Undersecretary Griffin debuts with guns blazing; One-on-one with Lockheed CFO; Uncertainty for Marinette shipyard and more.

By Marcus Weisgerber

March 8, 2018

Move over, Jim Mattis. There’s a new tough talker in the Pentagon.

Mike Griffin, the first defense undersecretary for research and engineering, has been on the job less than two weeks, but already he’s made three things abundantly clear: He’s the boss. He demands results. And he’s throwing out the playbook when it comes to rules and regulations.

There are few people in the department that can overrule me: the secretary and the deputy secretary,” Griffin said Wednesday at the McAleese and Associates/Credit Suisse defense programs conference. “I will bet the contents in my wallet…that the deputy is not very often going to choose to overrule me if I say the following X, Y, Z regulation is going to cost us six more months.”

There’s other people who with whom I can have an argument,” he continued. “I’m happy to do that. But it’s of only minor interest to me — people who can argue with me. I really only care about people who can overrule me.”

A nervous laughter came over the room, filled with industry executives, congressional staffers, and retired military brass-turned-defense consultants. (Remember last week when I told you it’s a worthwhile conference?)

I personally believe that the secretary and the deputy have come to their jobs with the view that we need to speed up our pace,” said Griffin, a former NASA Administrator. “We need to get things to the field to match the ops tempo of our adversary.”

As far as Griffin is concerned, China is eating the U.S. military’s lunch when it comes to developing new weapons.

The Chinese love our acquisition system…because we are taking…16 and a half years from stating a need to IOC," or initial operational capability, he said. “They’re doing it in two or three. We used to do it in two or three.”

Griffin’s “highest technical priority” is hypersonics. His goal: respond “both offensively and defensively” to Russian and Chinese advances in the field. “We certainly know how to build hypersonic systems, but we need to get on with it,” he said. “When the Chinese can deploy tactical or regional hypersonic systems, they hold at risk our carrier battle groups. They hold our entire surface fleet at risk. They hold at risk our forward-deployed land-based forces.”

Thoughts on fixed-price development contracts: “I have zero track record of ever having done anything right the first time. It’s really hard to do something that you have never done before and get it right the first time, and we should accept that. So I’m skeptical of fixed-price development for that reason.” That said, he’s not a big fan of cost-plus contracts either. Why do his comments matter? The $4 billion, “fixed-price” development contract for two new Air Force One aircraft has yet to be finalized.

Should you encounter Griffin, get to the point. An industry executive found this out the hard way after asking a question with a lengthy lead-in: “I’d appreciate it, by the way, if questions could be shorter…cause I’m the speaker today,” Griffin said. (More nervous laughter.)

Griffin’s Mattis moment: Asked how he feels about fixed-price development contracts, Griffin replied, “I don’t have feelings. I will have time for feelings when I’m dead.” This recalled the secretary’s response last month, asked about his feelings regarding military parades: “I'm not paid for my feelings. I save those for my girlfriend.”

Key quotes:

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From Defense One

Lockheed: Pentagon Negotiators Are Becoming More Unpredictable // Marcus Weisgerber

The company's CFO says willingness to discard precedent has stalled a new deal for the F-35 — and even affected the C-130.

Pentagon May Create a Combatant Command for Space // Marcus Weisgerber

The Defense Department is also looking at major changes to speed up how it buys satellites.

Defense Department Drastically Cuts Nearly $1B Cloud Contract // Frank Konkel

Amid industry criticism following a $950 million cloud computing contract last month, the Defense Department limited its scope and reduced its size down to $65 million.


One-on-One: Lockheed CFO

We chatted with Bruce Tanner at the company’s annual media day on Monday. Some excerpts:

Q. Have there been any thoughts about pulling overseas jobs back to the United States in light of new tax laws?

A. Typically, economically, [international customers are] willing to pay a premium in some cases to actually have local effort. They’re not looking to necessarily save money by having additional products or services built in the U.S. because it’s now a cheaper place to build. They’re literally looking for their own employment base, their own technological base, etc. That’s not going to change from tax reform one bit [in] my judgement.

Q. Allies are slated to buy more F-35s in coming years. Will that change the international share of Lockheed’s revenues?

A. We’re at 30 [percent international sales now]. I think we can get a little bit higher. If you ask me what’s the max, I’m not sure if it’s 35 percent or maybe a little more than that. We plan for three years at a time, sort of on three-year cycles. I don’t think we get much more than about 30, maybe 32 percent over the next few years. So not [a] huge increase. And especially with the DoD budget increases that we just saw, as that translates, hopefully, into the DoD buying more from us, the defense side will start to catch up. I think we’ve had five years where our international compound annual growth rate has been higher than our sales-to-DoD growth rate. That’s not normal. That’s one of the reasons why our international percentage of content has gone up; because the DoD share has stayed relatively flat. With the DoD expected to increase a little bit and just with the sheer level that we are with international — the international market is not nearly as large as the domestic market — I wouldn’t think we’d have a whole lot more growth than we are right now.

