Inside one of America’s private air forces; Huntington Ingalls investing more in shipyards; and a bit more.
Past the pig and goat farms at the end of a one-lane road in Lakeland, Florida, mechanics are fixing up old warplanes inside a white hangar.
Some of the jets are in pieces, with tails and wings disconnected from fuselages. Others are ready to fly, covered in a dark camouflage paint scheme, stars on their vertical tails. But this is no military base, just a public airfield. And the planes are part of a small private air force that is about to expand.
“As time goes on, the business is only going to grow,” said Dan Basic, the man in charge of restoring and maintaining Draken International’s pocket fleet of old fighter jets.
The U.S. Air Force and Marine Corps pay Draken to fly its planes against military pilots on training missions around the country. They’re not alone; allied militaries have also hired the Florida firm for similar work.
Draken is among the companies — others include Textron’s Airborne Tactical Advantage Company, Discovery Air’s Top Aces and Tac Air — that stand to benefit as the Air Force contracts out more air-to-air training for its combat pilots.
The concept: Hire companies with these planes to fly their planes up against frontline fighter jets, like F-22s, F-35s, and F-16s. And do it cheaper than it would cost to fly military jets. An added benefit: the military can put fewer flying hours on its own aircraft. Right now, the Air Force is planning to hire more “bad guys” at Nellis Air Force Base, Nevada; the new “aggressor” and “red air” contract could be worth $280 million per year. But the service is also looking to expand beyond Nellis, possibly hiring contractors to fly from up to 12 of its bases.
As Draken’s Basic put it, this has a “niche, but very interesting” market as companies position themselves for the expanded workload. “It’s definitely an exciting business environment,” he said.
Basic said the company is “aggressively in acquisition mode” right now.
About 100 people, mostly veterans, work for Draken right now, but that number will swell as more planes arrive. Its current fleet is largely made up of Douglas A-4s Skyhawks once flown by the Israeli and New Zealand air forces. It also has L-39 Albatro and Aermacchi MB-339 trainers, plus a few other types.
Last year, the company announced that it would acquire supersonic Cheetah fighters from South Africa and Mirages from Spain. As those planes start arriving in shipping containers this year, they will join the other seven or so planes being readied for flight in the hangar. More jobs will arrive with the planes.
“We’re not done growing,” Basic said.
Origin story: Draken — which is owned by payments industry billionaire Jared Isaacman — got started as an aerial demonstration team in 2012, flying L-39 training jets on the airshow circuit. Its moment in the spotlight arrived the following year, when sequestration sidelined the U.S. military’s Thunderbirds, Blue Angels, and other combat demonstration teams.
You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Greetings from Orlando where it’s hot and humid, but the attire at the Air Force Association annual Air Warfare Symposium is Florida casual. No joke; it’s the first conference I’ve ever attended where dark suits and ties are discouraged. Might this be the start of — dare I say — a trend for the defense industry in warm-weather climates? If you’re here and want to mingle, give me a shout at firstname.lastname@example.org or @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!
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At AFA, a Tech Focus
Air Force Secretary Heather Wilson’s opening address focused predominantly on the need to push the tech envelope. There’s a heavy focus on technology here and young airmen are going to pitch unique ideas, on stage, to Wilson, Gen. David Goldfein, the Air Force chief of staff, later today.
One-on-One With Hawk Carlisle
Retired Air Force Gen. Herbert “Hawk” Carlisle has been in the CEO’s seat at the National Defense Industrial Association for some eight months now. Just before Congress passed a two-year spending bill to provide a solid boost in defense spending, we chatted about the new National Defense Strategy, defense spending and more. Here are some excerpts.
Q. What do you make of the new National Defense Strategy and this envisioned great-power competition?
A. It’s a good document. I think it’s a realization — and frankly, I think the Department of Defense has realized it for awhile —that we’re back in a great-power competition. The threats are increasing, not decreasing. Violent extremism is still out there. That that’s something that has to be dealt with. That’s a world problem. But then I also think that how we deal with the South China Sea and how we deal with the Ukrainian and the Crimea issue and how we deal with Europe and NATO and what it looks like as Turkey continues to be slightly out of sync with the rest of NATO. I think the document…gets at something that the Department has been working at for awhile and that is that we are in an incredibly challenging time in history for this country.
