Futures Command’s predictions; Boeing’s layoffs; Export trends; and more…

The head of the U.S. Army’s Futures Command is the latest senior military official to say publicly what defense leaders have feared: expect flat or declining defense budgets.

“I think most people were thinking flat line even before COVID,” Gen. John Murray said during a Wednesday Defense Writers Group briefing.

That doesn’t bode well for a military that has just started buying lots of new weapons. Defense leaders say they need 3- to 5-percent annual growth to modernize, something that didn’t seem likely to happen even before the coronavirus pandemic. 

“I personally just believe there probably will be an impact to the defense budget regardless of anything else that happens in the future,” Murray said.

And that will force choices about where to cut, something the Army and other military branches have been doing in recent years through so-called “night court” reviews and “deep dives.” 

“If defense budgets do in fact go down or even flatline, we’re going to have to look holistically at the entire equipping portfolio, continue to make some decisions within everything else where we can and then potentially look at production schedules,” Murray said. “It’s tight right now in terms of the budget we got for modernization and we have to modernize now.”

Regardless, cuts or flat defense spending will force choices on where to target investments.

“There’s been tough decisions in the past,” Murray said. “If my gut is correct, there’s going to be even tougher decisions in the future.”

From an industry perspective, “could there be budget pressures downstream? Potentially,” Lockheed Martin CEO Marillyn Hewson said Wednesday at a Bernstein investors conference.

Still Hewson touted growth across her company’s portfolio as Pentagon money flows to the defense industry after three years of budget increases. 

“We have not seen a backing-off of expenditures on defense from our major customers around the world,” she said.

But there have already been calls from progressive Democrats to cut defense spending and put more money toward the coronavirus response — even as other House Dems push for special funds for defense industry executives and companies as part of the next pandemic-relief bill.

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Lockheed’s Next CEO

Jim Taiclet will take over as president and CEO on June 15 as Marillyn Hewson, the current chairman, president, and CEO, becomes executive chairman. “I’ll serve in that role for several months, at least through the end of the year and beyond, to support Jim,” Hewson said Wednesday during a Bernstein investors conference. Hewson also shed some light on why Taiclet, an Air Force Academy graduate who has been CEO of American Tower for the past 17 years. “A few years ago I approached him about considering joining our board. He joined our board…and immediately stepped in and became a potential candidate for CEO in that role, although he didn’t know it,” she said. Hewson, who has been CEO since 2013, has been with Lockheed for 37 years. “I feel like it is the right timing for me personally,” she said. 

Where’s Marillyn? One thing that months of work-from-home videoconferences have brought us is occasional glimpses of the personal worlds of defense leaders. So I, for one, was curious to see where Hewson would be videoing into the conference from, even if it was her office at Lockheed HQ in Bethesda. But there was just a black screen. “She’s in a location now that makes video difficult,” said Bernstein analyst Douglas Harned, who appeared to be in a home office with some family photos and what looked like models of an F-22 Raptor and B-2 stealth bomber on the bookshelf behind him. A few hours later she was alongside President Trump and Vice President Mike Pence at Cape Canaveral, giving them a tour of the Orion space capsule that is supposed to take humans into deep space in the next decade. Trump was at the Kennedy Space Center for the SpaceX Dragon launch, which was scrubbed due to thunderstorms.

Boeing Cuts More than 12,000 Jobs

For weeks now, Boeing leaders have said the company would need to shed 10 percent of its 160,000 workforce amid the massive, coronavirus-driven drop in airline passenger travel, coupled with losses from the year-plus (and counting) 737 Max grounding. On Wednesday, the company announced that some 6,770 workers will receive layoff notices. Another 5,500-plus took voluntary layoffs. Amid the layoffs, Boeing is actually hiring workers for defense projects including the new Air Force One. The company also said Wednesday that it has resumed 737 Max production, which has been suspended since January. 

Senate Sets Markup Schedule

The Senate Armed Services Committee is scheduled to review the fiscal 2021 National Defense Authorization Act between June 8 and June 10. The subcommittee will review the defense policy bill on June 8 and June 9; the full committee will review the bill on June 10 and if needed June 11. As usual, the committee does its markup in closed sessions, but the personnel subcommittee markup will be open.

SparkCognition Adds Government Subsidiary

The new company, SparkCognition Government Systems, is being billed as “the first full-spectrum AI company devoted entirely to government and national defense. “Using technologies built in the United States, SGS evolves SparkCognition’s innovative commercial systems and tailors them for the public sector, with a focus on improving the performance of critical operational functions in a cost-effective manner,” the company said in a Tuesday statement. The company’s board is a who’s who of former top defense officials including: John Allen, a retired Marine general; Robert Work, the former deputy defense secretary; John Richardson, retired admiral and former chief of naval operations; Lisa Disbrow, the former Air Force undersecretary; and Amir Husain, founder and CEO of SparkCognition. Michèle Flournoy, former defense undersecretary for policy, is a strategic advisor to the new firm. 

When Will Trade Shows Resume?

With the summer slate of events, including the Farnborough Air Show and Royal International Air Tattoo canceled, the Space and Missile Defense Symposium is still scheduled for Aug. 4 to 6 in Huntsville, Alabama. The state has seen a surge in COVID-19 cases in recent days. FWIW, some trade shows have been given the green light in parts of Germany, Japan, and South Korea.

By the way: The Defense One Tech Summit, which has gone virtual and expanded this year, is still on for June 16-18.

Trends in Foreign Military Sales

The Center for International Policy’s new report looks at U.S. arms exports and finds:

  • “East Asia and the Pacific had the largest share of U.S. arms deals by value in 2019, at 39%, more than double its share in 2018. The Middle East accounted for 36.7% of U.S. arms offers, followed by Europe at 17%” and
  • “The top three exporting firms – Lockheed Martin, Boeing, and Raytheon – were involved in over $59 billion worth of arms deals in 2019, over two-thirds of total offers by the Trump administration.”

The report makes a number of recommendations, including:

  • “Require Congressional approval of major arms sales, rather than assuming sales will go forward unless Congress votes them down by a veto-proof majority.
  • “Make it easier for Congress to be notified and act in advance of deliveries of weapons, not just initial offers.
  • “Restore notifications to Congress on firearms deals of $1 million or more.”

Speaking of foreign arms sales, Sen. Bob Menedez, D-N.J., ranking member of the Senate Foreign Relations Committee, writes that the Trump administration is preparing a new weapons sale to Saudi Arabia.

Making Moves

  • The White House said on May 27 President Trump would nominate Lucas Polakowski to be assistant defense secretary for nuclear, chemical and biological defense programs. Polakowski is a retired Army major general.
  • The Center for Strategic and Budgetary Assessments has named Chris Bassler a senior fellow. He was previously the chief strategy officer for the F-35 Joint Strike Fighter joint program office.
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