Lockheed CEO debut; NDAA passes House, Lego axes V-22 and a bit more.

When it’s time for quarterly earnings calls, Lockheed Martin is almost always the first defense major to report, and its results often set the tone for the rest.

This week, though, there was an additional reason to listen in to Lockheed’s second-quarter earnings call on Tuesday morning. It marked the public debut of Jim Taiclet, who became the company’s president and CEO in June. Taiclet replaced Marillyn Hewson, who had been in charge since 2013, and who remains the firm’s executive chairman. 

The call opened as just about every earnings call does, with a carefully scripted overview of the business and financials. But it quickly became clear that Taiclet, who came to Lockheed from the commercial telecommunications sector, has ideas and wants to put his stamp on the company quickly.

Compared to the carefully scripted Hewson, Taiclet often answered off the cuff.

“If there is a downturn, we're going to look at the silver linings that may be there…whether it's M&A and other investments,” he said. “[T]there could be opportunities for us to act in a time period where asset prices are depressed for things that we may want to bring into the company or JV with or whatever.”

That’s a pretty blunt statement in an industry whose CEOs are far more prone to say ‘We’ll make strategic investment through M&A if an opportunity presents itself” if they even take the question.

After the earnings call, Taiclet told Bloomberg that Lockheed would be eying “pure-play defence” firms, not commercial aerospace companies that might be a good buy from the depressed aviation market.

His comments sent drone-maker Kratos’ stock soaring amid speculation that it could be on Lockheed’s shopping list. 

Taiclet let it be known early on in the call that he has ideas for how the Pentagon can accelerate its deployment of 5G technology and then boldly called on the Defense Department to up its reimbursement of company-funded research and development.

And he sounded rather unconcerned about forecasts that the defense budget might drop by a little, or a lot.

“It’s going to be two to three years before those defense budget cuts actually flow into the defense industrial base production line,” he said.


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House, Senate Pass Defense Authorization Bill. And Approps? Well...

The House passed the $740 billion fiscal 2021 National Defense Authorization Act, 295-125, on Tuesday; the Senate passed its version on Thursday afternoon. Now, the House and Senate will have to iron out their differences and pass a compromise version before the bill actually goes to President Trump, who has vowed to veto the House bill unless certain changes are made. The House is scheduled to leave Washington at the end of next week and the Senate is scheduled to depart on Aug. 10. Neither will return until September, when they will spend just four weeks in session before leaving to campaign for November’s elections.

So what are the chances we’ll see a defense appropriations bill soon? Not good, according to Avascent analyst Matt Vallone. Lawmakers will be pivoting to the fourth coronavirus stimulus package before August recess. “While the House Appropriations Committee has now passed all twelve bills, Senate appropriators have yet to mark up a single bill,” Vallone writes. “The House has ambitious plans to pass all twelve bills through a series of ‘minibus’ legislations. The first of these bundles will likely be voted on either late this week or early next and will cover funding from the Agriculture, State-Foreign Operations, Military Construction-Veterans’ Affairs and Interior-Environment subcommittees. The chamber hopes to move all the funding bills before the August recess but whether they will be able to do so remains to be seen.”

A continuing resolution to start fiscal 2021 on Oct.  1 “is basically assured,” Vallone writes. “Congress will only be in session for four weeks prior to the November election (September 8 to October 2). It is almost impossible to imagine a scenario where the White House and Congress will come together on an omnibus appropriations bill in that timeframe, meaning a continuing resolution through the holidays will likely be passed sometime in September.”

AUSA Goes Virtual

Just about everyone saw this coming: The Association of the U.S. Army said it “was a tough call” but bowed to health concerns and will hold its giant annual conference and trade show virtually. 

More Coronavirus Bailouts for the Defense Industry

The Pentagon awarded $36.9 million in deals on July 17. Amfuel, which makes self-sealing fuel cells, received $14.9 million “to relieve manufacturing bottlenecks and expand production of military grade fuel bladders and auxiliary systems for virtually all U.S. military aircraft,” the Pentagon said in a statement. “The increased production will ensure the U.S. government receives dedicated long-term domestic industrial capacity to meet the needs of the nation.

The Pentagon awarded Rolls-Royce $22 million  “to maintain, protect, and expand critical domestic productive capacity for propellers essential to U.S. Navy shipbuilding programs. These projects will begin in July 2020 and help meet increasing demand across the vitally important shipbuilding sector of the defense industrial base.”

The Pentagon has awarded more than $443 million in industry bailout deals.

Industry Notes

  • CalypsoAI secures $13 million Series A fundraising. “Paladin Capital Group led the round, with participation from Lockheed Martin Ventures, 8VC, Frontline Ventures, Lightspeed Venture Partners, Manta Ray Ventures, Pallas Ventures and other financial and strategic investors,” the company said in a July 22 emailed statement. “The funding will allow CalypsoAI to expand globally, increase adoption among enterprises, and progress with innovation.”
  • Huntington Ingalls reorganizes division. After a series of acquisitions, Huntington Ingalls Industries Technical Solutions division is reorganizing “in order to better serve existing and future customers while achieving support function efficiencies. The previous Fleet Support group and Mission Driven Innovative Solutions (MDIS) group were merged to form the Defense and Federal Solutions group.” Garry Schwartz, who led the MDIS group, will lead the Defense and Federal Solutions group. HII Technical Solutions now has three business groups: Defense and Federal Solutions; Unmanned Systems; and Nuclear and Environmental Services. 
  • Rolls-Royce to supply V-280 engines. Rolls-Royce has struck an agreement with Bell to “provide the propulsion system” for the V-280 tiltrotor aircraft that is competing for the U.S. Army’s Future Long-Range Assault Aircraft contest, the engine maker said on July 21. G.E. makes the engines on the V-280 prototype. Rolls-Royce will make the engines if more V-280s are built.

Lego Cancels V-22 Kit

Lego will no longer make Bell-Boeing V-22 Osprey kits following an outcry from anti war groups, Gizmodo reports. "The LEGO Technic Bell Boeing V-22 Osprey was designed to highlight the important role the aircraft plays in search and rescue efforts,” the company said in a statement. “While the set clearly depicts how a rescue version of the plane might look, the aircraft is only used by the military. We have a long-standing policy not to create sets which feature real military vehicles, so it has been decided not to proceed with the launch of this product.” The company does make a fair share of fictional war machines. Still some of the V-22 Legos already produced will find their way to the shelves.

Making Moves

  • The Senate on Monday confirmed U.S. Army Lt. Gen. Daniel Hokanson to receive his fourth star and become chief of the National Guard Bureau. They also confirmed Maj. Gen. Jon Jensen to be director of the Army National Guard and Air Force Maj. Gen. Michael A. Loh to be director of the Air National Guard. Both Jensen and Loh will receive third stars.
  • Heidi Grant, director of the Defense Technology Security Administration, has been named director of the Defense Security Cooperation Agency. She will replace Army Lt. Gen. Charles Hooper, who currently leads the organization, which has traditionally been run by a military officer. 
  • LMI on July 16 named Doug Wagoner, a former SAIC executive, as its president and CEO effective Aug. 3.