Q. How should companies view the strategy? Does industry need more detailed guidance?
A. They do and they don’t...I think the combination of the National Security Strategy with the corporate tax break is something...that was very deliberate. We’re going to charge you less taxes, but we’d really like you to put this money back into jobs and back into technology and innovation and IRAD [independent research and development]. I also think the onus is on the combatant commanders in the Department of Defense in that we’ve got to be up front and open with industry and go: ‘Here’s where our gaps are. Here’s what we’re thinking. How can you help us? What do you think is out there that can change this from a draw or losing position to a winning position? What is out there that can fill a gap?’ That’s one of the glories of the position that I’m in. That I can bring government, DoD and the department together with industry in an ethical, legal forum to talk about those most-challenging problems and get to the point where we explain the gaps that we have and the potential solutions.
Q. Do you have any estimates across the industry how much money the tax cuts could free up and how independent R&D might increase?
A. I’ve been talking to our membership and certainly the big companies. Frankly, people are still playing it pretty close to the vest. The good news for us is, at least in all the discussions I’ve had in a verbal manner, almost every single company I’ve talked to has said they are going to take a portion, and they think a significant portion, of what [is] now a lower tax rate and take that difference and plow it back into two things. One is IRAD and technology. Then the other other one is...innovation in the processes in which they produce goods. There’s ways to do things better, whether it’s infrastructure, whether it’s robotics to help in building things. I think companies are going to look at this very astutely and they’re going to look at what can they put into IRAD and what can they do to make what they’re doing today more efficient and less costly.
Q. What do you make of the $716 billion budget request for 2019?
A. I think they put it out for a very good reason. That they’re trying to telegraph their thoughts on what they’re doing. I think there’s an audience out there both on the Hill, in industry and in the public that want to get the word out that the defense buildup that they talked about is in fact going to come about. I do believe if you look at certainly the HAC-D, SAC-D and more importantly the HASC and SASC, I think they’ll welcome this...because it’s something they asked for and they were hoping that they would get last year. The part that to me is concerning is sustainability. A one-year budget is a one-year budget. When we build the program objective memorandum, we build five years out. You have to be able to predict. If you’re going to start a program, you have to be able to pay for the tail. It can’t be one-year money.
About Lockheed’s Sikorsky Purchase
When Lockheed Martin announced plans to acquire Sikorsky from United Technologies, we called the deal “a steal.” But nearly three years later, the helicopter-maker’s revenue is a bit flatter than anticipated.
“Sikorsky's revenue is probably a little lower than we had expected when we acquired it,” Bruce Tanner, the Lockheed Martin’s CFO said at a recent Cowen and Company investors conference. “Definitely, the commercial side is lower than we had first acquired it.”
Part of the reason: Oil prices haven’t been high enough for firms to invest in choppers the flying workers back and forth to offshore rigs.
“Our planning and all the planning we've talked about relative to percentages of revenue growth over the next few years essentially assumes commercial is flat for that entire 3-year period,” Tanner said. “So we don't have any expectation of commercial bouncing back, of any size or any substantive numbers in that 3-year period at all.”
The military side is a bit of a different story. For one thing, the firm has finished negotiating a multiyear deal with the Army for Black Hawks. For another, Sikorsky this week announced it is ahead of schedule building new Air Force search-and-rescue helicopters.
Huntington Ingalls Invests in Infrastructure
In 2015, the company pledged to invest $1.5 billion in its shipbuilding through 2020. As a result of the tax cuts passed late last year, the company will now invest an additional $300 million, said Mike Petters, the firm’s CEO and president. “These funds are designated for facility improvements that expand operational capacity at Ingalls [$200 million] and for investment in digital tools [$100 million] to improve operational efficiencies at Newport News,” Petters said on a quarterly earning call last week.
This all comes as the Navy looks to boost the size of its fleet to 355 ships. “We stand ready to increase production to support a larger fleet and if that perspective work occurs, we could envision a sales growth rate of approximately 3 percent over the next five years,” Petters said. “This comes with the usual caveats regarding the adequacy of future budget request and a need for the Congress to resolve the final two years of sequestration and provide timely appropriations.”
Update: Air Warfare Symposium Dress Code
- It’s not business casual if you still wear a dark suit and just remove your tie.
- Also, not all are following the dress-down rules.
- There’s a barbecue here tonight and Lockheed employees are wearing branded Hawaiian shirts.