Defense Contractors Go on the M&A Offensive
A nasty M&A fight has broken out in Great Britain between two medium sized defense contractors -- VT Group and Babcock International. One of...Northrop Grumman (NOC) Believes Better Is Ahead
Northrop Grumman (NOC) became the latest of the large defense contractors to report their most recent quarter’s earnings. While the company...Defense Solutions Holding Hits The Big Time
Filed under: Business Line, Companies, Countries, Defense Systems Holding, Iraq, Services, logistics, production program
There are lots of little defense contractors who are started by people wanting more then just working for another company. They usually start with one or two small sub-contracts and work to establish a reputation or an opportunity to bid as a prime on a larger contract. This business model has been highly successful for the last thirty years. Of course for every company that makes it several do not.
The small defense contractor, Defense Solutions Holding, Inc, has had some luck in winning logistic support contracts in Iraq and other countries. Revenue in 2009 was on track to be under $2 million. They just announced that they have won a contract to provide foodstuffs to the Iraqi Government in a deal worth over $60 million if all options are exercised.
This is a major growth for a company this size and illustrates well how the business can work.
Defense Earnings Start Coming In With Mixed Results
Three large defense contractors reported recently with mixed results. Boeing and United Technologies (UTC) beat expectations while General...Major Contracts Await In 2010
In the upcoming year several major aerospace contracts will be awarded. The competition among the U.S. and European defense contractors for these...Albania Buys Eurocopters
Filed under: Business Line, Companies, Contract Awards, Countries, EADS, Events, Military Aviation, logistics, production program
The former Eastern European satellite countries of the Soviet Union have made a hodgepodge of strides over the last twenty years to a more modern military. Some of the more Western ones like Czech Republic and Hungary have begun buying NATO standard weapons and equipment. Others due to their poor economies and situations have not been able to do much.
It was announced yesterday that Albania which is one of the poorest countries in Europe will spend what must be a significant portion of their defense budget on five Eurocopter aircraft. The Cougar medium transports will be delivered in about three years at a cost of almost $100 million. They will represent a major upgrade over what old and less capable Russian Mil aircraft.
The market in this part of Europe had been hoped to be a big one for U.S. and European defense contractors. Unfortunately the global recession along with economic and political problems has limited the amount of funds available to be spent on new weapons. Perhaps as NATO continues its expansion and the world’s economy picks up there will be more orders like this.
Changing Arm Controls Laws To Help Exports
U.S. defense contractors are lobbying to have the rules under the Missile Technology Control Regime rewritten to allow UAV exports. The MTCR is to...Dubai Air Show Has Big Companies Dreaming
The biannual Dubai Air Show in the United Arab Emirates has the big defense contractors dreaming of new deals such as were announced two years ago....KBR Inc. Leads Government Contractors In Return On Investment
KBR Inc. despite not being a large hardware contract leads defense contractors in ROI. Their focus on logistics and support contracts bring them...Joint Strike Fighter Budgetary Machinations Affect Lockheed, GE, Rolls-Royce and Pratt & Whitney
The F-35 Joint Strike Fighter faces increased scrutiny due to cost estimates and engine programs. Several major defense contractors have a great...Reflecting Change In Focus SAIC Moving Headquarters To Northern Virginia
Filed under: Business Line, California, Companies, Congress, Events, IT, Restructuring, SAIC, SETA, States, Virginia, logistics
One of the top ten defense contractors, SAIC, is moving its corporate headquarters from San Diego, CA to outside Washington, DC to Fairfax, VA. The company obviously has a large presence outside Washington, DC where many of its contracts are executed. The move to Fairfax, VA is not completely unexpected and the company is using the excuse of the better business climate in that state to support the move.
The company will still stay in California as it has many customers there not least the Navy’s SPAWAR in San Diego. The cost to California will be several hundred of the company’s highest paid employees who will now be moving to Virginia and spending their earnings and paying taxes there. The cost of living even in Northern Virginia will be much less for their employees just in housing and income taxes alone.
The move also comes at a time when the Washington, DC area is going to experience solid growth in the Federal Government work force due to some of the initiatives of the Obama Administration. Having their leadership in the DC area will facilitate business development and cultivating relationships with politicians and bureaucrats alike.
Selling Overseas To Make Up For Coming U.S. Defense Cuts
Filed under: Arizona, Bell, Brazil, Business Line, Companies, Congress, Countries, Department of Defense, Events, Federal Budget Process, India, Qatar, Raytheon, Restructuring, Services, States, UAE, development program, logistics, missile defense, production program
Arizona is a top beneficiary of defense dollars. This is primarily due to Raytheon and Bell activities in the state. Raytheon makes missile defense systems and Bell helicopters. Now with the possibility that Obama’s cuts to the defense budgets starting in 2010 and out the companies there are looking overseas for work.
