Business unusual; Boeing’s latest tanker woes; Raytheon-UTC merger to close; and more.
This was supposed to be the week where I told you about the new technology in the exhibit hall at the Space Symposium in Colorado Springs. But instead of Pikes Peak and the swans swimming by the posh Broadmoor hotel, this newsletter is coming to you from my small home office, where the magnificent views consist largely of old photos and random sports memorabilia.
On a positive note, the Space Foundation has rescheduled its commercial and defense trade show for Oct. 31 to Nov. 3. Fingers crossed that coronavirus will be gone by then.
While we’re on the topic de jour: we’re learning more about how companies are responding to the coronavirus, not only by modifying how they operate, but coming up with ways to make desperately needed medical supplies. The outbreak is also prompting innovative new ideas, like using drones to sanitize areas.
“Ultimately, we believe drones can have a major impact in the fight against COVID-19,” wrote SkyGrid, a joint venture between Boeing and artificial intelligence firm SparkCognition.
By now, you’ve probably heard of Ford and General Electric’s plans to build 50,000 ventilators over the next 100 days (and of President Trump’s efforts to wheedle a better price out of General Motors and partner Ventec Life Systems). Union leaders want GE to do even more ventilator work, particularly as workers in the company’s aviation arm face layoffs.
But there’s also a push to build breathing machines from companies you wouldn’t expect. Seven Formula One teams are collaborating on a new design, including McLaren, Mercedes, Red Bull, Racing Point, Haas, Renault, and Williams. Vacuum-maker Dyson has its own new design. Here’s a good summary about how the U.K. is boosting ventilator production.
In Italy, aerospace and defense firm Leonardo is 3D-printing valves to convert some snorkeling masks into respirators. Boeing and United Technologies are 3D-printing personal protective equipment, including face shields.
Lockheed Martin said it would “donate the use of our facilities for crisis-related activities including critical medical supply storage, distribution, and COVID-19 testing, where needed and practical.”
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Raytheon-UTC Merger to Close Friday
Raytheon Technologies, the company created by the merger of Raytheon and United Technologies, launches on Friday. The Justice Department is requiring Raytheon Technologies to divest Raytheon’s military airborne radios business and UTC’s military GPS and large space-based optical systems businesses. BAE announced it would buy the radio and GPS businesses in February. “The proposed settlement further requires the parties to divest UTC’s optical systems business, including a facility in Danbury, Connecticut, to an acquirer to be approved by the United States.” the Justice Department said in a March 26 statement.
Coronavirus looms over merger: Raytheon, in a regulatory filing this week, said: “The coronavirus outbreak may negatively affect our business, operating results and financial condition, and has negatively affected our and UTC’s stock price. The exchange ratio for the Merger is fixed and will not be adjusted for any declines in our or UTC’s stock prices.”
They’re not alone. In a regulatory filing last month, Northrop Grumman warned: ”We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance.” General Dynamics has also warned investors about the coronavirus impact on its business.
In other M&A news, Huntington Ingalls closed its $350 million acquisition of Hydroid, a marine robotics firm.
How Coronavirus Is Affecting Business
Keeping supply chains moving will become a problem for most companies, and that will delay some weapons deliveries. In Europe, Airbus is facing supply chain shortages in its aircraft production lines. Such concerns have prompted the U.S. Navy to speed up some weapon buys to get cash to suppliers so they can have work waiting for them if coronavirus disrupts their operations.
On the small-business front, a National Defense Industrial Association survey of 458 companies, more than half of which have less than $5 million in revenue, found:
- “69% do not expect overruns on fixed-price contracts as a result of the Coronavirus disruptions. Those that do expect them predict overruns of 10% to 20%.
- “62% have seen disrupted cash flow as a result of the crisis. The most common causes are cuts to billable hours, delayed payments from prime contractors and government customers because of shut down or telework, and lack of telework options or schedule flexibility in contracts.
- “54% cannot work on a contract because of a shelter-in-place order.”
Boeing is offering workers buyouts as it tries to cut costs amid the pandemic and its 737 Max crisis. The Wall Street Journal first reported the move. Read CEO David Calhoun’s letter to employees here.
Boeing to Replace Cameras, Displays on KC-46
The company will have to pay to upgrade and eventually replace the tankers’ camera, displays, and processors, according to a person familiar with the program. Valerie Insinna of Defense News has a lot more details and the scoop here.
But the Air Force said in an emailed March 30 statement that the tanker has another problem: “The service’s KC-46 Program Office first identified excessive fuel leaks in July of 2019 after an air refueling test. The Air Force and Boeing are working together to determine the root cause and implement corrective actions. The KC-46 Program Office continues to monitor the entire KC-46 fleet and is enhancing acceptance testing of the fuel system to identify potential leaks at the factory where they can be repaired prior to delivery. Boeing is contractually obligated to remedy this deficiency at no additional cost to the government.”
- Raytheon has removed Chinese parts from new GPS ground control stations.
- The Missile Defense Agency awarded Raytheon a $2.1 billion deal for SM-3 interceptors.
- Two new space reports: Aerospace Corp. offers suggestions about how to better buy satellites, andthe Center for Strategic and International Studies gives an overview of threats to space assets.
The U.S Space Force awarded L3Harris Technologies a potential $1.2 billion contract “to modernize and sustain critical space infrastructure used by the military to keep track of activities and objects in space.”