Spending showdown at NATO summit; Boeing & Embraer join forces; Does the Air Force still push the envelope? and more.

Happy (day after) Independence Day for those of you reading in the states. Judging by the ease of my commute — and the fact that all of the eateries in the Pentagon closed early on Tuesday — many of you in the D.C. area are enjoying some vacation.

Now that America has finished celebrating its 242nd birthday with hot dogs, hamburgers, and beer, let’s turn our eyes to Europe where we’ll be focusing lots of our covering in the coming weeks for a series of major events with financial, diplomatic, and military implications. Today, we’ll focus on next week’s NATO summit in Brussels, July 11-12. (Next week, I’ll have a preview of the UK’s Farnborough Air Show and Royal International Air Tattoo.)

On NATO: President Trump has continued hammering allies for not spending enough on defense. Trump recently sent letters to state leaders across Europe demanding they spend more on defense, while at the same time reportedly analyzing the withdrawal of U.S. troops from the region.

But on Thursday, the White House rolled out U.S. Ambassador to NATO Kay Bailey Hutchison and U.S. Amb. to Russia Jon Huntsman who spoke more softly on a conference call. Hutchison expects a show of NATO unity and strength, bragged that every NATO member was increasing defense spending, addressing “malign” Russian activity, and the alliance was expected to continue the missions in Afghanistan and Iraq.

A senior administration official, speaking on background, then said they’ve heard nothing of Trump planning to threaten U.S. troop drawdowns if NATO members don’t spend more. “There is nothing being said at all about the troop alignment in Germany or anything that would change the 32,000 troop force that we have in Germany,” the official said.

“‘This is a very substantive and meaty summit,” Hutchison said. “I think it’s going to be one of the most productive that we’ve ever had.”

Here’s how is Wall Street viewing the summit: “The upcoming NATO summit may be one of the most consequential in the alliance’s history,” Roman Schweizer, an analyst with Cowen and Company, writes in a July 2 note to investors.

Byron Callan, a defense analyst with Capital Alpha Partners, writes in a July 4 note: “This could be a rancorous summit meeting.”

Alliance members pledged at the 2014 NATO summit in Wales to all reach a goal of spending 2 percent of their gross domestic product on defense by 2024. But not all might be able to meet that goal.

“Germany has not been willing to forgo fiscal discipline and instead may get to 1.5 [percent] of GDP by 2025,” Callan writes. “Italy and Spain also have fiscal constraints/impediments that could keep a lid on major increases. Turkey may be another miss given some of its current stresses.”

As of 2017, only the U.S., U.K., Estonia and Greece spend more than 2 percent GDP on defense.

Defense One Executive Editor Kevin Baron will be at the NATO Summit, and the NATO Engages” sideline event, so make sure you keep an eye on his Twitter for the latest.

Welcome

You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Today I remember my grandfather who passed away six years ago. He served as a navigator in the U.S. Army Air Corps during World War II. Unfortunately, we don’t know too much about his service other than attending navigator school in Syracuse and at one point being based somewhere in Louisiana. Like millions of others, his service records were destroyed in a 1973 fire. If you have any suggestions another way I might be able to find out more details, please send them along. As always, send your tips here and thoughts to: mweisgerber@defenseone.com or @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!


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JUST IN: Boeing to Take Control of Embraer’s Commercial Business

The arrangement (which is subject regulatory approval) for Boeing to take an 80 percent state in the Brazilian firm’s commercial jetliner business does not include defense. That remains solely part of Embraer, for now anyway. But the firms, in a joint statement on Thursday, said they would create a joint venture “to promote and develop new markets and applications for defense products and services, especially the KC-390 multi-mission aircraft, based on jointly-identified opportunities.” The KC-390 is a twin-engine cargo plane that competes against Lockheed’s C-130 in some markets.