Unfortunately this will be the business plan for all defense contractors if their is a significant contraction in U.S. defense spending. The focus will be on selling systems and support to Asian, South American and Middle Eastern companies. India, Brazil, the U.A.E. and Qatar have already made major investments in U.S. and European equipment and there are several major contracts coming. In 2008 the U.S. already captured two-thirds of the market but overall purchases were the lowest they had been since 2005. If this trend continues due to the global downturn in the economy there may be less opportunity for these sort of sales.
These trends may lead to further consolidation of the defense industry in the U.S. and abroad as domestic and foriegn markets may not be able to support the amount of business built up since 2001 primarily by the United States. This will be the most important factor facing the industry which has not seen this situation since the early Nineties and the end of the Reagan arms build-up.
Army awards deals for remediation services
ABERDEEN PROVING GROUND, Md., Sept. 3 (UPI) -- The U.S. Army recently selected three defense contractors to support environmental remediation services at Army installations in three states.
Motorola partners get AIT-IV selection
SCHAUMBURG, Ill., Aug. 12 (UPI) -- The U.S. Army's recent selection of defense contractors for Automatic Identification Technology task orders includes four strategic partners of Motorola.
Motorola partners get AIT-IV selection
SCHAUMBURG, Ill., Aug. 12 (UPI) -- The U.S. Army's recent selection of defense contractors for Automatic Identification Technology task orders includes four strategic partners of Motorola.
Israel Procures New Trainer Aircraft
Filed under: Business Line, Companies, Contract Awards, Countries, Elbit Systems, Events, Israel, commercial aviation, logistics, training
The Israeli Air Force has procured Beechcraft T-6 trainers. These will replace the old Fouga Magistar aircraft used for the last several decades to start the training of Israeli pilots. The Israeli defense contractor Elbit Systems was awarded a contract to provide for the support of these new aircraft.
These two events mirror a trend in the U.S. and England where the trainers used are turbo-prop rather then jets. The use of Contractor Logistics Support (CLS) for training fleets has also gained ground in these two countries. This is because you have a fixed fleet in a non-combat location. There are many benefits to CLS in the areas of cost and reduction in the support tail. Israel has used Elbit for support of training systems for the last seven years. Elbit hopes like all defense contractors to be able to use this experience to win contracts overseas.
DARPA Money Flows to Large Contractors
Filed under: Business Line, Companies, Contract Awards, DARPA, Events, IT, Northrop Grumman Corp., SAIC, Services, development program
One would expect an organization like the Defense Advanced Research Projects Agency (DARPA) to be funding small companies that possess breakthrough ideas and technologies. Often it does as it looks to provide seed money to jump start ideas that can then go on to be fully developed and produced. The Agency just announced major contract awards to two of the largest defense contractors in the U.S. Northrop Grumman and SAIC each will work on developing tetrahertz frequency amplifiers. Northrop actually received two contracts. Total value of these awards are $57 million.
There are some things that the large contractors have already done a lot of work in or possess the necessary facilities. These contracts are for an incremental development in a known technology — microchip integration. Moving forward to the higher frequencies that are required for advanced transmitters and receivers will require this kind of development.
The Small Business Innovative Research (SBIR) program provides funding to a variety of companies each year to look at developing advanced concepts or technologies that DoD requires. This fund is generated through a portion of all R&D funding and will continue despite DARPA’s efforts to fund other efforts.
Boeing’s Revenue Suffers But Not Due To Defense
Filed under: Boeing, Business Line, Companies, Department of Defense, EADS, Earnings, Events, MDA, Military Aviation, Services, U.S. Air Force, commercial aviation, development program, missile defense, production program
Update — When I wrote this originally I misspoke. Lockheed did eke out a slight gain from last year. Part of this was due to a share buyback that reduced the number of shares in circulation.
Boeing reported out their first quarter earnings today and revenue was down about fifty percent. This was mainly due to the reduction in demand for their passenger airplanes. As we discussed earlier there is concern that the proposed changes to the U.S. defense budget by the Obama Administration may negatively affect performance of the company’s defense sector in the future.
Interestingly they are the second of the four major defense contractors to report and like Lockheed Martin did see reduced earnings and revenue. The Seattle Times writes that the customers for airliners are deferring deliveries. The Boeing 777 saw a major drop in the number being constructed while the 787 ramps up to begin deliveries. The airline industry has taken a major beating as the world’s economy declines and this has had a negative effect on Boeing and EADS commercial product lines.
Boeing is hoping that Congress will temper the cuts to their programs included in the FY10 budget. Like in the past when it has continued C-17 production beyond what the Defense Department requested their is a possibility that the F-22, Airborne Laser and the missile defense cuts may not stand. This will probably be one of the ugliest parts of the defense appropriation process.
Boeing has had to reduce their estimate for the full year due to the recent decline in revenue. The company obviously is planning for a down year which is not surprising with the current world economic situation.
