budget uncertainty: “This combination of strategic achievement and performance during a time of challenge and change has made me more optimistic than ever about our company’s growth prospects.”
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A Few Surprises in Heritage’s Recommendations
The American military is heading for crisis unless it gets more people, arms, and money, according to a Heritage Foundation report aimed at lawmakers crafting 2018 National Defense Authorization Act. That’s not a terribly surprising take from the conservative think tank — but it may carry extra heft this time around. Trump’s team has relied on Heritage for policy and budget recommendations, as the organization is happy to tell you.
The report calls for boosting spending to $632 billion — not including Overseas Contingency Operations, aka money for the wars in Iraq, Syria, and Afghanistan. That’s $29 billion more than the $603 billion the Trump administration has proposed, but $8 billion less than the $640 billion Sen. John McCain wants. The report also features:
Something that Will Make POTUS Cringe: “Buy American” should not apply to defense, because it can increase costs and cause procurement delays, the report argues: “‘Buy American’ is a great bumper sticker and political slogan, but it’s bad economic and security policy.” The report also says Buy American laws should not apply to allies’ defense firms bidding for Pentagon business. “There is no national security reason to exclude companies in allied countries from competing for DoD contracts,” the report states.
Something Everyone Will Be Talking About: The Air Force should cut its planned purchase of F-35 Joint Strike Fighters from 1,763 to 1,260 jets, the report says, and put the money toward other planes. Heritage also recommends killing the Air Force’s new effort to buy a light attack plane — an aircraft would support ground troops — and keeping the combat-proven, if aging, A-10 Warthog.
Something that Will Make the U.K. and Australia Cheer: Heritage is calling for export-control reforms that would allow Britain and Australia to get defense technologies faster. “These reforms should include allowing all defense-related exports to be licensed to these close allies absent a U.S. decision to refuse within a specified and limited time period, and the system-level licensing of such exports, which would allow the automatic and immediate export of follow-on parts, components, servicing, or technical plans,” the report says.
Boeing Bomb Production Soars
For a year and change, the Pentagon has been saying it urgently needs more bombs for the nearly three-year-old ISIS war. (We’ve been tracking the response to the bomb shortage that then-Defense Secretary Ash Carter first warned about in February 2016.)
So it should come as no surprise that munitions production is on the rise at Boeing, which makes the widely used Joint Direct Attack Munition, or JDAM, a GPS-guided tail kit that guides a bomb to a target.
“We’re ramping significantly across the portfolio,” Cindy Gruensfelder, Boeing’s director of direct attack weapons, said at a March 28 company media event in Arlington, Virginia.
In mid-2015, the company was making about 30 JDAMs per working day, for an annual pace of about 8,000. It began accelerating in July 2016, and now turns out about 130 of the kits each weekday. By this July, it plans to be on a daily pace of 150, or about 36,500 a year, Gruensfelder said.
“We are ramping to achieve higher rates than that because of some of the urgent international need,” she said.
Surprising, a rather small workforce — 20 or so — makes the precision tail kits. It takes a technician about five and a half minutes to build one. There’s been a small number of new hires to meet the increased production demands.
“We don’t have a lot of mechanics in the plant,” Gruensfelder said.
The increases are not just for JDAM. Boeing is also upping production from of the Small Diameter Bomb from 1,000 per year to 5,000 per year and eventually 8,000 per year. Gruensfelder said.
Drone Maker Insitu Grows
The maker of the widely used ScanEagle reconnaissance drone has grown from 850 to 1,200 employees since last year, Don Williamson, vice president and general manager of Insitu Defense, said on March 28. “We’re growing quite rapidly and we’re growing both domestically and internationally,” he said. Insitu has been a wholly owned, non-integrated subsidiary of Boeing since 2008.
Some Fun Osprey News
Navy V-22 Ospreys, the aircraft that take off vertically like helicopters and rotate their propellers to fly like a traditional plane, will be designated CMV-22s, according to John Parker, a Boeing business development employee. Marine Corps Ospreys are designated MV-22 and Air Force Special Operations Ospreys are designated CV-22s. The Navy plans to use Ospreys — which are built jointly by Boeing and Bell Helicopter — for resupplying aircraft carriers at sea. They will replace the C-2 Greyhound, a plane that has been around, a turboprop that dated back to the 1960s.
Two big events, the National Space Symposium in Colorado Springs, Colorado, and the Navy League’s Sea-Air-Space conference in the DC region. Expect debate on two of the most talked-about topics right now: rocket launch providers and war in space. Then there’s the positioning to grow the Navy. Defense One will be at both shows; if you can’t make it, I’ll have a full recap in next week’s Global Business Brief.