What the industry could learn from Boeing; USAF’s new cruise nuke; Ford's elevators, and more.

With earnings season heading into full swing next week, Lockheed Martin said that coronavirus prompted a slight dip in its 2020 full-year sales projections.

The world’s largest defense contractor still expects at least $6.8 billion in profits and an increase in sales of at least $2.5 billion over 2019. But the company is not immune to the coronavirus workforce-and-supply challenges that are becoming increasingly apparent each day. 

“Our current expectation is that the next few months will be the peak of disruption as the country and the rest of the world looks to successfully flatten the curve move forward,” Lockheed CFO Ken Possenriede said in a Tuesday call with Wall Street analysts.

Executives said the company’s F-35 Joint Strike Fighter program, which accounts for about 25 percent of annual sales, is facing coronavirus-related delays.

On Monday, Ellen Lord, defense undersecretary for acquisition and sustainment, said she expects coronavirus to produce a three-month slowdown in weapon deliveries.

Even without hearing from other large defense firms who will report their earnings in the weeks ahead, it’s clear that Pentagon efforts to pay contractors more money up front and at a quicker pace can’t entirely compensate for the coronavirus’ impact on global supply chains.

But why do some executives and Pentagon officials believe they’ll be out of the woods in three months? Top U.S. public-health officials and medical experts are warning that a second wave of coronavirus accompanying the fall’s flu season could be much worse.

Yet companies are adapting, changing how they build weapons. Boeing, which shut down factories in Washington state, Pennsylvania and South Carolina in recent weeks, began reopening them with new policies and procedures designed to keep workers more spaced out on assembly lines. Workers must wear face masks and there’s an abundance of hand sanitizer and other cleaning products.

Many across the industry are closely watching Boeing to see which of these measures work and which do not. And from that, many across the industry could benefit.


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Who’s Making USAF’s New Nuclear Cruise Missile

The announcement of the manufacturer of a new nuclear-armed cruise missile is generally an occasion for some fanfare. But the Air Force’s Nuclear Weapons Center used a simple website post to announce its selection of Raytheon “as a sole-source contractor” to make the Long-Range Standoff Weapon, or LRSO.

No formal contract announcement, no press conference, no conference call, no emailed press release? On Monday morning, a journalist noticed, and tweeted the announcement

Adding a layer of confusion, the Air Force statement quoted LRSO program manager Elizabeth Thorn about Lockheed Martin, who along with Raytheon have been developing technology for the new nuclear cruise missile since 2017: “This is not a down-select per se; instead, we are reframing our relationship with Lockheed Martin to focus on specific technology maturation we believe either has future applicability for the final LRSO design or will reduce overall program risk.”

Later on Monday, Raytheon released a short statement to reveal a key detail: The Air Force has not signed a contract with Raytheon to actually build the nuclear weapon.

“Contract negotiations for the engineering and manufacturing development phase, with a strong focus on schedule realism, affordability, and cost-capability trades, will start in Fiscal Year 2021. The contract award is anticipated in FY22,” the company statement.

A few hours later, Lockheed spokeswoman Laura Toole sent this statement. “Lockheed Martin values our partnership with the U.S. Air Force and we’re working together to close out our work on the Technical Maturation and Risk Reduction (TMRR) phase and adjust our role on the LRSO program. We’ve supported our Nation’s nuclear triad for more than 60 years and look forward to working with the USAF to support the LRSO mission, specifically leveraging our sensor technology and nuclear certification and surety expertise.”

So what does this all mean? 

“Singling up on LRSO could have been an industrial base decision or a way to reduce cost and speed up development,” Cowen & Company analyst Roman Schweizer wrote in a Monday note to investors.

It also could mean Lockheed parts — namely the “sensor technology” referenced in its statement — could make its way into Raytheon’s missile.

COVID Contracts

The Pentagon will spend $133 million to increase U.S. production of much-needed N95 masks to over 39 million over the next 90 days, the Pentagon said in a statement. Defense Production Act contracts were awarded to 3M ($76 million), O&M Halyward ($29 million) and Honeywell ($27.4 million). The increased production will ensure the U.S. Government gets dedicated long term industrial capacity to meet the needs of the nation.”

Groups: No More Coronavirus Aid Money For Pentagon

More than 60 groups are calling on Congress to stop appropriating funds for the Pentagon as part of coronavirus stimulus packages. They argue the Defense Department should spend from the $756 billion that lawmakers have appropriated for fiscal 2020. 

Another Boeing Leadership Shakeup

The company continues its reorganization as new-ish CEO David Calhoun builds his team. Most notably, CFO Greg Smith’s role is expanding, leading a new group called Enterprise Operations, Finance & Strategy, consolidating “several important areas, bringing together teams responsible for manufacturing, supply chain and operations, finance, enterprise performance, strategy, enterprise services and administration. … [T]his new global organization will embed operational excellence and consistent lean principles across Boeing and its supply chain, and restore production and supply chain health as Boeing and the broader aerospace industry recover from the COVID-19 pandemic.”

Siemens Helps Stand Up 110-Bed Temporary Hospital in Westchester

Here’s what the company provided to the alternate care facility at the Westchester County Center stood up by the Army Corps of Engineers: “several critical power infrastructure technologies including panelboards, custom-made switchboards, circuit breakers, load centers and automatic transfer switches. Many components were custom-built and shipped within days from Siemens’ U.S. manufacturing sites spanning Grand Prairie, Texas, Spartanburg, South Carolina, and Hingham, Massachusetts.…Siemens supplied pressure monitoring systems for every patient room to ensure negative air pressure and minimize further transmission of the virus, nurse call stations in each room that feed back to master stations, and building automation control for the tents.”

What Happened to Oil Prices?

Oil is on the rise after crashing earlier in the week as demand declines amid the coronavirus pandemic. One reason for the late-week turnaround: U.S. President Donald Trump’s threat to destroy Irainian boats harassing American warships. 

Five of 11 Weapon Elevators Now Work on USS Ford

That’s one more than was fully operational when I visited the ship in January. In a Wednesday call with reporters, Rear Adm. James Downey, program executive officer for aircraft carriers, said: “In the elevator area, we don’t have any real significant concerns right now” about supply chain issues. Before the coronavirus pandemic, the Navy placed orders for spare parts, he said. “In the elevator area right now, we look healthy,” he said. Speaking about aircraft carrier parts beyond elevators, Downey said that if the Navy got into an “critical situation” where it needs parts for the Ford, it could raid part stockpiles from the next three Ford-class carriers under construction.