Inmarsat selects Northrop Grumman to provide spectrum monitoring for Global Xpress ® government users — Press Release

, Fla., Feb. 11 , 2014 – Inmarsat (LSE:ISAT.L), the leading provider of global mobile satellite communications services, announced today that it has selected Northrop Grumman Corporation to field its Spectrum Interference and Monitoring System
(SIMS) to government users of Inmarsat’s Global Xpress service.

SIMS will provide improved speed, flexibility, and performance in monitoring Global Xpress services. Northrop Grumman developed SIMS based on the globally-deployed monitoring system it previously developed for the Department of Defense (DoD) Wideband Global System (WGS) constellation. Through familiar user interfaces, customizable views and graphical reporting, SIMS provides Inmarsat value added resellers (VARs), network operators and government customers with unparalleled insight i
nto their networks’ operations. SIMS is the advanced tool needed for spectrum situational awareness, rapid
interference detection, and problem resolution, ensuring optimal availability, reliability and quality of service to Global Xpress users.

Inmarsat Global Xpress (GX) will be the first globally available high-speed, mobile commercial satellite wideband network. It will offer the unique combination of global coverage from a single operator, consistent performance everywhere, and the network reliability for which Inmarsat is renowned. GX is the first satellite fleet from Inmarsat that will access Ka-band frequencies and allow for even higher bandwidth communication, virtually anywhere in the world. The first satellite
(Inmarsat-5 F1) was successfully launched on December 8th, 2013 covering Europe, the Middle-East, Africa and Asia. Full
global coverage from the GX constellation of three Ka-band satellites is scheduled to be achieved by the end of 2014.

“We are excited to have Northrop Grumman as a mission partner in providing spectrum monitoring capabilities to our Government customers”, said Peter Hadinger, President, Inmarsat US Government Business Unit. “We have designed Global Xpress from the ground up to be a trusted network that complements the Wideband Global System and other MILSATCOM. We chose an advanced spectrum and interference monitoring system that is based on a common platform to the one used by the U.S. DoD to facilitate interoperability and support our commitment to assured access.”

“Northrop Grumman is proud to partner with Inmarsat on SIMS. This leveraging of defense technology and
operational flexibility represents a tangible and game-changing step in the collaboration between defense and commercial SATCOM that both enhances the value of Global Xpress services and sets a standard for future partnerships,” said Martin Amen,
director of satellite and network operations for Northrop Grumman’s Information Systems sector.

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Northrop Grumman-Developed Multifunction Advanced Data Link Achieves Successful Flight Test Milestone for F-35 Program — Press Release

Fifth-generation data link allows coordinated tactics and engagement in high-threat environments

SAN DIEGO, April 23, 2013 /PRNewswire/ — The Multifunction Advanced Data Link (MADL) waveform developed by Northrop Grumman Corporation (NYSE: NOC) was successfully demonstrated in a Lockheed Martin F-35 Lightning II joint strike fighter program flight test, validating an eight-year development effort to advance communication among fifth-generation aircraft.

MADL is a high-data-rate, directional communications link. It allows coordinated tactics and engagement to bring significant operational advantages to fifth-generation aircraft operating in high-threat environments. MADL is a key capability provided by Northrop Grumman’s F-35 integrated communications, navigation and identification (CNI) avionics.

The F-35 CNI avionics flying onboard two Lockheed Martin F-35 aircraft established the MADL link between two airborne platforms for the first time. Data passed between aircraft via MADL was correlated with data from other F-35 sensors by Lockheed Martin’s fusion system to form a simplified situational awareness picture on the cockpit displays.

“During the flight tests, MADL functioned reliably with excellent range at multiples of required specifications while demonstrating ability to network fifth-generation fighters,” said Mike Twyman, vice president and general manager of the Defense Systems division for Northrop Grumman Information Systems. “This success is a significant achievement for the F-35 program and enabling joint aerial concept of operations.”

The MADL flight test is an important element of Lockheed Martin’s F-35 Block 2 software release, which provides advanced mission systems capability at Edwards Air Force Base, Calif., and other training and operational locations. At Edwards, MADL joined the CNI Link-16 and Variable Message Format network waveforms already in flight test on F-35 aircraft.

Northrop Grumman’s integrated CNI system provides to F-35 pilots the equivalent capability of more than 27 avionics subsystems. By using its industry-leading software-defined radio technology, Northrop Grumman’s design allows the simultaneous operation of multiple critical functions while greatly reducing size, weight and power demands on the advanced fighter. These functions include Identification Friend or Foe, automatic acquisition of fly-to points, and various voice and data communications, including MADL, which was approved by the U.S. Department of Defense Joint Requirements Oversight Council for use on all low-observable platforms.

As a principal member of the Lockheed Martin-led F-35 industry team, Northrop Grumman performs a significant share of the work required to develop and produce the aircraft. In addition to developing and producing the CNI system, Northrop Grumman produces the center fuselage; designed and produces the aircraft’s radar and electro-optical subsystem; develops mission systems and mission planning software; leads the team’s development of pilot and maintenance training system courseware; and manages the team’s use, support and maintenance of low-observable technologies.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cybersecurity, C4ISR, and logistics and modernization to government

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South Korea Interested in Global Hawk

It is being reported that South Korea has requested to purchase 4 of Northrop Grumman’s (NOC) long range, strategic Unmanned Aerial Vehicle (UAV), the Global Hawk. With supporting parts, services and other items the contract is estimated at around $1.2 billion. Congress will have to approve the sale.

