As COVID-19 spreads across the U.S. and around the world, stories about lockdowns, travel bans and containment zones are everywhere. Meanwhile, Saudi Arabia is slashing the price of oil amid a spat with Russia. How will the coronavirus affect great power competition?
“Great power competition rests on assumptions that great powers have the fiscal resources to organize, train and equip their militaries,” Capital Alpha Partners analyst Byron Callan wrote in a note this week.
But what if countries are diverting defense funds to battle coronavirus, or taking in less money from oil sales?
“Russian defense modernization was on a steeper upward trajectory prior to the 2014-15 drop in oil prices and given the importance of oil revenue to government budgets, the length and depth of the new decline could cause a fresh look at its spending plans,” Callan wrote. “China’s GDP will suffer from coronavirus and so it will be interesting to see how its defense plans change and whether more resources are sopped up by internal security. U.S. defense plans may not be immune from fiscal changes. Italy’s defense plans may need to be reassessed too.”
Then there’s the potential that coronavirus and oil could cause global instability. Callan points to Iraq’s 1990 invasion of Kuwait and Argentina’s 1982 invasion of the Falkland Islands.
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Some Shows Might Go On
As I wrote earlier in the week, some trade associations are still planning to press on with conferences and trade shows scheduled in the coming weeks and months — for now, anyway. On Tuesday morning, the Association of the U.S. Army canceled its annual Global Force symposium in Huntsville, Alabama.
By tomorrow, Pentagon officials must determine what is considered “mission essential” travel, Defense Secretary Mark Esper wrote in a Wednesday memo. They “must defer non-mission essential travel.”
The Army Aviation Association of America, known as “Quad-A” said its annual summit, scheduled for late April in Nashville, is still on right now, but organizers would decide by Monday April 6 whether to cancel.
“I realize that we have all made plans and commitments that could potentially be disrupted by this COVID-19 virus,” Jeff Schloesser, AAAA president wrote on the association’s website following AUSA’s cancelation of Global Force. “We will have to let the situation develop over the next month and make an informed decision. It is as simple as that.”
For organizations like the Navy League, whose annual Sea-Air-Space conference is scheduled for the second week of April, these events are extremely important networking opportunities for linking the government and private industry. They’re also important sources of income. In 2017, Sea-Air-Space generated $4.8 million of the nonprofit’s $9.2 million annual revenue, according to tax filings.
This morning, the Navy League, in a statement posted on its website, said the show would still go on. “We encourage all attendees to adhere to the normal precautionary measures they would take during flu season and practice good hygiene.”
All of these conferences are heavily attended by industry. Unlike the federal government, most large companies have already limited employee travel over COVID-19 concerns. As Schloesser noted: “If Nashville declares a State of Emergency...or DoD does issue a travel ban, that would certainly cancel our event automatically and instantly.”
Here are some of the major conferences scheduled for the months ahead:
- Space Symposium (National Space Foundation), Colorado Springs, Colorado, March 30 to April 2.
- SO/LIC, Washington, March 31 to April 1.
- Sea-Air-Space (Navy League), National Harbor, Maryland, April 6 to 8.
- Quad-A (Army Aviation Association of America), Nashville, April 22 to 24.
- GEOINT (United States Geospatial Intelligence Foundation), Tampa, Florida, April 26 to 29.
- XPONENTIAL (Association for Unmanned Vehicle Systems International), Boston, May 4 to 7.
- SOFIC, Tampa, May 11 to 14.
- GLOBSEC, Bratislava, May 21 to 23
- Eurosatory, Paris, June 8 to 12
- Farnborough Air Show, Farnborough, England, July 20 to 24
Defense Stocks Not Immune to COVID-19
Typically defense stocks are a safe bet even amid major market fluctuations. Not in the bear market we find ourselves in now. “[W]e’ve been surprised over the last week by defense stocks not showing more resiliency in a volatile market,” Citi analyst Jon Raviv wrote in a Wednesday note to investors.
In addition to coronavirus, the market is reacting to that oil production fight between Saudi Arabia and Russia. The kingdom says it’s going to flood the European market with $25-per-barrel oil. In the aerospace world, cheap oil is never a good thing for helicopter makers, like Bell or Sikorsky. When oil prices are high, oil companies are more likely to buy new helicopters to ferry employees to offshore rigs. When oil prices are low, they don’t buy the aircraft.
A market that could see a bump: private air travel, as our friends at Quartz report. FWIW, my Instagram feed has been filled with jet-chartering advertisements over the past week.
Seems like so long ago, but on March 1, 2019, Boeing stock was trading at more than $440 per share. In June 2019, some Wall Street analysts were still betting on its stock topping $500, despite the 737 Max grounding. Today, the company’s stock dropped below $160.
New Air Force One Transformation Begins
In non-coronavirus news, Boeing began converting the first 747-8 into the new Air Force One configuration last month. “The first phase of aircraft modification involves cutting out large skin and structure areas in both the forward and aft lower lobes of the aircraft and then installing two newly manufactured superpanels,” the Air Force said in a March 11 statement. “The superpanels contain structural upgrades and cutouts for the VC-25B lower lobe doors including internal airstairs for mission requirements.”
FOD precautions: The Air Force’s statement noted that the project began with a debris sweep of the two 747 aircraft and the San Antonio, Texas, factory where the work is being done. Boeing has had extensive foreign object debris, or FOD, found in its KC-46 tankers delivered to the Air Force as well as on commercial airliners. “This is a daily practice in the facility as part of the program’s “Start FOD-Free, Remain FOD-free” motto,” the Air Force said.
Turkey Claims US Offered Patriot Interceptors
From Reuters: “The United States has offered to sell Turkey its Patriot missile defense system if Ankara promises not to operate a rival Russian system, Turkish President Tayyip Erdogan said, in what he called a significant softening in Washington’s position.” But: “In Washington, the Pentagon said that U.S. Defense Secretary Mark Esper had not changed his position on the issue, which was: ‘Turkey is not going to receive a Patriot battery unless it returns the S-400.’” More, here.
Kevin McAleenan, a former acting homeland security secretary, has been named an operating partner at AE Industrial Partners, a private equity firm specializing in aerospace, defense and government services, power generation, and specialty industrial markets.