Defense Business Brief: Supply-chain headaches; Missile-making bump; Revolving-door figures; and more

The supply-chain problems that have bedeviled companies for three years are subsiding, yet troubled areas remain, according to defense companies reporting their first-quarter financials.

“I believe the worst is behind us, relative to all the macro headwinds we've talked about: supply-chain attrition and inflation,” L3Harris CEO Chris Kubasik said. 

Said Raytheon Technologies CEO Greg Hayes: “We're seeing some stabilization in the supply chain.”

And Northrop Grumman CFO David Keffer said the company’s supply chain “saw signs of modest progress” in the first quarter of 2023, but that “we continue to believe that our supply base will experience areas of pressure for some time.”

Lockheed Martin CFO Jay Malave said there are “still some pockets” of supply-chain problems within the company’s Missiles and Fire Control and Rotary and Mission Systems businesses.

“Both of them had some continuing lingering issues that continue to plague us,” Malave said.

Lockheed is changing how it manages its supply chain— form individual programs within its divisions to one centralized management system. “We're now bringing all the aggregate demand together for each supplier across all of Lockheed Martin,” CEO Jim Taiclet said.

General Dynamics’ Electric Boat took a charge against its Virginia-class submarine program because of a slowdown in getting parts from its suppliers. The dollar value of the charge was not disclosed.

The program “will stabilize once we get the schedule and supply-chain issues resolved,” CEO Phebe Novakovic said. “At this point, it's incumbent on Electric Boat to continue to do better to offset those costs.”

At GD’s Gulfstream aircraft division, there were problems with “two large suppliers,” she said. Still, Gulfstream officials believe “the majority of the supply chain improves” later this year.

Boeing’s supply chain “will likely face pockets of variability to the rest of this year,” CFO Brian West said.

Boeing CEO Dave Calhoun said that the company, in November, predicted its supply chain would not much improve until 2024. “We remain in the same place today and share that same view,” he said last week. “That said, we've seen improvement, and our line of sight is getting better every day.”

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Rapid Fire

Here’s a little something from each of the top six defense firms’ first-quarter earnings.

Lockheed Martin: The company is “on a path to establish” an F-35 performance-based logistics contract with the Pentagon this year, Taiclet said.

The company is also planning to boost missile manufacturing over the next three years. Annual production of the PAC-3 interceptor will rise from 450 to 550; Javelin anti-tank missile, from 2,000 to more than 3,500; and GMLRS, from 10,000 to 14,000.

Raytheon Technologies: The company offered a bit more detail about its plans to consolidate missiles-and-defense division and intelligence-and-space division.. The new division will be led by missiles chief Wes Kramer.

Meanwhile, the company will move its multi-domain command-and-control projects to the Mission Systems business unit within Collins Aerospace. The move will “create a more focused business to support connected battle space opportunities,” President Christopher Calio said.  It will also move its air-traffic-management business into Collins' Connected Aviation Solutions strategic business. And Collins' intelligence, surveillance and reconnaissance business will move to the Raytheon business unit. 

General Dynamics: The collapse of two regional U.S. banks in March slowed Gulfstream sales, according to executives and SEC filings. While GD officials did not name the banks, Silicon Valley Bank and Signature collapsed in March. 

“The quarter was looking quite good until the two regional bank failures in early March,” Novakovic said. “This created a pause in the market for about three weeks. I am pleased to report that normal activity has resumed. Strong sales activity and customer interest is evident in this quarter.”

Boeing: Boeing’s defense business reported yet another loss on KC-46 tankers for the U.S. Air Force. The company took a $245 million charge, pushing its total losses in the fixed-price program past $7 billion.

Northrop Grumman: The company continues to grow its classified sales, receiving $3.2 billion in awards in the first quarter of the year. The company has a $24 billion backlog of classified work, CFO David Keffer said.

L3Harris Technologies: While Raytheon CEO Greg Hayes might think “no deal is certain” in the current regulatory environment, L3Harris Technologies CEO Chris Kubasik believes the Federal Trade Commission has no grounds to block his company’s $4.7 billion acquisition of Aerojet Rocketdyne. Kubasik listed two reasons.

“We do not compete with Aerojet Rocketdyne,” he said. “I mean plain and simple, they make rocket motors and rocket engines, and we do not.

“We are not a customer of theirs; they are not a customer of ours,” he continued.

Policymakers and regulators are using the words “consolidation,” “merger,” and “acquisition” synonymously, Kubasik said. Even though the FTC has requested more information, he expects the deal to close before the end of the year.

One more item about Aerojet: Kubasik called the Pentagon’s $216 million investment in Aerojet “tactical.”  The Pentagon said the money will help speed up production of weapons given to Ukraine.

“It's unrelated to the acquisition, but it is in support of their growth,” he said. “It highlights, to me, the critical nature of these technologies and the DoD need for this company to be successful. This money, I view, as maybe a little more tactical, relative to increasing both the physical and the digital infrastructure of Aerojet Rocketdyne.”

In Congress, Sen. Elizabeth Warren, D-Mass., released a report that found nearly 700 former high-ranking Pentagon officials now work for the top 20 defense contractors. The report “highlights the need to close the revolving door for ex-government and military officials hired to executive board and lobbyist positions at large defense contractors,” Warren’s office said in a statement. The senator has introduced legislation to extend the time that former public officials must wait before lobbying for defense companies.

Making Moves

FLIR Defense named John Bergeron vice president of Global Services for its Surveillance business. He “will be responsible for managing and growing the company’s service business that provides maintenance and support for its wide range of advanced imaging sensors and systems used for air, land and maritime-based surveillance operations,” the company said in a statement.