You call that a vacation? Welcome to 2019, where it’s shaping up to be an eventful January.
I wrote you last on Dec. 20, which turned out to be quite the day. That evening, Defense Secretary Jim Mattis submitted his resignation to President Trump, saying the president would be better served by a secretary whose views better aligned with his. That was right after Trump surprised the Pentagon, and its Syrian partners, by announcing an immediate withdrawal of American forces. Mattis, in his two-page resignation letter, praised American alliances around the world. (U.S. Special Envoy to Counter ISIS Brett McGurk also resigned.) Trump soon tweeted his acceptance of Mattis’ resignation, calling it a retirement and adding some warm words. Mattis planned to stay until late February, giving ample time for the confirmation of a new SecDef.
Didn’t happen. Three days later, Trump ordered Mattis out by Jan. 1, and elevated Deputy Defense Secretary Patrick Shanahan, a career Boeing executive with just 18 months of government experience, to acting SecDef. Some sources see the coming months as a trial period for Shanahan after which the White House could nominate him for the job, full time.
Trump’s abrupt Pentagon shake-up has set off a round of musical chairs inside the Defense Department. Pentagon Comptroller David Norquist has been tapped to “perform the duties” of the deputy defense secretary. For what it’s worth, Shanahan and Norquist looked pretty chummy at an October press briefing, perhaps a sign of a good working relationship.
The leadership changes come as the Pentagon finalizes its 2020 budget proposal, the one that’s expected to be somewhere between $700 billion and $750 billion.
Shanahan, who arrived as deputy defense secretary fresh off a three-decade career with Boeing, quickly recused himself from matters involving the company for two years, as required by federal ethics regulations. On Jan. 2, Shanahan spokesman Lt. Col. Joe Buccino said the acting SecDef “has recused himself for the duration of his service in the Department of Defense from participating in matters in which the Boeing Company is a party.”
Trump, who in October called for a 5 percent cut to the defense budget, has since recanted — and then some. During an unannounced visit to Al Asad Air Base in Iraq on Christmas, he said defense spending would actually go up. “I mean, I want to see costs come down, too. But not when it comes to our military,” he said. “You have to have the finest equipment anywhere in the world, and you have that — $716 billion. And this year, again, we’re going to be — don’t tell anybody because nobody else knows — even a little bit higher.”
So how is the investment community reacting to the Syria troop withdrawal and Mattis’ exit? Some are expecting a decline in the overseas contingency operations budget, the war funding once called the “emergency supplemental.”
“President Trump's decision to withdraw troops from Syria and possibly Afghanistan could mean significant decline in OCO spending,” Cowen analysts Roman Schweizer and Cai von Rumohr write in a Jan. 2 note to investors. “Timing on those moves now may be sliding but the decision-making cycle appears to be opaque. Direct near-term impact on contractors (ex-LOGCAP providers) looks modest; longer-term effect keyed to possible spending mix shift.”
Capital Alpha’s Byron Callan writes that purchases of bombs and missiles, which have surged since the U.S. began leading coalition airstrikes on ISIS in 2014, could decline in the coming years.
Citi’s Jon Raviv writes that it’s too early to foretell the impact of Mattis’ departure, but “it could be minimal as perceived threats and GOP legislators ensure continually robust spending.”
At least the Pentagon’s 2019 is in place, three months into the fiscal year..
“The customers are spending money,” Raviv writes. “We have multi-year growth. But, big changes in leadership ranks could create discontinuities which tend to slow down decisions.”
Shanahan “provides some continuity,” particularly since he has been deeply involved in the fiscal 2020 budget build.
“The risk of course is that Shanahan is less willing to push back on bad ideas (that seems to be the path to job security),” Raviv writes. “That could mean more uncertainty and whipsawing headlines.”
Bonus: Oh, part of the federal government is shut down with Trump and Congress at odds over funding the president’s much-desired wall along the Mexican border. Hundreds of thousands of government employees in the Department of Homeland Security and other departments are working without pay or being furloughed. Get the latest on the stalemate, here.
