A naval arms race is gaining speed in the Mediterranean Sea

On the same subject

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  October 13, 2021 | International, Land

  Robot Dogs Now Have Assault Rifles Mounted On Their Backs

  Robot dogs have been met with equal parts fascination and fear by the public, but their utility for military applications is becoming undeniable.

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  September 25, 2018 | International, Land

  SAIC boss tackles Engility acquisition, space market and revenue goals

  WASHINGTON — News that SAIC would buy Engility was just the latest in a recent string of acquisitions among the professional services firms. But if you ask the CEO of SAIC, Tony Moraco, unlike some of the company's peers this was not transformational. This was instead a merging of two complementary businesses. In his words, “a momentum builder, as we are stronger together in the marketplace.” It's also the next phase for a company that technically formed five years ago, with the split of the $11 billion legacy company with the same name. Defense News sat down with Moraco to see how the acquisition fits into SAIC's future strategy, and how far the company has come since gaining independence. About a year after SAIC split from Leidos, I asked you about your vision for the company. And you said to return to an $11 billion company. How does this acquisition fit into your vision for SAIC these days? The Engility acquisition is very much consistent with our current strategy. It is not a deviation or a reset, as perhaps some of the other major transactions have been for some of our peers. But it really is about the theme of being stronger together, with [particular] compatibility of the intelligence community ... and also attributes in space market segments that we think we can both serve better. For us, this is opening market access to channels that we didn't have. It's momentum building, a vision and a strategy that was five years in the making, and it's a continuation of that strategy going forward. So have you been looking for an extended period of time? And why Engility specifically? We consistently look at the market. We were not going to be a high-volume buyer, but more selective. The Scitor [acquisition] was more than three years ago. But we felt that we had a good position in the marketplace to grow organically. And we proved very strong performance over five years and since [that last acquisition of] Scitor. And then we've looked at many deals, large and small, to see what makes the most sense to us, staying true to our strategy. The attraction with Engility was probably first sparked by the multi-intelligence agency portfolio that they have. Instead of buying a number of smaller concentrated firms, we could get a couple agencies in one larger deal. The company is large enough, they have a mature system. Again, in contrast to perhaps some of the small businesses, we think it has been through its own cultural shift to align very much to ours. Also of interest is the space market. Today, with denied access and with the threats that we have, space is becoming a much more serious domain. The U.S. wants to invest more in it for a range of reasons. And when we think about space, it does cross, in fact, with the intelligence community, the defense sector with Air Force and the other services, and then also the civilian agencies with NASA, [and the National Oceanic and Atmospheric Administration]. As that market evolves, I think the U.S. government will be a principal customer. I believe that the commercial space entities will find a way where they'll also require key outsourced space services just as the government had. So for a single transaction at scale where we could in fact use our equity, [and face] probably fewer buyers, filling three or four of our strategic initiatives in market access and in capabilities — we felt it was worth a serious look. But it's not just about space and intel. Defense will still be the largest part of our portfolio — 55 percent after we close [from 61 percent]. With the benefit of having the broader diversification in intel and federal civilian agencies, that serves all of our customers from a technology transfer perspective. We've seen an interesting transition in the market, where the big primes are shedding portions of their services segments. Have we officially returned to the days when manufacturers focus on platforms only and leave the rest to the professional services companies? I think we [for a period of time] faced a market that was uncertain. Our customers were reprioritizing their mission areas, and the industry was doing the same — looking at where they were going to focus their precious dollars, identify businesses they were going to protect, and areas that maybe weren't core. Then as the market started to improve and move away from cost reductions to protect margins to having some cash and some flexibility, you started seeing more portfolio shaping from the larger players. It's not just about scale. There's [a focus on] the diversification because as you know, the whole business is based on past performance and on what qualifications you have in people and in contract vehicles; if you have a broader base concentrated in a few key areas, your ability to compete and win in those domains is improved. There are a lot of technologies that are more heavily influencing the battlefield — whether ISR, electronic warfare, even still cyber, which is evolving. It seems those areas don't fit quite as neatly in one model or the other. We've been around. It's