Revolving-door limits; Not-so-imminent budget deal; Sikorsky interview; and more...
Around the time we hit send on last week’s newsletter, Sen. Elizabeth Warren, D-Mass., a 2020 presidential candidate, announced a proposal to prevent former senior defense officials from working for major defense companies.
Warren’s legislation would prevent companies with more than $1 billion in annual revenue from the Defense and Energy Departments from hiring senior DoD officials within four years of their government service. Similarly, a company would be forbidden to hire former DoD employees who managed contracts held by that company within the past four years. Finally, it would also ban retired generals from lobbying the Pentagon for four years.
The legislation was introduced by Rep. Jackie Speier, D-Calif., in the House.
Many retired generals consult after retiring. Some work for companies, while others work for boutique consulting firms; still others work for themselves. If passed, Warren’s legislation would essentially ban these officials from working for the more than 60 American and foreign defense companies that have more than $1 billion in revenue.
The legislation would also:
- Require the Pentagon to report about retired senior military officers who receive waivers to work for a foreign government.
- Ban “all former military and civilian intelligence officers from working for any foreign government or private entity that operates predominantly on behalf of a foreign government.”
- Make private defense contractors subject to the Freedom of Information Act.
The purpose of the legislation is to slow what’s known as the revolving door — basically, people going between government and private industry.
So how has this been received by defense companies? Pretty much silence. Both the Aerospace Industries Association and National Defense Industrial Association, two of the sector’s most influential trade associations, declined to comment.
However, David Berteau, president and CEO of the Professional Services Council, an advocacy group for federal contractors, chatted with me about it. He’s someone who has worked in government, industry, academia and the think tank world.
“It’s actually in the government’s interest to have people working for contractors who understand the customer,” Berteau said. “It’s in the government’s interest…to have people in DOD who understand contractors.”
As for the government, it “has four or five different stages in the [hiring] process so they can make sure they’ve both identified any potential conflicts … and made sure that they won’t happen,” he said. Senior civilian officials and generals already have restrictions when they leave government.
Berteau, who served in the Obama administration as assistant defense secretary for logistics and materiel readiness, said that upon leaving government, he received a letter stating “specifically what I can and cannot be involved in.”
He said, “Anybody who hires me is going to look at that letter and my employment will be consistent with the terms and conditions of that letter or else they’re putting themselves in jeopardy, and nobody’s going to do that deliberately.”
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Budget Deal Imminent?
Both Republicans and Democrats have expressed hope that they could reach a deal soon. Senate Majority Leader Mitch McConnell boldly predicted a spending deal as early as Tuesday (that didn’t happen). As we told you last week, there’s a lot in play, including continuing resolutions, shutdowns, budget caps, and possible sequestrations. On Wall Street, there is increasingly common belief that a deal will be reached.
On Sunday, Byron Callan of Capital Alpha Partners predicted a two-year budget deal with $740 billion for defense in late 2019 or early 2020. The Trump administration has requested $750 billion. “We see lower odds of a full year CR, which would keep Defense flat with FY19 and believe it’s highly improbable that the FY20 budget is sequestrated as dictated by current law in the Budget Control Act,” Callan wrote in the May 19 note to investors.
Cowen & Company’s Roman Schweizer was also optimistic that Congress would strike a two-year deal in the fall. “We still remain confident that there will be a two-year budget deal this fall that provides a ‘good enough’ result for defense spending through Fiscal Year 2021,” he wrote on May 21. “We don't see the next DoD spending inflection point until after the 2020 Presidential/Congressional elections.”
The Senate Armed Services and House Appropriations committee have marked up the respective defense authorization and appropriations bills, so the budget process is advancing. But not all the predictions are rosy.
“[T]he fiscal deal has always been the easiest hurdle for appropriations to clear,” Matt Vallone, director of research and analysis, at Avascent wrote on May 21. “The dispute over funding the wall and immigration remains intractable. Prospects for a shutdown in October will remain high.”
Sikorsky’s President, One-on-One
I chatted with Dan Schultz, a retired Marine pilot who ran the V-22 program, on Tuesday to get a snapshot of Lockheed Martin’s helicopter business. There’s a lot happening right now. The HH-60W, the new Air Force combat rescue helicopter, flew for the first time last week. (Here’s a video.) And the Marines awarded the company a $1.1 billion deal for a dozen CH-53K helicopters, despite development problems. The new presidential helicopter remains ahead of schedule and Sikorsky, along with partner Boeing, began flight testing the SB>1 Defiant, which it’s pitching to the Army.
