Just days before Trump administration is to send its fiscal 2021 budget plan to Congress, Pentagon officials said on Thursday that they will shift $5.7 billion to higher-priority projects next year.
The money was identified through the defense-wide review launched by Defense Secretary Mark Esper in August. Pentagon officials provided a summary of a report produced by the review. While they declined to specify which projects will get the money — details are expected with the budget rollout on Monday — a summary of the review listed these areas: nuclear modernization, space missile defense, hypersonic weapons, artificial intelligence, 5G communications tech and readiness.
Esper, speaking Thursday morning at the Johns Hopkins School of Advanced International Studies in Washington, said the review examined $99 billion spent on the “fourth estate”: Pentagon support agencies outside the military branches.
Where does the $5.7 billion come from? Cancellations or truncations of these programs:
- $1.2 billion: Personnel & benefits. The cuts come from Defense Health Program, DoD Education Activity, Defense Commissary Agency, Defense Human Resources Activity (DHRA), Civil Military Programs, Defense POW/MIA Accounting Agency, Office of Economic Adjustment.
- $2.7 billion: Warfighting and support. US Special Operations Command, Defense Threat Reduction Agency, Chem-Bio Defense Program, Defense Security Cooperation Agency , Counter-Narcotics, Combatant Commander Exercise Engagement and Training Transformation, and classified intelligence activities.
- $800 million: Defense-wide research, development, test and evaluation. Missile Defense Agency, OSD-related RDT&E, DARPA, Space Development Agency, Operational Test & Evaluation, Defense Technical Information Center and the Test Resource Management Center.
- $800 million: Policy & oversight. OSD Operations & Maintenance, Defense Contract Management Agency, Joint Staff operations and maintenance / NDU, Defense Contract Audit Agency, Defense Acquisition University / Defense Acquisition Workforce Development Fund, Washington Headquarters Service, Office of the Inspector General, Defense Media Activity, Defense Legal Services Agency, U.S. Court of Appeals for the Armed Forces, Defense Technology Security Administration.
- $200 million: Working capital funds. Defense Finance and Accounting Services, Defense Information Systems Agency, Defense Logistics Agency and Pentagon Force Protection Agency.
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Leidos to Buy L3Harris Airport Security Business
Leidos will buy L3Harris Technologies airport security business — which includes passenger body scanners as well as checked and carry-on luggage scanners — for $1 billion.
“We had been thinking strategically about our security products business for a long time and I’m just so thrilled that we had the flexibility and the balance sheet to be able to move quickly to be able to capture this transaction,” Leidos CEO Roger Krone said in a Tuesday morning call with Wall Street analysts.
For Leidos, it’s the second major deal announced in less than two months. The company last week closed a $1.65 billion deal for Dynetics, a Huntsville, Alabama-based firm that’s playing in a number of high-profile Pentagon projects, including hypersonic weapons, directed energy, swarming drones, space and small munitions.
Since L3 Technologies merged with Harris last summer, the company has been streamlining operations.
“We felt that Leidos was a much better strategic owner for that asset than we were,” L3Harris CEO Bill Brown said Tuesday during the company’s quarterly earnings call with Wall Street analysts. “It’s a good business, but they’re [a] better owner.”
At Leidos, the former Boeing executive Krone has been making moves to diversify the company and expand its portfolio. Over the past year, the company stock has risen more than 70 percent.
“This just gives us a chance to pick up a complementary business and to get a footprint in a market that is truly global,” Krone said.
The deal is expected to close by midyear.
Leidos wins $7.7B Navy computer network deal. It’s a good week for Leidos. “This acquisition will provide the DoN with base network services that are currently provided under the Next Generation Enterprise Networks contract such as electronic software delivery, end user core build, endpoint detection, logistics management, network operations, security operations, service desk, transport and virtualization services,” a Pentagon contract announcement states. More here.
Huntington Ingalls will buy Hydroid, a marine robotics firm owned by Norway’s Kongsberg, for $350 million. HII will also enter a strategic alliance with Kongsberg Marine. The deal “better positions HII in undersea and potentially surface autonomous markets,” Capital Alpha’s Byron Callan wrote in a Feb. 4 note to investors. “The partnership should enable HII to share and access commercial undersea and autonomous technology.” The deal is expected to close by the end of March.