not a body shop service that we run. It is services and solutions. But technology integration is a direct link to the customer's demand for modernization, the interest in innovative solutions from nontraditional players, the ability to field capabilities faster in a much shorter development cycle, and that leads you to a technology integration model that we have. It allows us to take mission understanding and translate requirements into capability needs. So we can integrate, we can innovate with the technology and we can implement the solutions, which is fundamentally what the customer needs to migrate them from a current state to a future state. But we're seeing more and more opportunities through the [Defense Innovation Unit], the [other transaction authorities], and other contract vehicles that provide a little more rapid prototyping flexibility. SAIC bid for the Marine Corps Amphibious Combat Vehicle and is now working to compete for the Army's Mobile Protected Firepower program.How does that all fit into the broader strategy? We do see it as a viable area, and I would characterize it as the next tier of complex technology integration, system integration. It's an extension of our command-and-control and ISR integration. I recall we pushed through 30,000 MRAP systematic build packages. That kind of integration of subsystems into a platform is what we felt was a baseline business that we could look to expand; and as the customer looked at, in this case, starting with Assault Amphibious Vehicle. Not a start-from-scratch build — the survivability upgrade really was around the armor, the underbelly and then your armaments protecting the vehicle. And then the related mobility requirements to change out transmissions and engines to support that extra weight. We felt that those subsystems and our mission knowledge afforded us the ability to extend to a little more of the physical platform itself. We're doing work on the next-gen combat vehicle. And we're using a services model for MPF. Again, nondevelopmental, major integration of existing platforms for rapid field development. That fits well into our technology and integration model. We see the ground vehicles and perhaps maritime [areas] as one that was probably more approachable versus, say, airframes. Modernization of aircraft has its own barriers of entry of getting flight readiness and the like. We've extended our test-equipment knowledge to partnering with Lockheed on the propulsion system for torpedoes, for example. So we're just looking for selective areas to do more complex system integration under this broad technology integration umbrella. It just happens to be bigger subsystems. Complex system integration sets us apart from some of the current peers in the marketplace right now. But we're selective in what we go after. How hard of a hit was the loss of the Marine Corps Amphibious Combat Vehicle in moving forward with that? It's disappointing. We try to be practical and objective about our market position. It's an alternative model. It's still early in the life cycle. But I think that as we see different opportunities, we learn from it as the customers get more comfortable. So yes, disappointing on ACV, but at the same time we learned a lot from it and I think the customer ultimately got a very good result by having a competitive phase. And we think that the Army [with MPF] will be as successful and come up with [the] best solution if they can maintain a competitiveness early in the process. When the split first happened, you and Leidos were generally two different companies. With this acquisition, and with the Leidos acquisition from Lockheed, have you all started to mirror each other more? I think we may be looking a little more alike. Five years ago I did not expect it. I think we had very clear strategies that [we] were intending to diverge, and therefore we did not have any formal noncompetes. We were looking at the services business model, and Leidos was looking to do more system development. I think their execution of that didn't play out as fast as they'd like. Roger [Krone, Leidos CEO], buying back in the services, more of the information system side, was a bit of a surprise. So if anything, they came back towards us versus us changing direction. So I'd say they probably navigated slightly different than expected. But even today we're still two different companies. We're still very focused on letting our investors and customers know what we do, and Leidos still has a pretty diverse portfolio from health systems and some engineering services. We compete in similar subsegments but not in all. We're also organized very differently, we go to market differently. When the deal closes, where does that put your total revenue at? Right around $6.5 billion. You told me you wanted to get back to $11 billion. Should we expect more? No, not right away. That was very tongue in cheek at the time. You knew I'd remember though. Oh, I know. I remember it too, actually, because we laughed. There are lots of things we can do, but I felt very comfortable then and still do that we've got a great future and can grow the business organically as well as through acquisition. But it's not to chase the size. It really is about the market leadership. Running good margins and providing good mission capabilities for our employees. I think our market is still very motivated by mission. Our employees are very motivated to serve in different capacities whether it's in uniform or not. https://www.defensenews.com/interviews/2018/09/24/saic-boss-tackles-engility-acquisition-space-market-and-revenue-goals