Is the Air Force Still Pushing the Envelope …

Or is it too risk averse? Just a few years ago, Frank Kendall, then the Pentagon’s top weapon buyer, said officials were not pushing the envelope from a technological standpoint. But what about from a testing perspective? I posed the question to Lt. Gen. Arnold Bunch, the Air Force’s military deputy for acquisition, earlier this week at a briefing about a A-29 Super Tucano crash that killed a Navy test pilot. Bunch has spent about a third of his 33-plus years in the Air Force as a test pilot at Edwards Air Force Base in California, home of the Air Force Test Center, so he’s uniquely qualified to answer. Here’s an excerpt:

“I’ve done the developmental test business for a little while. I’ve done some of those first of type tests that were high risk. When you do flight test on developmental systems … it is a risky business. What we try to do is mitigate those risks as much as possible, but we all know that is a risk that we run when we get in the airplanes and we go do those things.

“I would not call it as too risk averse. We got to the point back at Edwards where we were losing way too many aviators for things that we had not done enough of the initial upfront analysis for. I’m going back in history [and] talking about the past here … where we hadn’t done as much of the upfront planning as maybe we should have done. We then put a rigorous safety review process to be able to make sure we looked at that more effectively and we dramatically reduced the number of aviators we lost while still testing out systems and giving them to the warfighter to be able to use at the edge of the envelope.

“Do I believe we’re too risk averse? I believe we have a good balance. You can never take all the risk out of anything you’re ever trying to do. The safest thing I could ever do is not fly. The reality of it is that’s not going to get us an ability to go out and do the mission. We try to balance that on a regular, everyday basis. And I think we’re in a pretty good place right now.”

Another Sign F-35 Production is Increasing

Two years ago, I took you inside Lockheed Martin’s Texas F-35 factory, which at the time was preparing to quadruple production. This week we get another sign of the massive production increase that’s on the horizon. Northrop Grumman, which makes the plane’s center fuselage (here’s a picture of it) will now churn out one every day-and-a-half from its Palmdale, California, plant. That’s a lot. If you subtract weekends and holidays, that equates to some 150 fuselages (or maybe more) per year.

Army Orders a Bunch of JLTVs

Specifically, that’s 1,574 Joint Light Tactical Vehicles for $484 million. It’s been three years since the Army chose Oshkosh as the maker of its new armored trucks. It has already delivered more than 1,600 JLTVs to the U.S. Army and Marine Corps. The U.S. military could buy upwards of 55,000 of the vehicles over the next 20-plus years.

That Complicated Relationship With India

The U.S. government under both Trump and Obama have pushed to deepen defense ties with India. Most recently, top State Department officials have pushed for New Delhi to buy more American weapons, not Russian ones. However we have another reminder of how India still relies on Russian-made weapons. Russia has delivered six overhauled Mi-17-1V helicopters to India’s border force in recent weeks, according to a Russian Helicopters Holding Company statement. Surely the U.S. would love for India buy some Black Hawk helicopters instead.

Citi Predicts Boeing to Win Air Force Trainer

Analyst Jon Raviv in a detailed report about Boeing’s defense business, predicts the Boeing-Saab team will capture the Air Force TX jet trainer deal, which could be worth $15 billion for 350 planes. A winner could be announced in the coming months.

Bell & Boeing Start Building New V-22 for Navy

Bell and Boeing will start building the first CMV-22B (wow that’s a mouthful) for the Navy under a $4 billion Pentagon contract awarded last Friday. The Marine Corps, Air Force and Japanese military will also get Ospreys as part of the mammoth deal. All of those extra letters is the aircraft designation to signify that this is the version of the V-22 Osprey that will carry people and supplies to Navy aircraft carriers. (C: Transport, M: Multimission, V: Vertical) The part-helicopter/part-plane will replace the Grumman C-2 Greyhound, which has been around since the 1960s. Here’s a concept picture of the light gray Osprey. Why does it matter? Whether you’re a congressional staffer, aide to an admiral, or journalist, the days of getting your catapult launch and landing trap certificate are numbered, unless you can score a backseat ride in a Super Hornet or E-2 Hawkeye.

Making Moves

Eric Fanning has continued his overhaul of the Aerospace Industries Association, hiring Timothy McClees as to lead its legislative affairs division. He will be “responsible for leading the association’s legislative policy and advocacy work with members of Congress and their staff.” McClees most recently worked for Peraton, LLC, a Virginia-based defense firm managing U.S. Air Force intelligence and data storage and dissemination programs. He’s worked as an senior aide at the Energy Department and for the House Armed Services Committee.

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