The Global Hawk conducts long range surveillance and intelligence data collection missions. It is currently used by the U.S. Air Force and will also support European and U.S. Navy missions. The Global Hawk has been in service since the early part of this century and has flown thousands of hours of missions in support of Iraq and Afghanistan. The system has consistently been upgraded with new sensors and other equipment over time.

In their original 2013 budget the Obama Administration had proposed reducing the number of Global Hawks that they planned to buy as well as retire some others. Congress fought this proposal questioning the rationale of continuing to use manned U-2/TR-1 aircraft for these missions.

This contract will follow on to a European order for 5 and the annual buys by the U.S. Air Force and Navy to support their programs.

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Contenders for New Presidential Helicopter Lining Up

Earlier this century the Pentagon started a program managed by the Navy and Marine Corps to replace the existing helicopters used to transport the President. Currently a mix of Sikorsky, part of United Technologies (UTX), made VH-3 and VH-60 aircraft are used. Some of them are now over 40 years old. It was felt that a new system was needed that was more efficient, capable and equipped with modern communication equipment. This was the VH-71 program.

The VH-71 planned to use an aircraft from Augusta Westland modified by prime contractor Lockheed Martin (LMT). The program was to proceed in two stages with a few aircraft bought early to test and integrate modifications. This proceeded with several aircraft purchased and modified. The problems arose as the requirements for the second effort changed considerably over time leading to schedule and cost growth. By 2009 the program was several billion dollars over budget and was cancelled by the Obama Administration as part of their defense reforms.

A draft RFP was released this week for the new program. It plans to save money and manage schedule by requiring the use of an existing, in production aircraft which will be modified. It is requesting that the bidders plan to minimize changes to expensive parts of the aircraft such as the power train, transmission, structure and rotor system. A communication system is being developed separately that will be integrated onto the new aircraft.

The VH-71 suffered as the requirements meant new major systems had to be developed and integrated to meet power, range and hovering capability requirements. The RFP is for 23 aircraft at a cost of just under $1 billion with the first ones entering service in 2020.

Currently teams made up of Sikorsky and Lockheed and Augusta Westland and Northrop Grumman (NOC) are interested. Boeing (BA) may propose after doing analysis as to whether their large CH-47 or V-22 tilt rotor aircraft may meet the requirements.

The VXX program is aggressive in that it hopes to contain cost, schedule and technical creep. As the VH-71 program indicated it may be hard to do this. With the expected defense cuts coming up the contract is very attractive not only due to its size but also the prestige. As with other large aviation programs the winner may also expect several decades worth of support contracts which could be worth billions.

Photo from dailymatador’s flickr photostream.

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Joint Strike Fighter Update – Training and FMS

As the Pentagon and Lockheed Martin (LMT) continue to negotiate the latest production buy for the F-35 Joint Strike Fighter (JSF) the program continues its path towards completing development, testing and begin fielding. With the recent, unexpected change in leadership for Lockheed one of the issues that has come up is the focus on the JSF program. On Tuesday the Assistant Secretary of Defense for Acquisition, Technology and Logistics (OSD(AT&L)), Mr. Frank Kendall, made clear that the company needs to concentrate on continued delivery of the aircraft and not worry about its short term business goals.

The program overall continues to make progress in different areas including completion of the Operational Utility Evaluation of pilot training Thursday. This means that the data collected through the process of teaching 4 pilots over the last six weeks will be reviewed by the Air Force Training Command (AFTC) eventually leading to approval of the program allowing formal training to begin.

In related matters a group of Royal Air Force and Royal Navy maintainers continue their training at Eglin AFB now supported by 2 British owned aircraft. The U.K. is one of the major overseas partners in the F-35 program and will also begin instructor pilot training this month.

In other Foreign Military Sales (FMS) related F-35 news both Japan and Denmark agreed to have companies there begin making components for the aircraft. As part of the overall program many of the other nations buying the fighter will contribute components from their domestic suppliers. In Japan up to 40% of their version of the aircraft will be produced domestically. Northrop Grumman (NOC), who produces fuselage and other assemblies for Lockheed, signed an agreement with a Danish composite manufacturer to provide items like doors, panels and skin assemblies. This is a follow on agreement to one signed in 2007.

The F-35 remains the most expensive acquisition program in history and a key part of U.S. modernization plans. Despite its struggles with schedule, testing and cost it continues to see investment in it by the U.S. and its partners. While there may be near term haggling about the price it is expected that the next production batch will be on order by the end of the year. As more aircraft are delivered training will continue to increase in amount and complexity.

Photo from MultiplyLeadership’s flickr photostream.

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Northrop Grumman Continues DTS Support

The Defense Travel System (DTS) is the on line system the Pentagon uses to manage travel. It is designed to aid the traveler in booking their flights, hotels and other arrangements. After the trip it then helps prepare their claim and file it. It is tied to their government credit card.

As can be imagined DTS is a large, complicated system processing 1,000’s of transactions a day. This all used to be done by hand and then after a scandal in the late Eighties when the costs to do this were calculated different, more automated systems were developed. Several years ago the Defense Department standardized on DTS.

Northrop Grumman (NOC) was just awarded a one year extension to their contract managing the system. The contract is valued at over $28 million and is the 15th year the company has worked with DTS.

DTS illustrates that the Pentagon spends a great deal of its budget on things like personnel, benefits and administrative costs. This is why the current plans to help reduce defense spending see reductions in the number of troops and changes to how healthcare and retirement are payed for.