Q. Has the focus on commercial sales declined because of U.S. defense spending increases?

A. We’ve got some things on the energy side that are actually doing pretty well. But that’s never going to be the bulk of our business going forward. We’ve got more on the commercial helicopter side and we’ve got commercial satellites. One of the reasons why it’s maybe not mentioned as much as it was back then is [because] when we were talking about that, the DoD budget was flat to declining. With the DoD budget now hopefully increasing, I think that’s more in our sweet spot. But we do have capabilities that we think we can sell commercially and where we have those, like in those three areas, we will continue to do that even if the DoD budget continues to grow at a faster pace. So we’re not abandoning that commercial at all.

Wisconsin Shipyard Facing Production Gap

Lockheed Martin received a $481 million contract this week to start work on four ships for Saudi Arabia. But potential work at the company's affiliated shipyard in Marinette, Wisconsin, won’t start for a few years, and so company officials are trying to persuade the U.S. Navy to keep ordering littoral combat ships.

We still need to make sure the LCS program continues to feed the industrial base there at the yard until the production starts on the Saudi program,” Dale Bennett, executive vice president of Lockheed’s Rotary and Mission Systems — the division that oversees the company’s shipbuilding business — said in an interview on Monday.

Lockheed makes the Freedom class of the Littoral Combat Ship (Austal makes the Independence class). Congress has approved three Littoral Combat ships in fiscal 2018 (but the budget still hasn’t been passed) and the Navy has asked for one in fiscal 2019.

We’re a little anxious about ’18 and ’19 in terms of the number of ships because I think it’s important to keep both [the] Austal and Marinette industrial base humming so that we’re both in a good position to meet the competitive pressures there,” Bennett said.

If there are no additional ships purchased, workers “go home,” he said. (Our friends at USNI News have a great deep dive on the LCS shipyard angst.)

We put $120 million both us and Fincantieri into that yard and we designed it for two a year,” Bennett said. “We can limp along with three a year, where Austal gets two one year and I get two the next year. That way it keeps the industrial base somewhat level loaded until we get to the frigate competition.”

Lockheed is among the companies competing to build that new frigate for the Navy.

Programming note: I’ll have more from my interviews with Lockheed’s Tanner and Bennett, so stay tuned!

Correction: This post originally said the $481 million contract went to the shipyard. In fact, it went to Lockheed. 

Trump Approves $82B in Arms Deals in First Year

That tops the number of arms deals approved by the Obama administration in 2016 by $5.7 billion, according to a new report out today from Bill Hartung, director of the Arms and Security Project at the Center for International Policy. (Trump’s 2017 total was still about $20 billion less than Obama’s 2010 record.) What made up the bulk of the Trump-approved sales? Missiles and bombs, followed by aircraft. Of note, Hartung argues, the Trump administration “deemphasized human rights” in approving some of the exports. "The jobs claims are overrated and the decision to arm repressive regimes and support nations act war has serious negative consequences for U.S. security," he writes. Read the entire report here.

Thursday morning, the State Department approved a $270 million sale of AIM-9X Sidewinder air-to-air missiles to the United Arab Emirates.

Spotted at the McAleese Conference

Lt. Gen. Chris Bogdan, the blunt-talking former head of the F-35 program. He’s now a vice president at Booz Allen Hamilton, per his LinkedIn profile. Who else: former Obama appointees Marcel Lettre (Lockheed), Jamie Morin (Aerospace), Mike McCord (Institute for Defense Analyses), Eric Pierce (Lockheed) and James Swartout (Mitre). Also in attendance: retired Gen. Duncan McNabb and Elbit’s Raanan Horowitz.

Making Moves

President Trump on March 6 nominated Lisa Porter to be the deputy undersecretary for research and engineering. She most recently served as executive vice president and director of In-Q-Tel Labs.

Engility elected CEO Lynn Dugle its chairman, the firm announced on March 1. Dugle has been CEO for two years and has been in the defense and intel sector for more than 30 years, notably in leadership roles at Raytheon. She’ll remain Engility CEO and president while also serving as chairman of the board.

  


By Marcus Weisgerber // Marcus Weisgerber is the global business editor for Defense One, where he writes about the intersection of business and national security. He has been covering defense and national security issues for more than a decade, previously as Pentagon correspondent for Defense News and chief editor of Inside the Air Force. He has reported from Afghanistan, the Middle East, Europe, and Asia, and often travels with the defense secretary and other senior military officials.

March 8, 2018

https://www.defenseone.com/business/2018/03/global-business-brief-march-08-2018/146509/