The U.S. State Department is lowering the registration fees that companies pay to export weapons. Officials say the move will largely benefit small and medium-sized firms that are cash-strapped amid the coronavirus pandemic.
The fee depends on how many export licenses a company applies for in a given year, but typically is at least $2,250 apiece. That has been reduced to $500 for so-called first- and second-tier companies that seek a relatively small number of licenses.
“Many of the registrants who fall into those categories are small- and medium-sized enterprises,” a senior administration official said during a background call Thursday. “So it was our intent to give them a considerable price break of up to 80%.”
Large companies such as Lockheed Martin, Raytheon Technologies, and Boeing, which fall into the so-called “third tier” of registrants, will get no price break, the official said.
In all, State expects these fee reductions to collectively save companies $20 million over the next year.
Even amid the pandemic with more government and industry employees working from home, the senior administration official said the registration application rate has “been surprisingly healthy.”
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Esper Thanks Industrial Workforce
“Your commitment has allowed the Department of Defense to not only sustain readiness, but also move forward with modernization,” Defense Secretary Mark Esper wrote in a May 4 letter to the millions of defense contractors around the country.
Will Fincantieri’s Frigate Victory Be Protested?
It’s been a week since the Navy chose the U.S. arm of the Italian shipmaker to build up to 10 FREMM frigates in a deal that could be worth $5.6 billion, not including all of the government-furnished equipment installed on warships. While the Navy said it would immediately begin detailed design of the new ship, General Dynamics, Austal, or Huntington Ingalls could contest the deal, which usually leads to a work stoppage while the Government Accountability Office evaluates a protest.
Fincantieri builds ships in Wisconsin, considered a swing state in November’s 2020 election. “So the implications around the award mean we’re likely to see a protest which ultimately can change the outcome,” Citi analyst Jon Raviv wrote in an April 30 note to investors.
For now, the Navy plans to buy 20 ships, including a second batch of 10 to be awarded in an upcoming competition. But observers say that number could grow. “The Navy could increase the size of the program (maybe by double) in its new Force Structure Analysis,” Cowen & Company analyst Roman Schweizer wrote in a May 1 note to investors. “In the future, we might anticipate an industrial base equilibrium where large combatant builders GD and Huntington build the new large combatants, Marinette builds frigates and Austal builds fast amphibs/logistics ships.”
Coronavirus’ Impact on Foreign Military Sales
With foreign sales accounting for roughly one-quarter of many U.S. arms makers’ revenues, companies have been closely watching how the pandemic, coupled with low oil prices, will affect international defense spending. The State Department went about four weeks in March — the month the federal government started shifting employees to telework — without approving a foreign arms deal. Since March 30, it has approved nine deals worth $3.2 billion.
For the fiscal year, which began in October 2019, State has approved foreign military sales worth a potential $27.3 billion, up from $24.2 billion at this point in fiscal 2019, but well below the $58.1 billion at this point in fiscal 2018 and $51.9 billion in fiscal ’17, according to figures compiled by Cowen & Company analyst Roman Schweizer.
“We think it's still too early to tell if that activity was in the pipeline before COVID/crude impacts,” Schweizer wrote in a May 6 note to investors. “U.S. allies may need to prioritize COVID-19 relief/recovery spending over defense purchases.”
A reminder: just because the State Department has approved a sale doesn’t mean the deal has been finalized.
“There’s always uncertainty when oil is $20 or $30 a barrel — obviously the Kingdom of Saudi Arabia is challenged as are most of the Middle East customers during this time,” Raytheon Technologies CEO Gregory Hayes said Thursday morning on the company’s quarterly earnings call. “At the same time, I don’t think peace is breaking out anytime soon in the Middle East and providing a solid defense posture to our customers over there remains a priority both for the U.S. government as well as for the Kingdom of Saudi Arabia and all of our other customers over there.”
Speaking of foreign arms sales, a new Center for International Policy and Project on Middle East Democracy joint report by William Hartung and Seth Binder recommends the U.S. cut $300 million in military aid to Egypt. “A significant reduction in military aid will signal to the Egyptians that U.S. assistance is not an entitlement, but rather is dependent on their conduct. The $300 million should be repurposed as humanitarian assistance for the global effort to overcome the COVID-19 pandemic.” More here.
Teams Form to Compete to Build Missile Interceptor
Northrop Grumman and Raytheon Technologies said they would team up to build the Next Generation Interceptor. Boeing, who is the lead contractor for the current U.S. missile shield in Alaska and California, said it too would compete. A Boeing spokesman, in an emailed statement, did not provide any details about any of the company’s teammates or proposal, but said the company would respond to the Missile Defense Agency’s solicitation. Bids are due at the end of July.
Boeing Unveils Drone Prototype
The planemaker unveiled the prototype of the new drone being pitched for Australia’s Loyal Wingman Advanced Development Program. The company said the project is “Boeing’s largest investment in an unmanned aircraft outside of the United States.” Boeing is globally marketing the drone, which is envisioned to fly alongside manned combat aircraft.
Navy Adds 2 Program Offices, Closes 1
Navy acquisition chief James “Hondo” Geurts has created two new program executive offices: PEO Digital and Enterprise Services and PEO Manpower, Logistics and Business Solutions. He has also axed PEO Enterprise Information Systems. The move is “to realize the vision of digital transformation and to optimize program alignment across the Navy and Marine Corps capability portfolios,” Geurts wrote in a May 4 memo, reviewed by Defense One.
Former SecNav to Lead Venture Firm
Richard Spencer, the former Navy secretary, will lead Pallas Ventures, a private investment fund of Pallas Advisors, the consulting firm founded by Sally Donnelly and Tony DeMartino, aides to former Defense Secretary Jim Mattis. The fund will invest in “technology companies whose products will benefit the national security sector,” the group said in an emailed statement. “In just the last two years we have come across several ground-breaking start-ups that are looking to maximize rapid growth and scale in the public sector,” DeMartino said in a statement. “In addition to being a trusted advisor, we wanted to establish a firm that can bring capital to bear to accelerate their success. We think this is particularly relevant as the national security sector looks to new solutions in this COVID era.”
Boeing Raised $25B to Avoid Public Bailout
The funds were raised through a bond offering last week. Reuters reports that its “the sixth-largest investment-grade bond offering of all time and the biggest year-to-date, according to Refinitiv data. The Federal Reserve's intervention in the credit market has boosted prospects for troubled borrowers such as Boeing.”
Leidos, on May 4, completed its $1 billion acquisition of L3Harris Technologies’ airport security business. Also on May 4, BAE Systems completed its $365 million acquisition of Raytheon’s airborne tactical radios business. BAE is also supposed to acquire Collins Aerospace’s GPS business for $1.9 billion.
AIA Aims to Help Boost Ventilator Production
The Aerospace Industries Association this week launched a website “to connect ventilator companies with component suppliers to help quickly scale production and distribution of these vital devices,” the group said in an emailed statement. “The platform was developed in conjunction with the Advanced Medical Technology Association (AdvaMed), Google, and other industry alliances and partners.” Aerojet Rocketdyne, L3Harris Technologies and Mercury Systems are among the companies working to scale ventilator production, according to the group’s website.
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