Curing the Farnborough hangover with earnings; Saudi ships, 3D printed satellites and a lot more.

I still have a Farnborough Air Show hangover, so let’s talk about something else, shall we. It’s earnings week with all of the “big guys” reporting, so let’s start there.

The theme of the week: Business is good. Halfway through the year, companies are largely expecting to make more money in 2018 than originally projected. Why?

For Lockheed Martin: “First, higher than planned win rates on new programs. Second, earlier than planned awards. And third, several unplanned awards associated with the Omnibus budget increases announced last quarter some of which are expected to convert into increased sales quicker under the new revenue recognition methodology,” CFO Bruce Tanner said.

For Boeing: “The increase in revenue reflects the growth from key international fighter awards and higher weapons revenue for [Boeing Defense, Space & Security] and higher parts revenue for [Boeing Global Services],” CFO Greg Smith said.

Raytheon, which reported its second quarter this morning, saw an increase in the number of classified sales, something that CEO Tom Kennedy talked about when I interviewed him last week at Farnborough.

L3 Technologies’ earnings call with CEO Chris Kubasik had just begun as we sealed up this edition of the Global Business Brief, but here’s how Wall Street initially reacted. “It wouldn’t be an [L3] quarter without a few moving pieces (divestitures, acquisitions, capital structure moves). But, underlying story is still positive,” writes Citi analyst Jon Raviv in a note to investors before the earnings call. “It’s still early in what we can expect to be a multi-year transformation process for new CEO Kubasik but several steps throughout the quarter…should accrete to out years.”

But not all the news was good on the defense side. Boeing had a $307 million charge for the latest cost growth on the Air Force KC-46 aerial refueling tanker. The company has now had to eat well over $3 billion on that program.

“This cost growth was primarily due to higher estimated costs of incorporating changes into six flight test and two early build aircraft as well as additional costs as we progress through late stage testing and the certification process,” the firm said in its second-quarter earning statement.

Still Boeing executives downplayed the charge, something they’ve done repeatedly even as the bills continue to roll in.

“We continue to make steady progress towards final certification for the KC-46 tanker and recently completed all flight tests required to deliver the first aircraft, which is expected to be in October of this year, as now agreed upon with the U.S. Air Force,” Boeing CEO Dennis Muilenburg said.

Northrop CEO Wes Bush talks about why he’s stepping down. After nine years at the firm, Bush announced he would step down on Feb 12 (as I was waiting in the surprisingly short customs line at Heathrow). Bush, who will be replaced by the firm’s president and CFO Kathy Warden, addressed his departure scheduled for the end of the year on Wednesday’s earning’s call. He framed the discussion with as to why now was the right time to leave.

“It starts with a strongly held personal belief that healthy organizations use the dynamic of change to continuously improve themselves and to support a culture of excellence. Over the course of my tenure in my current role, we’ve made many changes in our portfolio, in our approach to taking on new business and how we drive performance and I believe, most importantly, in our culture. I feel these changes have been key to the value that we’ve created for all of our stakeholders. Healthy change requires new leadership perspectives from time-to-time, and this includes new perspectives at the CEO level. This is my ninth year as CEO and, as you should expect, getting succession right is very important to me. I’m proud that we have a disciplined and thoughtful approach to succession planning at all levels in our company. And with a long tenured CEO, good succession planning also means having the successor take on the role in a timely manner when they are ready to take the company to the next level. We are so fortunate to have a leader who is now ready to become our next CEO and to lead us forward.”

Lockheed’s Hewson on more F-35 supplier competition. A few weeks ago we looked at Lockheed’s decision to switch from a F-35 camera built by Northrop Grumman to a Raytheon one. Last year, Lockheed picked Elbit and Harris to make the displays in future F-35, discarding the L3 Technologies system in today’s jets. Should we expect more of this? Lockheed CEO Marillyn Hewson said Tuesday: “As we go to look at the next lot of aircraft, we look at having competitions for best value on components that we can do. And so … with the Distributed [Aperture] System and then displays and others are just a normal course on a production program that we’ll look at and we’ll continue to do that.”

Welcome

You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. In the midst of the craziness of last week’s Farnborough Air Show, we missed a significant milestone: The Global Business Brief turned two (and Defense One turned 5)! The GBB, as we call it here, launched during Farnborough in 2016. Since then, the newsletter become a place to talk about how the Pentagon spends money and how companies are strategically positioning themselves for the future. Thanks for reading and keep the feedback coming to: mweisgerber@defenseone.com or @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!


From Defense One

New Details About the F-15X That Boeing is Pitching the US Air Force // Marcus Weisgerber

The single-seat jet is being built to shoot down enemy aircraft, pound targets on the air, and even hit ships at sea.

The Marines Still Need a New Amphibious Combat Vehicle // Rep. Rob Wittman

Those who argue that beach landings are irrelevant are not seeing the whole picture.

Trump’s Space Force Will Have to Wait // Marina Koren

The president has called for the creation of a new military branch. So far, Congress is ignoring him.