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AMDR Work Continues, Northrop Announces Testing Success

The U.S. Navy is in the process of developing the successor to the SPY-1 radar and combat system that makes up part of the AEGIS Weapon System mounted on cruisers and destroyers. Originally designed to deal with a large number of aircraft and anti-ship missiles the system has been modified to address the ballistic missile threat to the United States. The new radar program is called the Air and Missile Defense Radar (AMDR) and is currently in development.

In 2010 3 different contracts were awarded to U.S. defense contractors Northrop Grumman (NOC), Raytheon (RTN) and Lockheed Martin (LMT) to develop a version of the radar. The goal is later this year to move forward with another contract to complete development and engineering with a goal of selecting one provider. The new radar will go on ships like the DDG-1000 and new DDG-52 ships as they are built.

All 3 contractors have experience with Navy ship building, radars and missiles. In August Lockheed announced that it had already submitted their proposal for the next step of the program. Now today Northrop is showing its system and its testing. They also turned in a proposal this summer for the next phase.

Their AMDR system has completed some of its initial range testing including Near and Far field in Maryland. The testing has been successful demonstrating the capabilities of their design.

The AMDR program once it completes development and goes into production will replace the SPY-1 in the role of air as well as missile defense. While the Navy program for new ships remains in flux after 2013 due to the potential reductions in the U.S. defense budget it represents a huge program as it will be used for decades requiring further development, support and production.

Lockheed is the current contractor for the SPY-1 through acquiring Martin Marietta who had purchased the original developer and producer, General Electric (GE), defense work in this area.

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Northrop Upgrading B-1 Radars

Modern combat aircraft have become like ships in that they now serve for several decades receiving incremental refits and upgrades. Even while new systems are being developed and deployed older designs get new electronics, engines and munitions that enhance their effectiveness and usefulness.

The U.S. Air Force has done this consistently with their bomber force which consists of B-52 aircraft first delivered in the 1950’s, the 1980 built B-1 and the stealth B-2 delivered in the 90’s. A new bomber design is being developed but for the last eleven years of fighting in Iraq and Afghanistan it has been existing aircraft flying the missions.

Northrop Grumman (NOC) has just delivered the first kit to upgrade the B-1’s radar and it has already been installed on an aircraft. The Radar Reliability and Maintainability Program (RMIP) has so far been worth $161 million for the company. So far 60 kits have been purchased along with spares, support and test equipment.

The RMIP replaces portions of the existing AN/APQ-164 radar in order to make it more reliable and easier to maintain. The goal is to reduce repairs, improve availability and reduce maintenance requirements which should save money overall.

Northrop developed the kit prior to the award of the production contracts. There are close to 100 B-1 in U.S. inventory which means up to 40 more kits would be purchased if all of the aircraft will be updated.

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Despite Recent Progress Lockheed Martin Faces Some Challenges

Lockheed Martin (LMT) remains the largest defense contractor in the United States as well as globally. It is responsible for the biggest military acquisition program in the history of the world – the F-35 Joint Strike Fighter (JSF) as well as several other major aircraft and hardware systems. The company has consistently done well with its earnings and maintained a high dividend.

The Lockheed stock seems attractive right now. Price as of 29 June was $87.08. It has outperformed the market by 6 percent over the last year, its P/E is a little above 10 and it pays a dividend of $4.00 a year. The major defense contractors like LMT or Northrop Grumman (NOC), Raytheon (RTN) and General Dynamics (GD) have consistently increased their dividend over time. The companies have also focused on reducing their costs to boost profit margins as well as make them more competitive with the Pentagon when it comes to price meaning as long as defense spending remains fairly consistent there should be increases in earnings and profit as these trends continue.

Lockheed has moved to reduce its workforce especially those in the middle management or overhead positions. It has also when possible adjusted its pension plans and negotiated new contracts with its unionized workers to lower personnel costs when possible. It’s most recent quarter set it apart from its competitors as the company had both growth in earnings and revenue. Most others had seen earnings up but on a revenue drop as their efforts to reduce overhead and cost of providing their products helped.

As the Pentagon continues to execute its Fiscal Year (FY) 12 budget plans new contracts are competed and awarded with Lockheed winning their fair share of them. Yet the future of defense spending is clouded with uncertainty due to the plans for FY13 spending caused by sequestration. Sequestration is automatic budget cuts of up to $100 billion a year in defense spending due to the failure of the Obama Administration and Congress to reach a budget deal last year. All acknowledge that these cuts would have a severe effect on the military, its contractors and the U.S. economy in general yet without changing the current law they will occur.

Lockheed just finally settled a major strike by its Dallas-Fort Worth aircraft assembly workers. This lasted over two months and was driven by Lockheed’s request for them to cut their pension plans. These workers make the F-35 and the F-16 fighters which are a large portion of Lockheed’s portfolio. The key part of the new contract as stated in the press release is “The agreement compensates union members fairly while allowing Lockheed Martin Aeronautics to be competitive for new contracts and respond to customer demands for greater affordability in defense products.” The settlement of this action will allow Lockheed to focus on delivery of the aircraft.

Other then the potential budgetary issues facing the industry as a whole Lockheed does raise some concerns. It has a large debt and pension obligation due to a large workforce and a more traditional defined benefit plan. The Pentagon recently announced that due to concerns with Lockheed Earned Value Management System (EVMS), which tracks cost and schedule data, it will now withhold up to 5 percent of payments. This is the maximum penalty that may be applied. The EVMS for the F-35 is the major concern which is a program that faces scrutiny of its costs and schedule from Congress. If Lockheed cannot get its system into compliance then it faces a potential hit to its earnings and profits as the F-35 program is so large.