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  August 17, 2020 | International, Aerospace, Naval, Land, C4ISR, Security

  Arms trade momentum: Globalization and US defense spending drive defense industry growth

  By: Joe Gould 5:00 AM WASHINGTON ― Defense revenues of the top 100 defense companies in the world climbed for a fourth straight year, pushed upward by U.S. defense spending growth combined with strong foreign military sales. Fiscal 2019 defense revenues recorded in Defense News' Top 100 list totaled $524 billion, up about 7 percent from $488 billion in fiscal 2018, according to numbers compiled by Defense News as part of the annual Top 100 list. “The single most striking thing about these data is the year-over-year growth, the median of which is 7 percent,” said Atlantic Council Senior Fellow Steven Grundman. “For an industry generally regarded as mature, revenue growth that runs at two times global GDP is downright sporty.” The defense industry remained top heavy, as the top 10 firms accounted for 50 percent of total defense revenue on this year's list, and the top 25 companies accounted for about 75 percent of the total. Geographically, U.S. firms made up seven of the top 10, and 10 of the top 25. The combined defense revenue of the 41 U.S. firms in the Top 100 list comprised more than half of the total defense revenue. China this year had five firms in the top 15 companies versus six last year. Eight Chinese firms made the Top 100 list this year, with a combined $95 billion in defense revenue for FY19 ― which is $11.7 billion shy of the list's total for Europe and Turkey. The Aviation Industry Corporation of China, which appeared with other Chinese firms for the first time last year, fell from No. 5 to No. 6, though its defense revenue grew by a percentage point over last year. China South Industries Group Corporation fell from No. 11 to No. 18, as its revenue declined 26 percent, from about $12 billion to around $9 billion. China is unquestionably a defense giant in the Asia-Pacific region, dwarfing its nine neighbors (excluding Russia) on the list. Their 2019 defense revenues totaled $21 billion. The combined revenues of the Chinese firms marks the country as the rising superpower it's billed to be in political and strategic circles, said Daniel Gouré, a senior vice president with the Lexington Institute. “For all the discussions we have been having over the last weeks and months about China as a potential threat and challenges, they are building all kinds of blue-water ship classes that mirror the U.S. Navy,” he said. “For a country that was once thought of as a continental or near-shore power, it's amazing the stuff they're building, and its reflected in these companies.” From Europe and Turkey, a NATO ally, there were 35 firms across the list. The combined defense revenue there comprised roughly 20 percent of the Top 100 total. Seven Turkish firms made the list, with FNSS Savunma Sistemleri A.S., and Havelsan A.S. joining the list at No. 98 and No. 99 respectively. For Russia, some past participants declined to provide data this year for unknown reasons. The two that participated made it into the list: Almaz-Antey placed 17th, with $9.2 billion in defense revenue for 2019, and Tactical Missiles Corporation JSC placed 35th, with $3.5 billion in defense revenue. The annual Defense News Top 100 list relies for the most part on self-reporting from companies, many of whom provide estimates rather than definitive data for their defense percentages. That means that while the list is the industry standard, the numbers come with some variance. Heritage firms dominate Lockheed Martin was a lock for No. 1, for the 21st year in a row, with defense revenue that represents nearly 11 percent of the total. Its defense revenue jumped 12 percent between FY18 and FY19, from $51 billion to $57 billion ― with Boeing trailing at No. 2 at $34 billion in defense revenue for FY19. Within the top five, General Dynamics climbed back from No. 6 last year, passing both Raytheon and Northrop Grumman. Northrop fell from No. 3 to No. 4, likely based on a full-year accounting of its acquisition of Orbital ATK in 2017, said analyst Roman Schweizer, managing director of Cowen and Company. GD led Northrop by $912 million in defense revenue, with Raytheon (5th place) trailing Northrop by $1.2 billion in defense revenue. Ten companies increased their defense revenue by $1 billion or more, and Lockheed Martin led the pack with a $6 billion boost. The merger between L3 Technologies (18th place last year) and Harris Corp. (26th place last year) saw a new entry, L3Harris Technologies, take the No. 9 spot, with $13.9 billion in defense revenue ― just ahead of United Technologies Corp., which acquired Rockwell Collins in 2018 and whose merger with Raytheon should be reflected in next year's list. At the same time, the data doesn't support the argument that the defense industry is growing progressively more concentrated, according to Grundman. “The top-quartile of firms account for exactly three-quarters of the revenue both in 2018 and 2019,” he said. “Looking back at the data for 2013, the top quartile took 73 percent of the revenue, but that's not appreciably less than last year.” Still, despite the Pentagon's push to work with nontraditional suppliers, the top of this year's list, and the list