Roller coaster for defense stocks; Tariffs & trade wars; Skunk Works gets a new chief, and lots more.

It’s been a roller-coaster few weeks in the world of defense — not least for industry stocks, down after record highs in January and February. Wall Street is worried about a trade war. Although some analysts say fears of a trade war are overblown, Wall Street’s jitters have helped bring the Dow Jones Industrial Average down nearly 9 percent since topping 26,616 in late January.

Most of the large defense firms are down less than that from their recent highs. The firm with the least movement: Northrop Grumman, down 1.7 percent from its high of 359.43 in February.

But Boeing’s stock, which has more than doubled since President Trump moved into the White House, took a hit this week on fears that China’s retaliatory tariffs could bump the price of the company’s commercial aircraft. Shares of the aerospace giant have fallen nearly 12 percent from their record high of 371.60 in February, touching 327.44 at Wednesday’s close.

What does the future hold? Well, GeoQuant — a New York research firm that uses artificial intelligence — says “to expect at least a month more of trade-induced mayhem in the stock market.”

And company CEO Mark Rosenberg believes politics will jolt U.S. markets through the 2018 midterm elections in Congress.

“Our AI suggests this conflict stabilizes within a month or so — as such, we interpret the escalation of rhetoric and retaliatory announcements as more negotiating tactic than set policy, which is typical of both the Trump administration and the Chinese government,” Rosenberg writes in an email.

Buckle up.


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China Sort-Of Hits Boeing with Tariffs

Among the tariffs Beijing plans to impose in the latest round of the tit-for-tat sparked by Trump’s surprise March announcement of steel and aluminum protectionism, is a 25-percent tariff on aircraft that weigh (empty) between 15,000 and 45,000 kilograms. Analysts believe this will affect only Boeing’s older 737 Next Generation aircraft, not the newer 737 MAX aircraft currently being purchased by Chinese airlines, and certainly not the long-range, wide-body 777 and 787. Per Citi’s Jon Raviv, Chinese orders total two dozen 737 Next Gens but 196 MAX airplanes. (Bernstein analysis wrote that the smallest version of the 737 MAX is covered by the tariffs, but Chinese airlines are not buying that variant.)

Boeing’s response to the proposed tariffs: “Boeing is confident that dialogue continues. While both governments have outlined positions that could do harm to the global aerospace industry, neither has yet imposed these drastic measures. We will continue in our own efforts to proactively engage both governments and build on the recent assurances by U.S. and Chinese leaders that productive talks are ongoing. A strong and vibrant aerospace industry is important to the economic prosperity and national security of both countries.”

GD Completes Acquisition of CSRA

Despite some drama last month when CACI swooped in with an unsolicited bid, CSRA is now part of General Dynamics. A new website boasts: “Together as General Dynamics Information Technology, we deliver cost-effective, next-generation IT solutions and services to the Department of Defense, the intelligence community and federal civilian agencies as they modernize their information systems.”

The Pentagon’s $1.9-Trillion Weapon Portfolio

Yes, you read that right. That’s the total value of 83 of the Pentagon’s largest acquisition programs, according to a new report. That’s a 10 percent increase over last year’s estimates for 87 programs. The selected acquisition reports, as they’re called, are kind of an annual report card of Pentagon weapon programs. They track increases and decreases in program spending. Increases don’t necessarily mean a program is off the rails.

For instance, say the Pentagon plans to buy 20 new planes. Those planes could be built on time and on budget, but then the military says it needs more of those planes. Or Congress adds funding for more than those 20 planes. That could lead to program growth that needs to get reported to Congress. This happened this year with Joint Direct Attack Munitions, the GPS-guided tail kits for bombs. They’re very much in demand (see ISIS and Afghanistan), so the military is buying more. Quantity increases accounted for projected cost increases for projects like PAC-3 missile interceptors, an additional Ford-class aircraft carrier and six new destroyers. You get the gist.

There’s even an instance of the a program cost going down. The SM-6 anti-aircraft and missile interceptor cost estimate dropped by about $1.5 billion largely because of the projected savings from a multiyear procurement deal with Raytheon and speeding up production.

Of note, the cost of the F-35, that’s development and procurement of the jet, fell $350 million. That said, the project is still expected to cost $406.1 billion. Read the whole report here.

Boeing Gets Chinook Maintenance Contract from Canada

Well, how about that. Relations between the parties has been at an all-time low in the wake of a Boeing-Bombardier trade dispute, with Ottawa hinting that it would buy no more from the American manufacturer. But this week, Canada awarded the company a $313 million, five-year deal to manage logistics for its 15 Chinook helicopters.

Will Supersonic Passenger Travel Return?

I sure hope so. “Supersonic commercial travel is on the horizon,” boasts a statement from Lockheed, which this week announced that it will build a new NASA X-plane. This “Low-Boom Flight Demonstrator” would first fly in 2021. Supersonic flight is largely banned over U.S. territory, as I found out to my disappointment while riding in the back of an F-15 a few years ago. Apparently, folks on the ground don’t like their windows shattering. Hence the need to come up with a new design for a quieter go-fast plane. “The Lockheed Martin Skunk Works’ X-plane design will cruise at 55,000 feet, Mach 1.4, and will generate a gentle, supersonic heartbeat instead of a sonic boom,” Lockheed said in a statement. Here’s a picture of what this plane could look like.

Bonus: Speaking of Skunk Works — aka Lockheed’s Advanced Development Programs — it got a new boss on March 19 when former F-35 manager Jeff Babione took over as VP and general manager. Outgoing Rob Weiss will stick around through year’s end, though. Why? Because it will take some time to get Babione read-in on all of the super-secret stuff that Skunk Works is building.

Who Will Win the Air Force Trainer Competition?

That question seems to come up when I talk to anyone from Boeing, Leonardo, or Lockheed. In his last estimation of the odds, Byron Callan at Capital Alpha Partners had Boeing at 40 percent, Leonardo at 32 percent and Lockheed at 28 percent. But he wrote on April 1 that has “changed estimative probabilities and introduced some new odds as well…The revised methodology shows Boeing’s odds at 70%, Leonardo’s at 50%, and Lockheed Martin’s at 45%.” Okay, then. We’ll find out later this year.

Next Week

The Navy League’s Sea-Air-Space conference kicks off Monday at National Harbor in Maryland. Navy brass and lots of industry will be there. Defense One Deputy Editor Brad Peniston is moderating the opening panel, which features the Deputy CNO for warfare systems, the Marine Corps’ assistant commandant, the Coast Guard’s vice commandant, and the U.S Maritime Administration’s chief. Full schedule is here.

Making Moves

Melanie Sisson is joining the Stimson Center as a senior associate and lead the newly founded Defense Strategy and Planning program. “The Defense Strategy and Planning program will focus on providing decisionmakers objective analyses that can guide choices about how best to use U.S. military forces to achieve foreign policy and security objectives,” according to a Stimson Center announcement. Sisson, who has worked in the intelligence community, was previously at RAND.