The third quarter of the pandemic generally hit defense giants with lots of commercial business harder than those who mostly serve the Pentagon. Among the former are Boeing and Raytheon Technologies, which are amid layoffs and office space consolidation.
Here are some more highlights from this week’s earnings reports and analyst calls:
General Dynamics executives did not mention Bath Iron Works, which is behind on Navy destroyer work and which saw a nine-week strike over the summer. Nor did any analyst ask about the struggling shipyard, whose workers struck for nearly two months of the quarter.
GD Bonus: The company’s Electric Boat division would seem to be in for a boost. When U.S. Defense Secretary Mark Esper unveiled his plans for a 500-ship Navy earlier this month, he said, “If we do nothing else, the Navy must reach production of three new Virginia-class subs per year.” But: “We're not planning for that increase,” GD CEO Phebe Novakovic said when asked about it. “But if the nation needs it, we'll accommodate it.” Instead, Novakovic said, her company is “talking to our Navy customer about the ability of essentially the supply chain and the facilities to ramp up production.” GD builds Virginias with Huntington Ingalls Industries.
Raytheon to Invest in Hydrogen Power. Raytheon Technologies CEO Greg Hayes thinks we’re likely a decade and a half away from powering commercial aircraft with the universe’s most common element. “For us, on the engine side, whether you're burning Jet A or whether you're burning hydrogen, it is not that different a technical problem. And I think we're pretty well positioned there to help with the aircraft OEMs [original equipment manufacturers] as the exporters,” Hayes said on the company’s Tuesday earnings call. “We're also going to invest in hydrogen on the defense side because I think what you'll see is DoD money will come faster than some of the money that the commercial OEMs want to invest in this. So, we're well positioned. We've got the technology. And I think it is the future of aviation, but it's a way out.”
Boeing CEO Predicts KC-46 Turnaround in 2021. Pulling no punches, CEO Dave Calhoun called the program “a drag on us for like three or four years in every way you can think of with respect to investors.” Boeing, which has lost more than $4 billion on the project, took another $67 million hit in the third quarter “due to continued COVID-19 disruptions and productivity inefficiencies.” But Calhoun expects that to change as the Air Force and Boeing have a plan in place to fix the plane’s refueling system. “I believe we’ll begin to transition next year,” he said. “And as opposed to being a drag on our franchise it's been, I believe it will become a strength in our franchise.”
Boeing Numbers: The company’s defense and space sales through the third quarter are lagging nearly $700 million behind 2019 revenue over the same period.
Textron CEO Scott Donnelly said military sales were strong in the third quarter “due to higher aftermarket volume on existing contracts in support of the V-22 and H-1 fleets.”
Northrop Grumman, which reported third-quarter earnings last week, is considering selling its Technology Services business, Bloomberg reports: “The company is working with an adviser on a strategic review of the unit, said the people, who asked not to be identified because they weren’t authorized to speak publicly.”
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Will Greece Get F-35s Originally Bound for Turkey?
Greek reports claim Athens will get six Turkish jets as part of a 20-plane deal. The first six F-35s, accounting to the reports, would arrive in 2022 when Greece is expected to receive its first six Rafale fighter jets from France.
R. Clarke Cooper, the U.S. assistant secretary of state for political-military affairs, declined to confirm the reports during a Wednesday Defense Writers Group. However, he said: “Our ongoing work with Athens...is in their modernization of their capabilities. That is something that they have leaned forward on.”
Meanwhile, the U.S. State Department has told lawmakers that it would OK a $10.4 billion sale of up to 50 F-35s to UAE, Politico reports. Rep. Eliot Engel, chairman of the House Foreign Affairs Committee, said the sale “would significantly change the military balance in the Gulf and affect Israel’s military edge,” something the U.S. is bound by law to preserve. “The F-35 Joint Strike Fighter is a game-changing stealth platform boasting advanced strike capability and unique sensor technology,” Engel said in a Thursday statement. “The export of this aircraft requires very careful consideration and Congress must analyze all of the ramifications. Rushing these sales is not in anyone’s interest.”
Of note: Engel said that State gave the committee an “informal notification” of the proposed UAE F-35 sale. Recall earlier this year when it was reported that the Trump administration was considering eliminating the informal, early, notification practice. “As far as informal review…we continue to do that,” Cooper said on Wednesday.
One more thing about the F-35: the Pentagon has once again delayed a test needed before a full-rate production decision, Bloomberg reports. Lockheed delivered 134 F-35s in 2019 and has been increasing production annually as orders have poured in from the U.S. military and allies. Moving to full-rate production would allow for multiyear procurement deals, which companies like because it gives them order stability and the government likes because buying in bulk drops prices.
China Says it will Sanctions Defense Firms
The threat comes in response to the U.S. approving billions of dollars in arms sales to Taiwan. Beijing singled out Lockheed Martin, Boeing Defense, and Raytheon. “We have wondered why China would buy products and services from companies that are also developing and producing defense systems that could be used against its military or arm countries that are China’s adversaries,” Capital Alpha Partners’ Byron Callan wrote in an Oct. 26 note to clients. “A red-line could be commercial aerospace and rare earth elements, which the current ill-defined sanctions don’t appear to address.” As Reuters points out: “China has imposed sanctions on Lockheed Martin and other U.S. companies in the past for selling weapons to Taiwan, though it is unclear what form the penalties have taken.” This week, the State Department OKed a $2.37 billion sale of 500 Harpoon missiles. That comes in addition to the three deals announced last week that are collectively worth $1.8 billion.
GM Delivers First Infantry Squad Vehicle to U.S. Army
It’s the first of the 649 light troop transports based on the Chevrolet Colorado ZR2 midsize truck ordered by the Army in June. The company delivered the truck 120 days after the contract award. "We're leveraging General Motors' engineering prowess and immense manufacturing capabilities to bring transformative solutions to the military vehicle market,” GM Defense President David Albritton said in a statement. “Our initial success with the ISV shows our commitment to our customer and highlights our unique right to win in the military mobility market."
New Portable Aircraft Bathroom
Here’s something cargo aircraft crews will be interested in. Collins Aerospace and Knight Aerospace have built a new mobile galley and lavatory for military cargo planes. The company touts its toilets as “more economical solution than refurbishing [an] existing unit” and “can be loaded onboard any military cargo aircraft.” Cargo plane bathrooms make those on an earlier seem luxurious. Many are simply a box on the floor or plastic tube attached to the wall. And there’s no flushing. The Collins Aerospace galley, which can roll on or off of military cargo planes, features a “vacuum wastewater system.” It also has a galley that can be customized with a “preferred combination of refrigerators, coffee makers, ovens and microwaves to pair with two lavatories.” No more need for those $1,200 coffee cups.