Defense Business Brief: More details about worker shortages; Earnings recap; Rheinmetall to open prototyping factory in Michigan; and more.
Now that the top six defense companies have reported quarterly earnings, there is uniform consensus that labor shortages and supply chain disruptions will continue at least through the remainder of the year.
As we’ve pointed out before, shipyard welders and pipefitters are among the most in-demand positions across the defense sector. The shortage of skilled laborers has been a problem specifically at shipbuilders like Huntington Ingalls Industries and General Dynamics. The two companies jointly build the U.S. Navy’s Virginia and Columbia-class submarines, which were both ramping up production right as pandemic hit in early 2020. The two companies had been working to build the workforce and supply chain that can build two Virginia-class submarines each year.
“When you think about shipbuilding and the nature of that business, a shock like that to the system can hit it quickly, but it just takes time for it to recover,” General Dynamics CFO Jason W. Aiken said. “That's what we're seeing on the Virginia program as the supply chain is struggling to catch back up and sort of hit that cadence that they need to be on.”
Late last year, the Biden administration used the Defense Production Act to help scale production of the Virginia-class. But more can and needs to be done. Raytheon Technologies CEO Greg Hayes last week called on the administration to do more to support apprentice schools that train skilled laborers.
During a Wednesday roundtable with reporters, I asked Army acquisition executive Douglas Bush if this service is doing anything to help companies facing the challenges of a rough job market right now.
“I think we're observing them and supporting them indirectly, but we really count on private industry to manage their workforce and to get ahead of the problem when they see it,” he said. (You can read his entire answer here, as the Army posted a transcript of the roundtable—and yes my name is misspelled).
Here’s one interesting item from each earnings call:
- Northrop Grumman has a $11.3 billion backlog of classified space work, CEO Kathy Warden said on the company’s Tuesday call. “We continue to see the national security space area as one of the strongest growth drivers for our company,” she said.
- Lockheed Martin pulled 50 employees of “an international operation” to help accelerate the stand up of the F-16 production line in Greenville, South Carolina. “Our ramp on that program is taking longer than we had originally anticipated, largely because of the slower ramp in hiring employees,” CFO Jay Malave said on the company’s July 19 call. Lockheed has an HR team dedicated to hiring in Greenville, where it now builds F-16s for U.S. allies.
- Boeing’s defense and space business took a $400 million charge. The company had to eat money on the MQ-25 refueling drone it’s developing for the Navy, NASA commercial crew program, T-7A pilot training jet, KC-46 tanker, and VC-25B Air Force One.
- Congress passed the CHIPS Act this week, but that won’t immediately solve the semiconductor shortage issue, Aiken, the General Dynamics CFO, said. The company’s IT hardware business is facing a “continuing struggle with a shortage of chips, which continues to plague their ability to deliver certain products,” he said.
- Raytheon Technologies CEO Greg Hayes said the worker shortage (see above), particularly at suppliers, is becoming more of an issue than the sick worker issues that were prevalent at the beginning of the pandemic. “The labor challenges that we continue to see have not abated and…I think that is the challenge and that's the reason we continue to struggle in supply chain.”
- L3Harris CEO Chris Kubasik said the company’s newly announced Agile Development Group is pursuing “multiple classified opportunities.” L3Harris, Lockheed, and Northrop awarded Air Force contracts in June to develop the Stand-In Attack Weapon, a new air-to-ground weapon. L3Harris’ Agile Development Group is leading the pursuit of that contract.
Some 2,500 Boeing workers in St. Louis plan to strike on Monday. The workers there who build F-15 and F/A-18 fighter jets, MQ-25 refueling drone, and T-7 pilot training jet rejected a contract offer on Sunday.
Senate appropriators on Thursday unveiled a $850.4 billion fiscal 2023 defense budget, which is 8.7 percent higher than the current year budget and about 4.5 percent higher than the budget proposed by House Democrats, Roll Call reports.
And lastly, German defense firm Rheinmetall announced it would open a 46,669-square foot facility in Sterling Heights, Michigan, to do engineering and prototype work. The company, which is competing to build the Army’s Optionally Manned Fighting Vehicle, also received a $1.5 million grant that will help it create between 125 and 150 jobs in the next three years. “The new location is a demonstration of the business’ continued investment into the U.S., bringing new technologies and highly skilled jobs into the region in support of a number of the U.S. Army’s modernization programs,” the company said in a statement. “The new facility includes an extensive, state-of-the art digital engineering, prototyping, and system integration lab to enable deep customer engagement into every stage of vehicle development.”
From Defense One
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After 'Critical' CHIPS Act, More Needed To Build Domestic Production, Experts Say // Patrick Tucker
Global economics and lack of factory workers are among the factors complicating efforts to bring chip manufacturing back to the United States.
The company's Mission Systems arm feels the semiconductor supply crunch more than its others.
Pass the CHIPS Act // Jesse Salazar and Jonathan Panikoff
Two former senior defense and intelligence leaders lay out the case for Congressional action to help the U.S. semiconductor industry.
Northrop Grumman CEO: We Can Build a Next-Generation Fighter // Marcus Weisgerber
Kathy Warden said the company's B-21 stealth bomber positions it well to compete for the Next Generation Air Dominance warplane.
Lack of Workers Is Hurting Supply Chains More than COVID, Defense Execs Say // Marcus Weisgerber
An economic slowdown might be the only way to fill job vacancies, says Raytheon CEO.
The Pentagon Gets the Better Part of a Trillion Dollars a Year. Why Isn't That Enough? // Mackenzie Eaglen
The budgeting process has calcified, with huge sums going to the priorities of yesteryear.
Defense One Radio, Ep. 105: Aerospace's new inflection point // Ben Watson, Bradley Peniston and Marcus Weisgerber
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