Congress has already made some moves to keep parts of the budget recommended for cuts by the Obama Administration. (http://seekingalpha.com/article/566861-defense-contractors-aided-by-congress-keeping-money-in-defense-budget) It may be expected that these will continue. Sequestration is designed to prevent Congress from doing this which is why all are focused on ways to prevent it or minimize the effect on defense spending. Too many jobs, and votes, are affected by it. That does not mean that there will be success in preventing the reduced spending. The U.S. deficits are recognized as too high and something must be done.

Lockheed stock due to its current price, dividend and their large contracts should probably continue outperform the market over the next few months. Until the full effects of sequestration or efforts by Congress to minimize cuts to defense spending are identified there should be no major movement of the price. If the worst case happens and the U.S. faces cuts to defense spending in the range of $50-100 billion a year Lockheed should at least see some short term pain. If the plan is changed and defense spending is protected then this stock along with the other defense industrial stocks should see some increase. This, though, won’t occur until 2013 and the stock like most of its competitors really remains a dividend buy only.

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Navy Orders USS Tripoli from Huntington Ingalls Industries

The U.S. Navy continued its investment into new amphibious warfare ships by awarding a contract to Huntington Ingalls Industries (HII) for LHD-7. The USS Tripoli will follow its sister ship, USS America, onto the ways in the near future. The value of the contract is for over $2 billion.

Currently the Navy is building two major amphibious ship classes. The LSD-17 class San Antonio ships and the bigger, more capable LHA class. The America and Tripoli are numbered sequentially with the Tarawa class built in the Seventies. Due to the need to support the bigger tilt rotor V-22 aircraft the America and Tripoli are designed for maximum aircraft capability and do not have a well deck for landing craft. That has been corrected in future ships of the class.

The LHA provide the ability to support large number of helicopters and V/TOL aircraft as well as carry Marines and their support equipment. The ones with a well deck allows landing craft to be loaded and deployed. They also offer hospital and C2 capabilities for operations.

The LHA and LHD ships followed the LPH class of helicopter carriers that went into service in the Sixties and saw extensive use in Vietnam. The new Tripoli name comes from one of those class ships although the Navy has operated several other ships in honor of the Marine service in North Africa against the Barbary Pirates.

HII is the ship building division of Northrop Grumman (NOC) that was spun off into a separate company. It builds amphibious warfare ships, destroyers as well as nuclear submarines at yards in Mississippi and Virginia.

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Congress Continues Push Back on Defense Spending Proposals

The House Armed Services Committee (HASC) continues their mark up of the 2013 defense budget proposed by the Obama administration and continues their push back on proposed cuts to programs. As part of a plan to reduce defense spending by almost $500 billion over the next 5 year defense plan certain programs were ended or reduced. Congress as it often is does not like some of these reductions and is adding them back into the budget.

The HASC is just one of four different committees in both parts of Congress that can rewrite the budget. After the markups are complete the House and Senate vote their own versions of the bill and a Conference Committee irons out the final version that goes to the President. There is no guarantee that any changes made by any of the committees will stick but it is clear that there are a lot in Congress not willing to reduce spending the way that is being proposed.

Earlier we wrote of how they added back in a submarine the Navy had delayed until 2018. Now the committee is changing some proposals with other systems.

These include the retirement of several Northrop Grumman (NOC) Global Hawk strategic Unmanned Aerial Vehicles (UAV). The Air Force had proposed mothballing the Block 30 version of the system and continuing to use the manned U-2/TR-1 aircraft instead. They also would not buy more of that block. The bill the HASC is writing would prevent the retirement before 2014.

The committee has also reduced or eliminated some of the troop cuts and increased co-pays and fee for TRICARE, the military medical plan. Another area they are exploring is increasing funding for some of the Army’s vehicle programs which was cut.

These reductions and the troop cuts are based on the fact that the U.S. is withdrawing from Afghanistan and the Obama administration is predicting less deployments and action in the near future.

This is just the first round of mark ups and the ending bill will be some sort of compromise where some cuts are kept and others aren’t. It does show though that there are many in Congress not ready for large reductions in defense spending and investment.

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Northrop to Upgrade B-2 Bombers

In this age military aircraft have service life measured in decades. They gain this by constant upgrades and modernization efforts as well as through their maintenance programs. The B-2 bomber is no exception and provides a special capability to the U.S. Air Force even though there are only 20 of aircraft available.

With this in mind Northrop Grumman (NOC) was recently awarded a 10 year, $2 billion contract to provide upgrades to the aircraft’s communications systems. Because of the length of the contract this will provide for continued improvements to the aircraft’s systems.

Northrop is the original manufacturer of the B-2 back in the 1990’s and this contract illustrates how work and funds will continue to come to them after completion of manufacturing. Aircraft and other military systems need long term maintenance and upgrades and this work often goes to the OEM and can add up to billions over the years.

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Northrop to Modernize USAF AOC Capability

The United States Air Force operates Air and Space Operations Center (AOC) in support of different theaters across the world. These assist in the management of the air war by tracking and assigning assets and targets. The consist of several different electronic systems that primarily require human interface to manage. Starting last year the Air Force began a process to upgrade and modernize these systems. The overall system is called the AOC Weapon System.

This week Northrop Grumman (NOC) was awarded an initial contract to begin the modernization project. The value of this award is $120 million but if all options are exercised over the next 8 years it could be worth over $500 million.

The contract calls for Northrop to deliver an AOC WS with better awareness and faster planning and execution through improving information exchange. The plan is also to reduce maintenance and life cycle costs for the AOC WS.

The U.S. has invested greatly over the last fifty years in advanced aircraft with sophisticated weaponry. The AOC WS role is to manage the air battle to maximize the efficiency of those systems. The planned upgrade will help it do that mission better.

