Who will don McCain’s watchdog mantle?; A look at niche players; Lockheed bets on underwater tech; and more.
Sen. John McCain, who died on Saturday after a yearlong bout with brain cancer, was feared within the defense industry and Pentagon’s acquisition ranks. No one wanted their program to draw the senator’s ire. All dreaded his summons to testify to Congress.
And that’s the way he liked it. In 2014, in line to take over the Senate Armed Services Committee if Republicans won the Senate, he told Politico that the industry should be nervous. Republicans won; McCain subsequently raised hell about the F-35 Joint Strike Fighter, littoral combat ships, USS Gerald Ford, B-21 bomber, and others. He uncovered a tanker scandal that ultimately sent two Boeing executives to jail.
But will anyone pick up where McCain left off?
“Sen. McCain’s passing will have an impact on U.S. defense policy, spending and programs,” wrote Roman Schweizer, a Cowen & Company analyst, in an Aug. 28 note to investors.
“McCain was a watchful critic of defense acquisition programs,” Schweizer wrote. “We do not see another GOP lawmaker taking up McCain’s watchdog role with such gusto.”
“McCain went after a number of big programs (particularly the Navy's but not exclusively) and we don’t think another lawmaker will do so,” he wrote. “Yes, there will still be oversight hearings but the headlines won’t be as negative. There will still be program execution issues and they will still find [their] way into the press but we do not anticipate defense officials getting grilled with the regularity they would before McCain and the SASC.”
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A Private-Equity Look at Smaller Players
We focus a lot here on big and middle-tier defense firms and their leaders. For a change of pace, I recently sat down with Rick Nagel, managing partner of Acorn Growth Companies, an Oklahoma City-based private equity firm that focuses on aerospace, defense and intelligence. “We buy small companies…the very small niche players in the supply chain,” he said.
Oklahoma City is a super hub for aviation maintenance, repair and overhaul, largely because it’s home to Tinker Air Force Base, one of the Air Force’s three aircraft repair depots, which oversees billions of dollars in contracts each year.
“We just try to find those kind of cool, niche, little suppliers that everybody depends on, but no one knows are being dependant on,” Nagel said. “[We’ve] been pretty good at that over the years.”
As the military focuses heavily on readiness, Acorn — whose business is roughly split between commercial and defense — is looking to raise its profile.
Nagel sees potential contracts in contractor-owned, contractor-operated areas, such as filling personnel shortages (see the Air Force’s pilot and maintainer shortages), as well as areas like operating unarmed drones, logistics aircraft, ground support equipment and border protection systems. In July, Acorn acquired Berry Aviation, a charter airline that operates in war zones and remote parts of the world.
Specialty manufacturing is another possibility, he said. Even though the military talks a lot about using 3D printing to replace obsolete parts, Nagel said they are still very interested in manufacturing parts using traditional methods, particularly for older aircraft.
“[T]hey want it built the way it was built in 1952 off the same Mylar drawing, the same kind of materials, because they don’t want to spend all the extra money to run it through first-article testing,” he said. “One of the untold stories — in particularly defense MRO — is that [the] Boeings, the Lockheeds, the others that have these big sustainment contracts … are having sometimes a hard time finding the industrial base to respond to go build 52 of something for the B-52. They just aren’t all that jazzed. I do think there’s opportunities, but the military is going to have to start changing their ways a little bit about what the requirements are to get this stuff on the airplane.”
Lockheed Bets on Underwater Drones
Lockheed Martin is making a second investment in Ocean Aero, a maker of environmentally powered, autonomous, unmanned, underwater and surface vehicles. “The additional investments will allow Ocean Aero to scale its production capabilities and meet the diverse set of demands of a growing customer base using environmentally-powered, autonomous systems,” Chris Moran, executive director and general manager of Lockheed Martin Ventures, said in a statement. Defense firms — like L3 Technologies and Boeing — not typically associated with maritime activities have been increasingly
A Year Without a Continuing Resolution?
The Senate passed a $675 billion defense appropriations bill last Thursday evening. That gave lawmakers in the House and Senate one month to hammer out a final version of the legislation. Plenty of time right? Think again. “[T]he odds remain long that the legislation will even make it to the White House, with just 11 working days left for House and Senate lawmakers to merge opposing versions of the bills — and get Trump’s approval — before funding runs out on Sept. 30,” Politico reports. The other wildcard in all of this, President Trump has threatened to shut down the government if he does not get funding for a wall on the U.S. border with Mexico.
Ambassador: Why Is Ukraine Buying European Helicopters?
Valeriy Chaly, Ukraine’s ambassador to the U.S., expressed surprise that Kiev is buying European helicopters over American-made aircraft, particularly after the U.S. supplied Ukrainian forces with Javelin anti-tank rockets. “Those countries that give us the maximum should be given priority,” Chaly said this week after meetings in Kiev, according to a Ukrainian press report. “And in the General Staff we have confirmed that 98 percent of the assistance we receive is provided by the United States.” In July, Ukraine announced it would buy 55 Airbus helicopters.
Who’s Going to COMDEF?
Get your acquisition and foreign arms sales policy on at the annual Common Defense conference next week. Speakers include: Ellen Lord, undersecretary for acquisition and sustainment, Eric Chewning, deputy assistant secretary of defense for industrial policy; Alexander Gray, special assistant to the president and deputy director of the White House trade and manufacturing policy office; and Gregory Kausner, deputy director of the Defense Security Cooperation Agency. The full list is here.
Raj Shah, the former managing partner of the Pentagon’s Defense Innovation Unit Experimental, DIUx (not the deputy White House press secretary), has joined the board at the Center for a New American Security. Also joining the board is Carol Eggert, senior vice president of military and veteran affairs at Comcast-NBCUniversal.
Lt. Gen. Joseph Guastella assumed command of U.S. Air Forces Central Command from Lt. Gen. Jeffrey Harrigian ceremony today at Al Udeid Air Base in Qatar. Guastella heads to the Middle East from Air Force Space Command where he was currently serves as the director of integrated air, space, cyberspace and intelligence, surveillance and reconnaissance operations. Harrigian will soon become deputy commander of U.S. Air Forces in Europe-Air Forces Africa.
U.S. Army Gen. Stephen Lyons took command of U.S. Transportation Command from Air Force Gen. Darren McDew last Friday. Lyons becomes the first non-Air Force general to oversee the combatant command. McDew retired.