Bombardier is considering selling its business jet business to Textron, the Wall Street Journal reports. “The talks have been going on for several weeks, one of the people said, and they may not result in a deal,” the newspaper reports. “Should they, it could yield billions that Bombardier could use to reduce some of its roughly $9 billion of debt.” Textron is the parent company for business jet maker Cessna. Meanwhile Bombardier is reportedly trying to merge its train business with France’s Alstom or Japan’s Hitachi, Reuters reports.
Companies Pull Out of Singapore Air Show Over Coronavirus Fears
The biennial air show kicks off next week, however the story so far has been major companies staying home amid coronavirus fears. Textron, Gulfstream, General Atomics and Bombardier have all pulled out, according to Aviation Week and Reuters.
U.S. officials have been steadily boosting their presence at overseas air and trade shows for the past five years. Officials and industry executives regularly tout the number of meetings they’re able to have with government officials and suppliers at events like the Singapore Air Show.
“It’s the interaction with our U.S. government partners because everybody’s over there and focused on the same thing, so you’re not distracted,” Eric Fanning, CEO of the Aerospace Industries Association, said in an interview last week. “Even though we’re all based here in DC. We spend a lot of time together formally and informally.
The airshows allow trade organizations like AIA to showcase not just large firms, but smaller companies within the supply chain. “One of our strengths is convening,” Fanning said. “Relationship-building around substantive topics at the roundtables that we host are really the benefit to us.”
The European air shows in Paris and Farnborough have long been considered must-attend events for defense and aerospace executives, but events in Asia and the Middle East are growing in importance.
Commerce Secretary Wilbur Ross will not attend, but an aide said it’s due to conflicting events in Washington, not coronavirus. “Due to scheduling needs in Washington, DC that will keep the secretary in the United States until late Sunday, he would have missed most of the programming in Singapore around the air show and will no longer be traveling there,” a Commerce Department spokesperson said in an emailed statement. “Secretary Ross looks forward to attending the next air show there as scheduling allows, and supporting federal partners during their trip this year.”
Grading the Health of the Defense Industrial Base
A “C,” according to a new report from the National Defense Industrial Association. “2020’s mediocre “C” grade reflects a business environment characterized by highly contrasting areas of concern and confidence,” the report states. “Deteriorating conditions for industrial security and for the availability and cost of skilled labor and materials emerge from our analysis as areas of clear concern. Favorable conditions for competition in the defense contracting market and a rising demand for defense goods and services reflect recent year-over-year growth in the defense budget.”
More on Classified Earnings
Classified work has grown to “about 20 percent” of L3Harris Technologies’ portfolio, Chris Kubasik, the company’s president and COO, said Tuesday during the firm’s quarterly earnings call. L3 Harris’ classified business “grew double digits in ‘19 over ‘18 and we see some really good opportunities across all of our segments when it comes to classified work. … We’re very, very up in the classified arena, both as a prime and both as supporting some of the other industry partners.” Last week, Northrop Grumman reported that classified sales accounted for a quarter of its 2019 sales.
See also: our October report “As Secret Pentagon Spending Rises, Defense Firms Cash In.”
Purdue to Build Hypersonic Wind Tunnel
The Air Force Research Laboratory awarded Purdue University a $5.9 million contract to design a first-of-its-kind “quiet Mach 8 wind tunnel” that will play a key role in the Pentagon hypersonic weapon development. “The Mach 8 quiet wind tunnel will be the first facility of its kind capable of collecting data at speeds greater than Mach 6. Collecting data at higher Mach numbers is critical to extending the understanding of flow physics, especially heat transfer and flight control effectiveness, as Department of Defense programs continue working to fly faster and farther,” the university said in a Feb. 4 statement. “Quiet wind tunnels more closely simulate flight and provide more accurate data than conventional hypersonic wind tunnels. A better understanding of when and how airflow over a surface changes from smooth to turbulent is essential in the successful design of expendable and reusable hypersonic vehicles.”
Another Fighter Jet Goes Pilotless
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Poland Seals F-35 Deal
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- General Dynamics has elected John Stratton, a former Verizon executive, to its board of directors. He has been appointed to the company’s Finance and Benefit Plans Committee.
- Wendy R. Anderson has joined Palantir as senior counselor. Anderson — who served four years at the Pentagon as chief of staff to Deputy Defense Secretary Ash Carter and as deputy chief of staff to Defense Secretary Chuck Hagel — most recently built and led the defense business of artificial intelligence startup SparkCognition.
- Rajeev Lalwani, former Morgan Stanley aerospace and defense analyst, is now vice president for investor relations at L3Harris Technologies.