As we hit send on this week’s issue, the U.S. government has been partially shut down for 34 days. A growing list of Band-Aid measures aims to reduce the impact on the average American. For example, many thousands of federal employees are being forced to work without pay, including Coast Guardsman, Border Patrol agents, TSA airport screeners, air traffic controllers, FBI agents, IRS workers, and more. But the effects are nonetheless widespread; some are likely to last well into the future.
Today, the Senate is expected to vote on two bills intended to end the shutdown, or at least hit pause. One includes $5.7 billion for President Trump’s much-desired wall; another temporarily restores funding for a few weeks so lawmakers to hash out a final deal.
If this is any preview of how spending negotiations, or lack thereof, are going to play out over the next two years, it’s not looking good. Circle Sept. 30 on the calendar, the last day of the fiscal year. Moreover, federal spending caps kick back in on Oct. 1, so without a spending deal, defense spending could end up at $650 billion, about $66 billion less than current $716 billion spending level.
Two weeks ago, SAIC executives said the shutdown was costing the company $10 million per week and that the government was $50 million behind in payments. The latter figure is now “north of $100 million,” CEO Tony Moraco said Wednesday during my latest Global Business Briefing. “It is really impacting business.”
More than 1,000 SAIC employees — about five percent of the total workforce — are taking vacation time and administrative leave because their jobs are funded through contracts with NASA, FAA and the USDA.
“It allows our staff to basically charge to an SAIC account and then perhaps we have an opportunity to recover, in time, some of that work” Moraco said. “That allows us to maintain and retain the staff.”
It could take two or three months to clear the backlog of unpaid bills and other administrative functions to catch up once all federal workers return to work, Moraco said.
“The longer this goes, the harder it gets to recover,” he said. “Hopefully we can get to some resolution very, very soon.”
In the meantime, SAIC and other companies are spending millions of dollars to retain employees. Our colleagues at Politico reported that Boeing has halted testing space rockets for NASA and that Booz Allen Hamilton is transferring employees who support now-closed federal agencies to other projects.
Moraco said his firm hasn’t cut its R&D funding because “at this point, I think we’ve got enough capacity,” he said. “Every business is making trades on what you’re going to invest in and how you’re going to carry your own portfolio forward and how you’re going to protect your own people and your own people and suppliers.”
You’ve reached the Defense One Global Business Brief by Marcus Weisgerber. Thanks to everyone who came out The Watergate yesterday for our first Global Business Briefing of 2019 with SAIC CEO Tony Moraco. As always, send your tips and feedback to firstname.lastname@example.org or @MarcusReports. Check out the Global Business Brief archive here, and tell your friends to subscribe!
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A Repository of Global Business Briefings
We now have a website for all of our Global Business Briefings, from our latest edition yesterday back to our first session in 2017. (Thanks to Paulina Glass for putting this all together.) Before Moraco, we spoke with Leanne Caret, CEO of Boeing Defense Space & Security; Michael Strianese, former chairman and CEO of L3 Technologies; Jerry DeMuro, CEO of BAE Systems; and Mitch Snyder, CEO of Bell.
Boeing’s T-X Impresses Air Force Chief
Gen. Dave Goldfein, the Air Force chief of staff, stopped by Boeing’s St. Louis military aircraft factory to check out the new T-X pilot training jet that the company is jointly building with Saab. We chatted last Friday night when he was at Nellis Air Force Base north of Las Vegas for the service’s annual Weapons and Tactics Conference.
It was the first time that Goldfein had seen the T-X. The plane was powered up, with all of its glowing digital displays offering a visceral contrast to the analog 1960s-era T-38 Talon it replaces. Side note: Goldfein was a T-38 instructor pilot from 1984 until 1988.
“Through the lens of an instructor [pilot]— boy, I got to tell you, I'm more excited about bringing on that weapon system now, having seen it than even before when we were in the competition,” he said. Boeing “leaned forward and I give them a lot of credit for taking a fair amount of risk on a clean-sheet approach to an aircraft that is going to significantly change the way we train.”
Boeing and Saab’s designed-from-scratch T-X beat out existing jets offered by Lockheed Martin and Leonardo.
Goldfein says the new pilot training jet will better prepare pilots to fly modern warplanes, including the F-35 Joint Strike Fighter.
The T-X “is so close to the F-35 in terms of the cockpit alignment, to displays, the ability for a pilot the instructor pilot in the back seat to see what the student is doing to mark events that he or she wants to debrief later, to be able to replicate more and more of what a high-end aircraft, whether that be a bomber or a fighter ... it's a spectacular airplane and I can't wait to bring it on,” he said.
While a T-38 instructor must take notes on the pilot trainee in the front cockpit using a kneeboard, the T-X will digitally record everything that happens in the air for later review.
“[N]ot only is it all filmed, but you're able to watch, real time, how the student is manipulating the data,” Goldfein said.
The combination of the plane and its advanced simulators are going “to fundamentally change the way we train, and actually produce a much better product,” he said.
By the way, the jet still needs a name and a designation. Tweet your suggestions to @MarcusReports.
Pentagon May Change Contractor Payments, Again
Following a previous attempt to change the way it pays contractors was scrapped after stocks slid and Congress objected, the Pentagon is in the early stages of coming up with a new plan. After two public meetings, it appears the Pentagon is taking its time. Citi analyst Jon Raviv, who attended the second meeting this week, reports in a Jan. 22 note to investors that “there isn’t much news, which suggests the process is still young.” He says not to expect “anything tangible” until maybe the second half of the year. “Beyond an immature process, another gating factor is the partial government shutdown making it impossible to publish new rules,” he writes. “Bigger picture, we sense that industry is reluctant to create new measurement systems and incentive structures when there’s plenty to be fixed in the current regime.”
Tanker Delivery Day
The first KC-46 tanker for the Air Force is expected to leave Boeing’s Everett, Washington, factory Friday, en route to McConnell AIr Force Base in Kansas for a formal acceptance ceremony. (Boeing is giving out KC-46 chocolate lollipops at a ceremony in Washington State today.) But Bloomberg’s Tony Capaccio reports that the planes might not reach a key milestone until the third quarter of 2020. Air Force officials had been hoping the planes would be fully war ready upon delivery.
Handy Space Documents
While we wait to see if and when Congress hold hearings into President Trump’s much-wanted Space Force, the folks at Aerospace Corp. have put together a helpful repository. “Our archive is kept up-to-date with the latest U.S. government space policy directives,” writes Aerospace spokeswoman Dianna Ramirez. “It also includes a large assortment of international treaties, agreements, and policy statements from the United Nations, the European Union, the European Space Agency, and many countries including Australia, Canada, France, Germany, Japan, Russia, and the United Kingdom. Among these documents are the multilateral and bilateral agreements between the United States and its partners for development and operation of the International Space Station.”
AFA Scores More Tech Titans
This is starting to become a trend. The Air Force Association is following up its session with Jeff Bezos at its September conference outside of Washington with Mark Cuban and Tony Ambrozie at its winter conference in Orlando, Florida, next month. Cuban, a tech entrepreneur who owns the NBA’s Dallas Mavericks, will be a judge in the Air Force’s “Spark Tank” competition, the service’s version of television “Shark Tank,” on which Cuban is a judge. Ambrozie is Disney’s vice president of technology, “responsible for developing emerging technologies, enabling innovation, developing information and data solutions, leading information security, developing digital and core capabilities, and more for Disney parks, experiences and consumer products.” At last year’s Spark Tank, the top prize went to an ergonomic cushion for KC-135 boom operators.