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Raytheon to Develop New Counter Rocket System

As we discussed yesterday the U.S. military has invested millions into protecting their installations and personnel from enemy rocket and mortar attacks. This has primarily been through the use of the C-RAM system which utilizes a Raytheon (RTN) ship protection system, the Phalanx, on a ground mount. This utilizes a 20mm Gatling gun and on-mount fire control system. Northrop Grumman (NOC) is the prime contractor for that program.

Yesterday, though, Raytheon was awarded a contract to develop a new counter rocket system. This initial award has a value of close to $80 million. The goal is to develop a counter rocket system from already developed technology and have it rapidly tested and potentially into service.

The system, Accelerated Improved Intercept Initiative (AI3), will have what seems to be a missile interceptor rather then a gun. Raytheon will develop this component of the system but the rest of it: launcher, fire control system and C2 will be existing equipment. Raytheon will have 18 months for development and testing with the goal of it being able to enter production at the end of that period.

This sounds like it will utilize components of the Avenger system which mounts the Stinger surface-to-air missile and 50 caliber machine guns on the HUMVEE or other vehicles. The different type of target will most likely need changes to the fire control system and the launcher may have to be adapted for the whatever the new missile will be.

The U.S. has had some success over the last ten years with rapid development of some equipment including C-RAM. This plan seems to follow in this plan and could lead to the fielding of improved capability rather rapidly.

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Lockheed to Make More Counter Battery Radars

The U.S. Army awarded a contract to Lockheed Martin (LMT)for new counter battery radars. This is continued production of an existing system, the AN/TPQ-53, which provides detection and warning of enemy artillery, mortar and rocket attacks. The system has been deployed to Iraq and Afghanistan.

The option has a value of almost $900 million. The Firefinder radar is vehicle mounted and provides full coverage of an area.

One of the biggest threats to U.S. and allied installations during the fighting in Iraq and Afghanistan was small scale rocket and mortar attacks. This next to the Improvised Explosive Device (IED) caused most of the U.S. casualties not from direct enemy contact.

Much thought and effort went into defense against these including the Counter-Rocket & Mortar (C-RAM) system from Northrop Grumman (NOC) and Raytheon (RTN). This was a version of the Phalanx ship based anti-missile gun and radar used in a ground mounting. It would detect and engage rockets and mortars and destroy them before they could impact the facility.

The use of expensive systems like the Firefinder and C-RAM indicate the seriousness of the threat and the U.S. desire to mitigate it.

Even as the FY13 budget with its potential cuts to defense spending is being debated the U.S. military continues to execute the FY12 spending plan which is seeing major contract awards and options being issued. As the U.S. leaves Afghanistan there is great potential for reductions in these types of contracts for equipment primarily used to support operations in those areas.

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Lockheed Martin Expands Facility for F-35 Component Manufacturing in Pinellas Park, Fla. — Press Release

Lockheed Martin Expands Facility for F-35 Component Manufacturing in Pinellas Park, Fla.

PINELLAS PARK, Fla., Feb. 22, 2012 /PRNewswire/ — Lockheed Martin’s (NYSE:LMT) operation in Pinellas Park officially opened a new 57,000 square foot manufacturing facility today to produce aircraft canopy components for the F-35 Lighting II fighter.

The new facility is an annex to Lockheed Martin’s existing 197,000 square foot building that has been producing structural components for more than 10 different types of aircraft since 1997. The operation began with 80 employees and has since grown to its current workforce of 250, with additional jobs expected as the F-35 program moves toward peak production. The expanded facility can support production of up to 20 F-35 canopy units a month.

In remarks at the event, Harry Glenn, chief of staff for U.S. Rep. Bill Young, chair of the House Appropriations subcommittee on defense, said, “The Lockheed Martin Pinellas facility has distinguished itself with its quality, safety and efficiency and has become a center of excellence for the manufacturing of F-35 canopies.”

Aircraft canopy components include the “windshield” of the aircraft – a clear plastic bubble – and the frame, ejection pyrotechnics and other structures that support it.

The F-35 is expected to be one of the largest military aircraft programs in history, including thousands of aircraft to be produced for world air forces over several decades. The F-35 Lightning II is a 5th Generation fighter, combining advanced stealth with fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. Lockheed Martin is developing the F-35 with its principal industrial partners, Northrop Grumman and BAE Systems.

Core competencies at the Pinellas facility include sheet metal and extrusion fabrication and structural subassembly. To date the facility has produced components for the C-130J, F-22, F-16, C-5 and P-3, in addition to the F-35. Besides supporting Lockheed Martin aircraft programs, the facility does work for several other companies.

Headquartered in Bethesda, Md., Lockheed Martin is a global security company that employs about 123,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation’s net sales for 2011 were $46.5 billion.

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Lockheed Martin (LMT) Protests Award of Navy Contract to Northrop Grumman (NOC)

At the beginning of the month the U.S. Navy awarded the first in a series of contracts to begin installing consistent networks on ships. The initial value of this contract is for $36 million and would be for installations on 3 ships.

The Consolidated Afloat Networks Enterprise Services (CANES) program is to undergo testing this year and have a Milestone C Low Rate Initial Production Decision to support completion of the first install by the end of the year.

Northrop Grumman (NOC) beat out Lockheed Martin (LMT) for the production contract. Both had been awarded development contracts a few years ago. If all options on the contract are exercised it could be worth over $600 million and be installed on 54 ships. Next year after more testing there will be a Full Rate Production Decision leading to the award of a much larger contract.