NDAA Wrap

The final version of the 2019 National Defense Authorization Act has $639 billion for the Pentagon (and Energy Department) base budget, plus another $69 billion in overseas contingency operations funding. Here’s a summary of the bill; here is the full conference report.  As we hit send on the newsletter, the bill had just passed in the House. The Senate is expected to take up bill in the coming weeks.

Funded: Some Big-Ticket Items

  • 77 F-35 Joint Strike Fighters
  • Three littoral combat ships
  • 24 Super Hornets
  • 10 P-8 submarine hunters
  • Three Arleigh Burke-class destroyers

Major Policy Decisions

  • No language for creating a Space Force.
  • Prohibits retirement of the E-8 JSTARS, and cancels the planned replacement program in favor of a new, yet-to-be-fully-articulated replacement project.
  • “Prohibits the delivery of F-35 aircraft to Turkey until the delivery of a report, which would include an assessment of a significant change in Turkish participation in the F-35 program,including the potential elimination of such participation.”
  • Congress spares DISA, bans Chinese firms and orders JEDI review, our colleagues at NextGov report.

Cubic Buys Drone Firm

The firm announced it has acquired Shield Aviation, a company “founded in 2008 by former Special Forces, military personnel, and engineers all who specialize in unmanned technology.” Cubic provides the datalink and remote link for Shield Aviation’s drones. “This new business will provide Cubic’s customers with a rapidly deployable, medium [autonomous aircraft systems] that offers unique mission enabling capabilities,” Cubic said in a statement.

Lockheed Adds 1,800 F-35 Workers

The firm has pledged an additional 400 jobs more as production of the F-35 Joint Strike Fighter ramps up at the mile-plus-long factory in Fort Worth, Texas. That gives me another chance to plug my Defense One Radio podcast interview with Greg Ulmer, Lockheed’s F-35 program manager, who discussed how the jet’s production line is expanding.

A 3D-Printed Satellite Fuel-Tank Cover

Lockheed Martin has 3D-printed a “titanium dome” cover for its satellite fuel tanks. It’s the largest 3D-printed part that the company has made for its spacecraft — 46 inches in diameter. It’s large enough to hold 1,191 cups of coffee, according to a company spokesman. (Presumably, he’s referencing a Starbucks tall as opposed to the larger venti size for effect.) The fuel tanks were described by Lockheed as being “so big you can’t even put your arms around it.” Not sure why anyone would want to hug a satellite fuel tank, but point made. Perhaps even more important, the additive manufacturing drastically reduced the time to build the fuel tanks from two years to three months. Now that’s huge.

Another Step Closer to Replacing Huey

Three bidders — Lockheed’s Sikorsky, a Boeing-Leonardo team, and Sierra Nevada — have submitted bids to replace the U.S. Air Force’s 1970-era Huey helicopters that help guard the intercontinental ballistic missile fields in the northern U.S. Finally some progress for the program once called the Common Vertical Lift Support Platform, which, I guess, was a fancy way of saying “utility helicopter.” To recap: Sikorsky is pitching Blackhawks, Boeing the Leonardo MH-139, and Sierra Nevada a modernized, remanufactured Black Hawk.

Lockheed Gets Saudi Ship Deal

And Lockheed has finally confirmed that it will build the ships in Marinette, Wisconsin, probably the worst-kept secret in the company. The Pentagon last week awarded Lockheed a $450 million contract “to begin the detailed design and planning for construction of four Multi-Mission Surface Combatants” for the kingdom. If you recall a few months back, a company executive told us they were facing a gap at the Fincantieri Marinette Marine shipyard between U.S. Navy Littoral Combat Ships and Saudi’s Multi-Mission Surface Combatant. Lawmakers this week funded three Littoral Combat Ships in the 2019 National Defense Authorization Act, two more ships than the Navy requested. Lockheed and Austal each build versions of the LCS.

Qatar Starts Al Udeid Upgrades

Staying the Middle East, the Qatari Ministry of Defense broke ground on new barracks for U.S. and coalition forces based there, according to the Qatari Embassy in Washington. The barracks are “part of a multi-billion dollar expansion project for the base,” that we told you about in January. About 10,000 U.S. and allied forces are based at Al Udeid.

Making Moves

  • Royal Canadian Air Force Gen. Christopher Coates assumed the duties as the North American Aerospace Defense Command deputy commander on July 20.
  • Koushik Subramanian, an information security expert,  has been named director of the National Center for Cybersecurity in Manufacturing, part of the Digital Manufacturing and Design Innovation Institute.
  • Chris Ferguson, a retired NASA astronaut and Navy fighter pilot, is an astronaut again, but not for the government. Ferguson was officially named Boeing’s first corporate astronaut who will pilot the firm’s Starliner spacecraft. Read more about him and the program here.
  • Northrop Grumman named Nick Chaffey as chief executive for the U.K. and Europe. He joins Northrop after a 25-year career at PA Consulting Group.
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