Pre-merger spinoffs; V-22 COD flies; Gremlins drone crashes, and more...

Raytheon and United Technologies have agreed to sell two businesses to BAE Systems for $2.2 billion — if that deal helps them win U.S. government approval for their own merger. 

UTC is selling Collins Aerospace’s GPS business for $1.9 billion; Raytheon is its Airborne Tactical Radios business for $365 million. 

“The UTC-Raytheon divestitures and the L3 Harris divestiture of a night vision product line, which Elbit purchased are reminders that analysts & planners need to consider non-U.S. firms with U.S. operations as they assess the market landscape in the 2020s for defense,” Capital Alpha Partners’ Byron Callan wrote in a Jan. 20 note to investors.

If it goes through, the deal will be BAE Systems’ first major, strategic acquisition since acquiring Detica in 2008.

Buying Collins’ GPS business would make BAE Systems one of just three companies to build military-grade GPS equipment, Callan wrote. (The others are Raytheon and L3Harris Technologies.)

That’s not all that has to happen before the merger goes through. UTC is spinning off its Carrier and Otis businesses.

Meanwhile, Raytheon announced in October that it would consolidate its five businesses into two. Those are: 

• Intelligence, Space and Airborne Systems, the combination of Raytheon’s Space and Airborne Systems; Intelligence, Information and Services; and Forcepoint cybersecurity business.
• Integrated Defense and Missile Systems, the combination of Missile Systems and Integrated Defense Systems.

Roy Azevedo will be president of the Intelligence, Space and Airborne Systems and Wesley Kremer will be president of the Integrated Defense and Missile Systems.

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Air Force Quiet After Navy, Army Leaders Lobby for Cash

Last week, top leaders from the Navy and Army publicly argued that their service should get a larger percentage of the Pentagon budget. The Air Force, however, appeared to be standing pat. Now comes a report from the Center for Strategic and Budgetary Assessment that says the Air Force needs more (and newer) planes. (It did not, however, call for taking any money away from the Army or Navy). The report focuses primarily on the combat air forces — think fighters, bombers and drones. These “should be sized for great power conflict,” the report said. “Preparing to prevent China and Russia from succeeding in major acts of aggression should be a fundamental force design priority for the Air Force’s future [combat air forces].” Other recommendations: buy more stealthy planes, like the F-35 Joint Strike Fighter and B-21 Raider bomber.

How much money will the Air Force need to do this? The CSBA report doesn’t say, but the National Defense Strategy Commission recommended the defense budget grow three to five percent above the rate of inflation annually. Over 10 years, that would amount to about $8 billion more for the Air Force. “That much in acquisition would fund a lot of the capabilities we recommend,” Mark Gunzinger, one of the CSBA report’s authors said Wednesday.

One thing that’s missing in all the lobbying for new weapons: People. No one seems to be talking about the additional sailors needed to crew a 355-ship Navy or pilots to fly the planes in a larger Air Force.

Earnings on Tap

• Tuesday, Jan. 28: Lockheed Martin
• Wednesday, Jan. 29: General Dynamics, Boeing & Textron
• Thursday, Jan. 30: Northrop Grumman & Raytheon
• Tuesday, Feb. 4: L3Harris Technologies

The Latest 737 Max Fallout

A week ahead of those earnings, Boeing said it does not expect regulators to unground the 737 Max until mid-2020. The company is recommending pilots undergo simulator training, which will extend the time it takes to recertify crews.

Gremlins Drone Flies, Then Crashes

A 2015 idea to launch and recover drones from a C-130 took a step forward in November. A C-130 cargo plane released the X-61A Gremlins Air Vehicle from its wing over the Dugway Proving Ground in Utah. The drone then flew for an hour and 41 minutes, checking off a number of test objectives. Testers shut off the engine, then deployed a parachute that was supposed to gently lower the drone to the ground. But that parachute failed and the drone crashed, Air Force Magazine reports. The final version of the Gremlins is supposed to be recovered midair by a C-130.

CMV-22B Flies

It’s been nearly 31 years since the Bell-Boeing V-22 Osprey first flew. But this week, a new version — one that will replace the Navy C-2 Greyhound — took flight for the first time. Dubbed the CMV-22B, the new variant will carry sailors, supplies and even F-35 engines to carriers at sea. “Bell Boeing will deliver the first CMV-22B to Air Test and Evaluation Squadron (HX) 21 in early 2020 for developmental test,” the companies said in a joint statement. Here’s a picture.

Making Moves

The Stimson Center named Victoria Holt and Rachel Stohl as vice presidents and members of the president’s senior leadership team. Holt and Stohl were previously managing directors at the Washington-based think tank.