Yesterday though Lockheed formally protested the award citing a belief in flaws with the Navy’s evaluation of the two proposals. The protest will be reviewed by the Government Accountability Office (GAO) who have one hundred days to come to a decision. Normally the protested contract is placed on hold while the GAO conducts its review. If Lockheed disagrees with the result then they may appeal to the Federal courts.

Protests have been rising consistently over the last two decades as the Pentagon issues fewer contracts and company’s fight harder for market share. They are disruptive but Federal law allows almost any decision to be protested although the GAO often denies them. The biggest factor for now is that it delays the start of work by Northrop and disrupts the program’s schedule.

Unfortunately for the Services and the Defense Department many cases are decided in favor of the company protesting which continues to highlight the need for the process as some selection decisions have proved flawed for many reasons. The KC-X tanker contract originally awarded to Northrop was successfully protested by Boeing (BA) who won the contract upon a new competition was ordered.

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Army Awards Helicopter Protection Development Contracts

The U.S. Army’s rotary winged force has made great contributions to the fighting in Iraq and Afghanistan and has suffered some losses in these missions. The primary threat in those actions were small arms and machine gun fire but there was some use of surface-to-air missiles. The aircraft are fitted out with threat detection and jamming equipment and the Army plans to continue its investment in new systems for this mission.

With that two contracts were awarded last week to begin development of a new system that will jam or misdirect infra-red guided missiles which home in on the heat signal of the helicopter. The Common Infrared Countermeasure (CIRCM) program once it goes into production could be worth several billion dollars due to the number of Army, Navy, Marine Corps and Air Force helicopters that could have the system installed.

The two contracts to Northrop Grumman (NOC) and BAE Systems (BAE:LSE) will allow the company’s to develop their proposed solution to the CIRCM requirements. They both have a value of around $38 million. Once these contracts are complete the Army will evaluate the proposed solutions and then choose one to go into Engineering & Manufacturing Development (EMD) to begin production and installation.

The CIRCM program was considered so valuable that proposals were received from ITT Exelis, Lockheed Martin (LMT) and Raytheon (RTN) as well. All of the companies that bid have experience with airborne jammers and protection systems.

Even though the U.S. defense budget is facing large cuts over the next five to ten years programs like this still need to be developed and introduced. There exists a large fleet of aircraft that will remain and they need to be updated to face improved threats from around the globe. If CIRCM is cut in the future it might be to stretch out the development or production so that the annual program cost is lower but eventually the desired result is achieved.

Photo from The U.S. Army flickr photostream.

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Navy Awards Northrop First Shipboard Network Contract

.The U.S. Navy awarded Northrop Grumman (NOC) a contract to install their proposed solution to the Consolidated Afloat Networks Enterprise Services (CANES) requirement on a unit. Lockheed Martin (LMT) had submitted a proposal as well to meet this requirement. The goal of cANES is to be a standardized network on U.S. Navy ships and submarines replacing the current mix of systems.

The initial contract is worth about $36 million but will all options executed it could be worth over $600. The Navy is planning on outfitting 54 ships to begin but the CANES could support over 300 systems in the end.

The goal is to have the first installation complete by the end of FY12. This will follow completion of necessary testing and certification to support a Milestone C Low Rate Initial Production (LRIP) Decision. The first contract will cover 2 destroyers and an amphibious warfare ship.

The Navy plans ot have limited production in 2012-2013 with a larger contract competed again at the end of FY13 to support Full Rate Production. Then there will be a further contract for engineering support.

Northrop will use as a sub-contractor their former ship building division now separated as a new company, Huntington Ingalls Industries (HII) to do the actual installation and integration on ships.

The CANES contract has been in work for several months with development contracts awarded to Northrop and Lockheed in March of 2010. These led to delivering systems of which Northrop’s was chosen for the first production deliveries.

Photo from Official U.S. Navy Imagery’s flickr photostream

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Global Hawk Rumored to be Cut

Update – The Defense Department released their Budget Priorities and Choices today and that included cancelling the remaining Block 30 Global Hawk production. The rationale given was that it provided the “same capability as the U-­‐2 manned aircraft for significantly less money to both buy and operate. As the program has matured, these cost savings have not materialized and, at best, we project the future cost of Global Hawk Block 30 operations to be comparable with the U-2.” Northrop Grumman responded this afternoon and said in their press release that “Northrop Grumman is disappointed with the Pentagon’s decision, and plans to work with the Pentagon to assess alternatives to program termination.” They also said that:

“The Global Hawk program has demonstrated its utility in U.S. military operations in Iraq, Afghanistan and Libya, as well as its utility in humanitarian operations in Japan and Haiti. Just a few months ago, the Pentagon published an acquisition decision memorandum regarding Global Hawk Block 30 that stated: ‘The continuation of the program is essential to the national security… there are no alternatives to the program which will provide acceptable capability to meet the joint military requirement at less cost.’

Today the Pentagon will begin to present its plans to reduce the U.S. defense budget by close to $500 billion over the next ten years. There have already been reports of programs being ended or reduced but so far none have been confirmed. As the plans are revealed it will be seen if these reports are true.

Yesterday it came out that the U.S. Air Force is considering reducing its planned purchase of Northrop Grumman’s (NOC) Global Hawk strategic reconnaissance Unmanned Aerial Vehicle (UAV). The Global Hawk has been in development since before 2000 and early versions went into use right after 9/11 supporting collection and targeting efforts across Afghanistan and Iraq. The Global Hawk was planned to replace the manned high altitude reconnaissance U-2 aircraft.

