Defense Business Brief: CEOs on supply chain, vax mandates; F-35 engine funds?; Aerojet merger delay; and more...
Two things were made abundantly clear by the CEOs of the largest U.S. defense firms as they reported third-quarter earnings this week: Supply chain issues are getting worse, and not a single company will meet the Dec. 8 deadline to have all employees vaccinated (or receive a medical or religious accommodation).
“As we look specifically at 2022, we are expecting supply chain impacts to persist into the first half of next year with recovery starting in the back half,” L3Harris Technologies CFO Jay Malave said Friday on the company’s earnings call.
Lockheed Martin, the world’s largest defense contractor, expects a down year in 2022, in part due to supply chain woes. It would be the first time revenues fell since 2013.
As for the vaccine mandate, read my new article to get a better sense of the various complications and effects. As I write to you on this gloomy Friday in Washington, there are a lot of questions about just what the possible firing of thousands or tens of thousands of workers will mean for critical defense and national security projects.
Raytheon: USAF likely lacks funds for 2nd F-35 engine. Raytheon Technologies CEO Greg Hayes doesn’t believe the U.S. Air Force will have the cash to buy a new engine for the F-35 in the coming years. “I think it's gonna be a tough putt to think about putting a brand-new-paper engine on F-35 in the near term,” he said Tuesday. Raytheon’s Pratt & Whitney is competing against General Electric to develop a new engine for the F-35. Those new engines will only fit on the F-35A, the version used by the Air Force and the vast majority of allies, Hayes said, calling the 2027 or 2028 timeline for fielding the new power plant “extremely aggressive.” Pratt’s F135 engine already powers the F-35, so the company would benefit for decades of sustainment work if the Air Force doesn’t replace it. Pratt has a plan to add the thrust and cooling to the existing engine, Hayes said.
Lockheed Martin's acquisition of Aerojet Rocketdyne is not expected to close until the first quarter of 2022 as the company awaits U.S. regulatory approval, CEO Jim Taiclet said Tuesday. It was previously supposed to close by year’s end. Taiclet acknowledged increased merger and acquisition scrutiny by the Biden administration. “Our M&A approach has had to evolve because there's not that much supply out there in our industry as far as acquisition candidates of any scale and a regulatory environment that's also shifting a bit,” he said.
It could take two years to close an Abrams tank sale to Poland, General Dynamics CEO Phebe Novakovic said Wednesday. GD’s Land Systems division, which builds a host of armored vehicles, is seeing “increased demand signals coming out of Czech Republic, Romania, Denmark, Switzerland, Spain, and of course the Middle East,” she said.
Northrop Grumman predicts its space division will be the company’s fastest-growing segment in 2022, CFO Dave Keffer said Thursday. The projects expected to boost that growth include the Air Force’s Ground Based Strategic Deterrent, and effort to replace the Minuteman III intercontinental ballistic missile with a new ICBM; the Next Generation Interceptor, which Northrop is competing against Lockheed; and “several” classified projects, Keffer said.
Boeing’s earnings calls continue to be dominated by issues within its commercial business, with little talk about its defense business. “Our government services, defense, and space markets remain significant and relatively stable,” CEO Dave Calhoun said Wednesday. “While increased government spending and COVID-19 response is adding pressure to defense budgets in some countries, others are increasing spending on their security. Overall the global defense market remains strong and enduring with all of our major programs.”
The recent plus-up recommended by three of four congressional defense oversight committees “provide a degree of comfort that we should expect stability and military spending over the coming years.” L3Harris Technologies CEO Chris Kubasik said Friday. “In my personal discussions with senior leadership of the administration and Congress, I have consistently heard of a growing need for innovative, resilient and affordable solutions, which were focused on providing.”
From Defense One
As COVID Hits Defense Factories, Some Workers Push Back on Vaccine Mandate // Marcus Weisgerber
Some Republican lawmakers say the requirement will compromise national security.
Lockheed Expects Revenue Decline Amid F-35 Cuts, Afghanistan Pullout // Marcus Weisgerber
CEO Jim Taiclet also said the company's purchase of Aerojet Rocketdyne is delayed.
Raytheon: Vaccine Mandate Will Likely Add to Supply Chain Disruptions // Marcus Weisgerber
But CEO Greg Hayes says his business will boom if everyone would just get the shot.
Lt. Gen. Groen concedes culture must change, but says faster development is already on the way.
"Maybe the nuclear game has just changed," one analyst said.
Don't Assume the US Will Fight China and Russia One at a Time // Bradley Bowman , John Hardie and Zane Zovak
Beijing and Moscow are boosting their strategic coordination along with their militaries.
Nearly 30% higher likelihood of testicular cancer and roughly 25% for skin and prostate cancer, according to the military's most comprehensive study yet.
Air Force Will Miss Its COVID Vaccination Deadline by a Few Percent // Elizabeth Howe
The service's Nov. 2 goal is nearly a month earlier than those of its sister services.