SAIC Revenue Reaches Milestone
Filed under: Business Line, Companies, Earnings, Events, IT, S&T, SAIC, SETA, logistics
Fox Business reports that SAIC reached an annual revenue of over $10 billion when it reported its Fiscal Year 2009 results. SAIC is one of the top ten defense contractors and primarily provides engineering and consulting services to the Pentagon. Last year it generated an operating income of $776 million which is a growth of 15% over 2008. The company also provided strong guidance for 2010 due to a backlog of almost $17 billion in contracts.
Unitech to be Purchased by Lockheed
Filed under: Acquisitions, Business Line, Events, Florida, IT, Lockheed Martin, Unitech, training
Lockheed Martin has agreed to buy Unitech sometime this year. Unitech is a smallish simulation producing company located in the Orlando area. The Orlando Sentinel reports that a deal to buy the company was worked out recently. Unitech complements the work that Lockheed has done in the simulation area in Orlando for years. The company has earnings of around $140 million, and it is common in these types of deals for private companies to pay about one year’s earnings for it. Many smaller defense contractors grow from one or two contracts to a size of between one to two hundred million and are then bought by another company. Larger companies buy them to gain work or expertise in a discipline or area that they might not have.
England Bets on Gates
Filed under: BAE Systems, Business Line, Department of Defense, England, Federal Budget Process, IT, Military Aviation, commercial aviation, development program, logistics, production program
Many of the major English defense contractors rely on a great deal of American business. The biggest is BAE but there are many other companies selling goods and services to the Pentagon. Several have purchased US companies to expand their reach. There was concern with the Obama administration cutting back heavily on defense spending, but as The Times reports with the retention of Secretary Gates that concern has been alleviated somewhat. The major outstanding contract that is important to the UK and Europe is the KC-X contract. Taken away from EADS due to protest the hope is that the company will win it on the recompete. Many jobs in UK rely on building the wings for the tanker aircraft and it was a blow when the protest was upheld.
Florida Worries About the Defense Budget
Filed under: Department of Defense, Federal Budget Process, Florida, Lockheed Martin, Military Aviation, Restructuring, production program
This article in the OrlandoSentinal.com describes concerns that with the continued payout of money to save finance and other companies the US government may be forced to cut the defense budget. Concern surrounds the two big ticket fighter aircraft currently in production for the US military. The F-22 program is winding down unless Congress decides to extend the production beyond current planned numbers. There are also worries that the F-35 JSF program will be cut back or canceled. These programs provide a lot of work to Lockheed in the Orlando area. Read more
JLTV decision may be imminent
Filed under: Contract Awards, Department of Defense, U.S. Army, development program, logistics, production program
The JLTV will be the next generation utility vehicle for the US armed forces. It will supplant the ubiquitous HUMVEE and will incorporate the lessons of the last seven years fighting. The Army had planned to announce that three teams won development contracts which over the next two plus years would lead to a prototype last week. Now the decision has been delayed for at least a few more days. The ultimate contract would be worth tens of billions of dollars as their would be thousands of the vehicles produced. Most of the major US defense contractors are part of one team or another with a variety of smaller companies as this is one of the largest procurement programs in sight.
See this story at WJACTV.com and another at Rueters for more on the program. Defensenews.com is reporting, here, that delays are due to concern about protests.
Local paper touts defense industry as a way to cushion downturn in US economy
Filed under: BAE Systems, Congress, Federal Budget Process, logistics, production program
The Scranton Times-Tribune has an article discussing how the recent issues with the US economy will have less effect in their area due to the many defense contractors. They mostly support Tobyhanna Army Depot and provide services and products to the Army. The article discusses in detail the BAE expansion in the area where they make armor and gear for soldiers. BAE acquired the US company Armor Holdings last year and the plant is part of that acquisition. While the majority of these contracts are for things the US military needs, it is another example of the Defense budget being used by Congress as job programs. Members of Congress brag about how many dollars they bring back to their districts; and how their re-election is critical to maintain this type of work.
See the article for more.
Metal Storm continues to market in the US
Filed under: Australia, Industry Analysis, Metal Storm, Promotions, S&T, development program
The Army of the United States Association (AUSA) held their national convention last week. One of the key parts of this is exhibits by a large number of defense contractors, big and little. Metal Storm the Australian company that is developing rapid fire electronic gun systems attended. They have received some contracts with the US Military to work on their systems. Metal Storm uses multiple barrel system with a stack of ammunition in them. By firing electronically they can launch all of the ready rounds very quickly. Rates of fire for their larger systems are very impressive and their is a lot of potential for them. No nation yet has committed a large sum to buying these systems, which range in size from 9mm to 40mm; although it is probably scalable to larger rounds.
See the press release at MarketWatch.com.
Here is a link to the demonstration video they used at AUSA.
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