The Air Force has been steadily improving the system and buying different versions. The current production model is the RQ-4 Block 30 and the plan was to buy about 28 of them. Now there are reports that 10 of the systems will not be purchased and the U-2 will continue flying for several more years.

The Air Force would buy 3 more of the Block 40 version and the naval version to fulfill the Broad Area Maritime Surveillance (BAMS) requirement would continue so Northrop would not be losing all of its Global Hawk business but the loss of the ten systems would significantly reduce near term revenue.

In order to save that kind of money the Pentagon will have to cancel entire programs preferably before they go into production such as the Army’s Joint Air-to-Ground Missile (JAGM) program which has been a potential cut or reduce the amount of procurement items significantly such as with the Global Hawk. You cannot cut a slice of the budget proportionally without seriously affecting readiness, training and effectiveness of the armed forces overall. It is better to kill off whole programs and continue to utilize existing systems.

With these kind of reductions in planned spending there may be a time of flat or little growth for defense contractors. These decisions will force defense contractors to lose development and production programs they will still be able to keep their business of maintaining and supporting existing, older programs and equipment. The decisions may also force contraction in the industry as a whole.

Photo from ewen and donabel’s flickr photostream.

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Lockheed Receives Battle Management Contract from Missile Defense Agency

The FY12 defense budget while it did not grow much did keep spending at the high levels generated by the Iraq and Afghan fighting. There are certain key areas that remain highly funded as well in the U.S. budget. Future cuts are expected but it is hoped by contractors that these areas will maintain their funding even as other parts of the U.S. military are shrunk. One of these is in missile defense.

The Missile Defense Agency (MDA), the successor to the Ballistic Missile Defense Organization (BMDO) created under President Reagan, is responsible for managing development and deployment of systems for this mission. Although technically many of the programs belong to the Services MDA provides their funding and direction. The Army has three major ground based systems and the Navy has a ship one as well.

MDA is also responsible for building a network of sensors and the software that links all of these parts together.

Lockheed Martin (LMT) is the lead contractor on the Command, Control, Battle Management and Communications (C2BMC) program which has as a goal the integration of the different sensors and weapon systems to most efficiently detect, identify and engage a target. Lockheed is assisted by several other major contractors on this program including Northrop Grumman (NOC), Boeing (BA), Raytheon (RTN) and General Dynamics (GD).

Lockheed has just received further funding for this effort close to a billion dollars as MDA executes the latest option on this contract. It can be expected as long as the MDA wants to keep developing its system of systems that the C2BMC will keep going as it is necessary for the best use of them.

This means despite the defense cuts there will be some funding for this program so that it may be kept going to completion which favors Lockheed Martin and does provide some core revenue.

Photo from the U.S. Missile Defense Agency Flickr Photostream.

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Teams Submit Their Revised Proposal for GMD Support Contract

The U.S. Army and Missile Defense Agency have been operating and supporting the Ground Based Missile Defense (GMD) system for several years now. The system consists of a group of interceptors and control system in Alaska supported by a network of sensors and guidance radars across the globe. Originally this was to be expanded into Europe but the Obama Administration ended that plan to focus on ship based and shorter range Army systems. The current deployed portions though continue to need to be operated and supported.

Boeing (BA) was the lead contractor on the development and deployment of GMD. They have also been providing the necessary support. Last year the MDA decided to compete this contract with a goal of awarding the new one last fall. Two different teams of companies submitted proposals for this contract. Boeing teamed with Northrop Grumman (NOC) in a bid to maintain the work and they were challenged by Lockheed Martin (LMT) and Raytheon (RTN).

Due to the complexity of the contract evaluation MDA has pushed out award of the new contract several months. Most recently in October they delayed it again until nearer 2012. Boeing’s existing contract kept being extended to maintain the necessary support.

Now in the last week both teams submitted their final revised proposals to the MDA. This should be the final step in supporting a decision by the Government on the award of this multi-billion dollar contract.

Lockheed and Raytheon stressed their experience and work in support of various Army and Navy ballistic missile defense systems. The companies support the PATRIOT, THAAD and ship based STANDARD Missile-3 interceptors. They also make radars and software for the mission.

Boeing and Northrop also turned in their proposal on time with a stress on the fact that due to their experience with the system they offer the lowest risk and best value to the Government. Boeing also feels they have an advantage as the incumbent of minimizing the transition to the new contract. Lockheed and Raytheon would have to do some work hiring and organizing things after they won.

The contract is one of the largest currently in competition. It represents to the bidders a significant amount of earnings and revenue. The contest will be watched closely and will hopefully make up for some of the other cuts coming in the U.S. defense budget to support and acquisition contracts.

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Good and Bad News for Huntington Ingalls Industries (HII)

An F-35B Lightning II makes the first vertical landing on a flight deck at sea aboard the amphibious assault ship USS Wasp (LHD 1).

Late last year after Northrop Grumman (NOC) separated their ship building components from the main corporation. Rather then selling these to another defense contractor they decided to set up a new company with its own stock. This was Huntington Ingalls Shipyard(HII). HII owns yards in Louisiana, Mississippi, and the Hampton Roads area of Virginia. It builds carriers, destroyers, and amphibious warships.

Northrop Grumman along with General Dynamics (GD) were the two major naval ship builders in the United States. They were concerned that the long term ship construction plans for the Navy were so limited in the future due to budgetary pressures and requirements that they decided it was better to get out of the business. The U.S. Navy currently really doesn’t have enough funds to build the number of ships in their plans. They also restructured their plans by limiting the new destroyer, DDG-1000, to only three and continuing production of the previous Arliegh Burke class.