overall, is almost like the automotive sector, it's so dominated by familiar names, said Byron Callan, an analyst with Capital Alpha Partners. “The interesting thing is just the relative stability of this,” Callan said. “For all of DoD's emphasis to get new entrants into the sector, and reach out to innovative suppliers, you just don't see it. When you compare it to the technology sector, we're all using things made by companies that weren't even household names 10 years ago. ... Where is the Tesla [of the defense sector]?” It's not out of the question that the list changes over the next five years, if the U.S. Department of Defense and foreign militaries make good on their promises to boost innovation, Callan said. For all the DoD's discussion of the growing role of software, artificial intelligence and machine learning, there's no company known for those things on the list, Gouré observed. Beyond General Dynamics, which completed its acquisition of IT services giant CSRA in 2018, “AI, software, IT aren't there because they're still subcontractors,” Gouré said. “Microsoft and Amazon Web Services, they aren't anywhere on the list.” That's not to say there isn't massive spending on all of the above, but it remains a subcomponent within companies, and therefore not captured on the list, Gouré said. “If we keep saying it's the kill chain, the network matters and the country with the best AI will win, are we not investing enough, are we doing the right thing?” Gouré wondered. “There are more questions than answers.” (Booz Allen Hamilton, No. 26 this year, did win an $800 million Pentagon artificial intelligence contract. But as that occurred in May 2020, it will likely impact future lists.) For now, the large, multiplatform firms dominate and should continue to do so, even if government defense spending declines, Gouré said. “These guys are showing it's good to have a finger in many pies.” Furthermore, the data tend to contradict the conventional wisdom that defense is an industry of mostly large-scale, pure-play firms, according to Grundman. “In fact, the median [defense] revenue of the top 100 is only $2 billion. And on average, only slightly more than half each firm's revenue ... derives from defense sales,” he said. Flat-budget future? The consensus among analysts is that government defense spending will level off amid the coronavirus pandemic, and its effects as well as the result of the upcoming U.S. presidential election in November will be reflected in future lists. “Successful years of investment spending growth appears to be ending, but outlays are still growing due to the surge in spending over the last three years. But they are starting to taper significantly after this year,” Schweizer said. Schweizer sees foreign spending softening, at least in the short term due to COVID-19, but he predicts defense budgets, backlogs, outlays and foreign military sales will hold together for at least 12-18 months to help defense firms weather the unprecedented damage visiting the commercial aerospace sector. The biggest risk is the U.S. budget trajectory, which is likely to be flat, at best, or decline in mid-single digits, at worst, over the next five years, Schweitzer added. He anticipates a drop of 3-5 percent, but with the Pentagon's eye on Russia and China, the department will likely make trade-offs to protect core modernization areas. As global growth rates slow, future lists may see some familiar companies grow leaner. “These companies are going to figure out what their growth businesses are so they can shrink to grow,” Callan said. “They all say they're well positioned [for slower defense spending], but what the hell does that mean? They can't all be right.” Other notable moves included Reston, Virginia-based engineering and construction company Bechtel, which fell to No. 47 from No. 31 last year; the firm's defense revenue declined 39 percent, from $3.7 billion to $2.3 billion. In France, Safran's defense revenue jumped from $1.6 billion in FY18 to $4.4 billion in FY19, bumping it from No. 56 to No. 28. However, the company told Defense News that it attributes the large rise to a difference in calculation for this year's list. Since 2015, the data from Safran were made up of Safran Electronics & Defense activities. This year, the firm changed its approach by adding the military activities of the group's other subsidiaries. Also in France, Dassault nearly doubled its revenue from $2.9 billion in FY18 to $5.7 billion in FY19 ― jumping from No. 38 to No. 22. Japan's Mitsubishi Heavy Industries vaulted back onto the list to No. 21, with $6.6 billion in defense revenue. However, it's worth noting that defense revenue numbers reflect awards made by the Japanese Ministry of Defense, which leads to more year-over-year volatility among Japanese firms. The three Israeli companies on this year's list — Elbit Systems, Israel Aerospace Industries and Rafael Advanced Defense Systems — moved up in the ranking. The sole South American company on the lsit, Embraer, also moved up, from No. 84 to No. 79. Meanwhile, the only non-U.S. North American company on this year's list — Canada's CAE — dropped four spots to No. 74, but its defense revenue grew by a percentage point. https://www.defensenews.com/top-100/2020/08/17/arms-trade-momentum-globalization-and-us-defense-spending-drive-defense-industry-growth