CH-53K: A Pentagon contract for two lots of aircraft “is a big deal for us here in Connecticut. It fills our factory and it's a real commitment from the Marines,” Schultz said. The three-engine helicopter, which can lift 36,000 pounds, three times the amount of its predecessor CH-53E. The development has not been with problems tough, leading to some testing delays. “The issues that we have in front of us are things like we've got to work on the brakes,” he said. “There's some issues that we have with a supplier on the dampers.” Another issue: the engines sucking in exhaust gas. The company has used flow models, borrowed from the F-35 program, study the issue. “Now that we see the airflow we know where the air is coming from and the exhaust gas only happens on certain wind conditions and certain hoevers in certain places,” he said. “Now that we know that and see the airflow there's several mechanical solutions for it that will fix this problem. We have a lot of confidence this will be resolved this summer.”
HH-60W: The first flight came ahead of schedule and the Air Force is expected to make a production decision in the summer.
VH-92 Presidential Helicopter: “It’s been progressing really well,” Schultz said. Last year, a VH-92 landed on the White House lawn during test flights. It actually made 14 landings. Two VH-92 recently flew in formation with one another.
Defiant: The helicopter is flying and the test team plans to engage its pusher prop shortly
Naming New Helicopter: Sikorsky was one of five companies awarded contracts to develop a new attack helicopter for the Army. Company officials are now looking to name the new helicopter. How did how does Sikorsky go about making a helicopter? “We've got a team of people that we put together and our communications group is doing that. We've invited people to give us a name for it. And you know it's a fun thing to do. But it's really a serious thing to do too because we're trying to name something that really like when we developed the X2 technology and we put a helicopter called Raider out there. It's almost become synonymous with this type of flight. We're careful about what we name it. So we're looking for that. We don't have it yet.”
Boeing Delivers More KC-46 Tankers
The Air Force now has 11 of the new tankers in its possession following the delivery of three aircraft last week. The tankers went to McConnell (one) and Altus (two) Air Force bases.
Boeing tweeted video of the planes leaving one of its facilities in Washington State.
Ukraine, China Cozy Up
China is pumping money into Ukraine for military engines, the Washington Post reports from Zaporizhia, Ukraine. China has become the main customer for Motor Sich, a maker of aircraft and helicopter engines. In 2016, Ukraine and China announced they would team up to restart production of the Antonov An-225, the world’s largest plane. But that never happened “because of difficulties of transporting the aircraft parts to Chinese soil,” CNN reported last year.
Lockheed Breaks Ground on Cruise Missile Factory
It’s for the stealthy, long-range JASSM missiles. “The planned 225,000-square-foot facility, combined with the current cruise missile production factory, will provide the necessary space to meet the U.S. Air Force's objectives,” Lockheed Martin said in a May 16 statement. The past half-decade have seen Lockheed and other bomb- and missile-makers expand their production factories to meet increased Pentagon demands.
New Missile-Zapping Laser in the Works
Dynetics received a $130 million deal to build and test the Army’s first 100-kilowatt-class laser weapon. The Huntsville-based company is leading a team that includes Lockheed Martin, Rolls-Royce and MZA Associates. Lockheed will be the “laser weapon system integrator” and “will provide the laser weapon subsystem, optimizing the performance of the laser module, power and cooling systems, and operator interfaces,” according to a Dynetics statement. Rolls-Royce LibertyWorks will design the laser’s power and thermal management system. Dynetics conduct final assembly and integration and testing of the truck-mounted laser weapon.
On Wall Street
Jefferies Predicts Boeing Airliner Delay: Analysts Sheila Kahyaoglu and Greg Konrad believe the company will delay the launch of the “New Middle Marked Aircraft,” called the NMA, as Boeing deals with fixing the still grounded 737 Max, the plane at the center of two deadly crashes. The NMA, sometimes called the 797, is supposed to replace the narrow-body 757 and wide-body 767 airliners. Why does this matter for defense? The Pentagon is in the early stages of shopping for a new Air Force Two and nuclear command-and-control plane. A C-32 is the military designation for the Boeing 757, the plane that usually flies the vice president and occasionally flies the president when the regular VC-25 that serves as Air Force One cannot land at smaller airfields. The E-4B Doomsday nuclear command plane is a 747-200. Right now, it’s believed the Pentagon will buy 767s for the new Air Force Two and Doomsday planes, but the NMA could end up being a candidate for one or both.
Goldman Sachs upgrades GD: Analyst Noah Poponak upgraded General Dynamics from neutral to buy. The upgrade is, in part, due to higher than expected margins within GD’s Gulfstream business jet division and improving free cash flow. Poponak lists the company’s stock price target at $204.GD was trading at $169.28 when the market closed on Wednesday.
President Trump said he would nominate Barbara Barrett, former chairman of Aerospace Corp. to be Air Force Secretary. The entrepreneur and former diplomat once landed an F/A-18 Hornet on an aircraft carrier. Read, here.