HII has continued to received contracts from the Navy and deliver ships although it is planning a restructuring of its capabilities and workforce most importantly by closing their yard at Avondale, LA. In its last quarter the company reported a loss of $248 million but adjusting for a charge it actually had a profit of over $1 a share. This was better then analysts expectations and the stock went up quite a bit last week. The company increased its backlog and is predicting by 2013 that the financial should show much improvement as it works off contracts from the Northrop era.

At the same time though word came the Navy penalized the company several million dollars on a recent destroyer contract due to failures in its accounting and management system. The Department of Defense utilizes Earned Value Management System (EVMS) to help understand the cost and schedule of contracts. In this case the audit found deficiencies in 19 of 32 guidelines. The DoD qualifies company’s EVMS and if it fails then they can withhold funds or limit future contract awards until the system passes.

HII is in a situation where things like this are not helpful in the long run. It is not uncommon for EVMS to fail at times and the DoD and Lockheed Martin (LMT) had a long running argument over that company’s system a few years ago. Eventually they get resolved and work continues. It can just effect earnings and revenue in the short run.

The U.S. shipbuilding industry is in for a rough time in the next decade or so as the U.S. works out its budget issues. If the mandatory cuts do come into force there would be significant reduction in new ships which would affect GD and HII very negatively. While ships take several years to complete they need a steady stream of orders to maintain their entire workforce and to use them effectively. If there is a time when no new ship is on the horizon then there will be layoffs and contractions.

HII latest results were a positive but it may be hard in the future to continue to maintain the level of orders and revenue.

Photo from Official U.S. Navy Imagery’s Flickr photostream.

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Northrop to Redesign Parts of B-2 Stealth Bomber

It used to be that warships would remain in service for thirty years with incremental modifications and improvements as new radars, weapons and electronic systems were invented and fitted to the vessel. Now military aircraft have the same service life pattern. The U.S. utilized its last class of battleships for fifty years and have been doing the same with their venerable fleet of Boeing (BA) B-52 bombers originally intended to carry large, thermonuclear bombs to the Soviet Union and now conducting precision attacks with Joint Direct Attack Munitions (JDAM) bombs in Afghanistan.

The B-2 stealth bomber is the latest strategic attack aircraft in the U.S. inventory. It was designed and produced by Northrop Grumman (NOC) in the Eighties and Nineties. 21 were manufactured and currently 20 remain in use after one crashed a few years ago on Guam. The U.S. Air Force and Congress have been funding studies and doing basic development work on what will ultimately be a new bomber to come into service in the next few decades but right now the B-2 supplements the B-52 as well as the B-1 Lancer made in the Seventies.

Since aircraft remain in service for so long like ships it is possible to do incremental improvements and upgrades. In this vein Northrop was recently awarded a contract to redesign and install a new aft deck for the B-2. The aft deck is made out of metal and protects the stealthy, composite material from the heat of the engines. The contract has an initial value of just over $100 million.

The purpose of the redesign is most likely to reduce maintenance, improve readiness and most likely the performance of that part of the aircraft. The B-2, as well as the F-22 and the F-35 when it enters service, requires quite a bit of maintenance to keep the stealthy material whole and working. Any improvements to the design and maintenance of the aircraft will make the B-2 have a higher operational rate and ability to support the war.

One of the advantages that the prime contractor for a system like the B-2 has is that over the thirty plus service life of the aircraft there will be many contracts like this. The prime should win the bulk of them unless the service has bought the technical data rights and wants to use a different company or rely on their own depots. In the last twenty years of defense contracting that has been the exception and not the rule. Data rights are expensive and the U.S. has also reduced significantly its own depot capability as attempts to reduce spending and be more efficient. These policies favor the original manufacturer and help them maintain a steady stream of revenue.

Photo from Armchair Aviator’s Flickr photostream.

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ITT Exelis (nee Defense) Enters Brave New World of Defense Contracting

ITT Exelis (XLS) is what used to be ITT Defense, one of the component parts of the former ITT Corporation (ITT). That company decided to break itself into three separate parts spinning its defense, water and electronic components into separately traded companies. Reportedly the flat performance of its defense business had been one of the prime factors driving the decision.

In the early Nineties ITT Corporation itself was formed as ITT broke itself apart into ITT Industries; Starwood Resorts, which managed hotels and casinos; and Hartford which sold insurance. ITT Industries changed its name to ITT Corporation in the last decade.

ITT Exelis will now have all of the defense related industries which includes electronic warfare systems, radars, command & control systems, intelligence and surveillance as well as defense services and sensor and networks.

The new company is estimated to have earnings of about $800 million for this year and there are already rumors of the defense component being the target of acquisitions by other larger defense contractors.

ITT follows Northrop Grumman (NOC) which earlier this year separated its shipbuilding piece into a separate company entirely, Huntington Ingalls Industries (HII). Northrop was concerned that with budget cuts and the U.S. Navy’s shipbuilding plans that growth in this area would be very limited. This allows them to separate that sector from other more successful parts of the parent company.

How long ITT Exelis makes its as a unique company depends on how quickly the U.S. defense spending decreases and decisions about what the U.S. and Western Europe buys. If there are smaller amounts of budget available for new electronic systems ITT Exelis could be facing a very limited market. This might make it attractive to someone looking at buying capability and access to specific parts of the ITT Exelis portfolio and would see chunks of the company wither away.

The other question will be if similar moves are made by defense contractors splitting their military and commercial arms or jettisoning pieces that in the view of management and shareholders do not have much upside in the future. Exelis could be the start of a trend.

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