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From Defense One
Trump Kicks Mattis Out Early, Names Shanahan Acting Defense Secretary // Katie Bo Williams and Marcus Weisgerber
The abrupt decision comes amid a growing crescendo of criticism of the president's snap decision to withdraw U.S. troops from Syria.
Goodbye, Mattis. Goodbye, Syria. Hello, 2019 // Defense One Staff
Dramatic shifts abound as Trump puts US military's war plans in doubt, Democrats resurge in Congress, and the Pentagon gets a new boss.
The Defense Department faces "unnecessary" risk without a complete software inventory, according to the agency's inspector general.
Air Force Buy of New F-15s Looks Likely
The $1.2 billion request for 12 of the new fighter jets will be part of the Pentagon’s fiscal 2020 budget request, set to go to Congress next month, according to Bloomberg. We first told you last July about the F-15X being pushed by Boeing. We now hear the plane is being called the F-15EX. It’s essentially a single-seat, upgraded version of the F-15E Strike Eagle, already flown by the Air Force and foreign versions being made for Saudi Arabia and Qatar. Why this matters: Air Force Secretary Heather Wilson, in September, said, at the time, that buying the F-15X (of a F-22/F-35 hybrid being pitched by Lockheed Martin) was not on the table.
New Year, Still No Tanker
Despite a pre-Christmas report that Boeing would deliver the very first KC-46 tanker by year’s end, it still hasn’t happened. As Reuters reported (and we have also hear from sources), paperwork was being prepped for Defense Secretary Jim Mattis’ signature. But, well, you know what happened there. On Wednesday, Investor’s Business Daily reported that glitches with the aircraft were to blame for the delay, citing “a senior defense official.” Further complicating things is Shanahan’s extended recusal from dealing with all matters related to the company. It’s unclear whether acting deputy Norquist or Ellen Lord, undersecretary for acquisition and sustainment, would handle the acceptance of the new tankers. All it means is that built-but-undelivered tankers will continue to sit along the flightlines at Boeing factories in Washington State and Texas.
New Year, Still No Missile Defense Review
And still no word when or if it’ll be publicly released.
Boeing Logos Continue Popping Up at NHL Rinks
And they’re showing up at areas in cities (Dallas and Ottawa) you wouldn’t necessarily associate with Boeing. Two years ago we told you how Boeing had placed its logos on the boards and sponsored game highlights on the arena scoreboard at Washington Capitals games. A perennial frontrunner and now defending Stanley Cup champ, the Caps are the hot sports ticket in DC these days, meaning lots of power players (see what I did there) like lawmakers, lobbyists and bureaucrats are in the seats seeing those logos and videos. Now Boeing logos are on the boards at the American Airlines Center (home of the Dallas Stars) and Canadian Tire Centre (home of the Ottawa Senators). Seems random, right? Not exactly. Plano, Texas, (20-minutes north of the Stars arena) is now home to Boeing Global Services, the company’s new aircraft repair and maintenance division. The advertisements in Canada’s capital are much more strategic: Boeing, despite recent dust-ups with the Canadian government, is still very much trying to sell F/A-18 Super Hornets there. Also, Boeing Canada is celebrating its 100th anniversary this year.
SpaceX Launches New GPS Satellite
The Dec. 23 launch marked two firsts: it’s the first time Elon Musk’s startup has launched a National Security Space mission and it’s the first launch of a GPS III satellite.
- As Mattis went, so did his spokeswoman Dana White —formally, the assistant to the secretary defense for public affairs. Charles Summers, her deputy, is now serving as acting assistant to the secretary of defense for public affairs.
- Kathy Warden has taken over as CEO and president of Northrop Grumman, replacing Wes Bush, who remains the firm’s chairman.
- Lucy Ryan is now corporate vice president of communications for Northrop Grumman Corporation. Before joining Northrop last year, Ryan was head of communications for General Dynamics.
- Wilson Wang has been appointed as vice president and chief financial officer of MITRE Corp. “Wang will also lead MITRE’s business transformation efforts encompassing a multi-year effort to transform and modernize business systems into an integrated operating platform at the company,” the company said in a Jan. 2 statement.