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  July 26, 2019 | International, Other Defence

  Budget deal advances despite GOP worries over costs, smaller boost for military

  By: Leo Shane III and Joe Gould House lawmakers on Thursday advanced a two-year, $2.7 trillion budget plan with $738 billion in military funding in fiscal 2020 over the objections of conservative colleagues who objected to the increased federal spending levels. The measure — which passed 284-149 — has the support of President Donald Trump and leaders from both chambers, but drew the support of only 65 Republicans in the final vote. That's roughly one-third of the House GOP membership. Senate lawmakers are expected to take up the matter next week. The measure is designed to prevent a partial government shutdown this fall and stabilize appropriations plans for all aspects of federal agencies until after next year's presidential election. On the House floor Thursday, House Armed Services Committee Chairman Adam Smith, D-Wash., called the deal a critical step forward in restoring regular budget order and predictability not just for military programs, but for all of the government. “There is no secret we have big differences between the Democratically controlled House and White House and the Republican-controlled Senate,” he said. “Despite those differences, we have to function. We have to be able to fund the government and meet our responsibilities to the American people.” Ahead of the vote, Trump worked to bolster Republican support for the measure, which would increase Defense Department spending by more than 3 percent over fiscal 2019 levels. He tweeted that the new budget plan “greatly helps our Military and our Vets.” White House officials (and Republican congressional leaders) had pushed for even more in defense spending recent weeks, while congressional Democrats had insisted any military funding increase be offset with additional non-defense spending. In the end, the non-military money in the new budget deal will grow by about $10 billion more than defense spending over the next two years, and the military spending for fiscal 2020 will fall about $12 billion short of the White House's hopes. Rep. Mike Johnson, R-La., and chairman of the Republican Study Committee, in a statement called the compromise plan “a massive spending deal that will further in debt future generations and remove reasonable safeguards to prevent the growth of government and the misuse of taxpayer dollars.” Rep. Mike Gallagher, R-Wis., and a House Armed Services Committee member, said he would only vote for the deal if it were paired with congressional action to look for paths toward debt reduction. “It you could create a commission that was empowered to bring its recommendations to the floor for an up or down vote, and had members who were younger, next-generation members, I think it could work,” Gallagher said in a video posted to Twitter. Two weeks ago, House Republicans voted against a $733 billion military spending topline as part of the annual defense policy bill, in large part citing insufficient funding totals for national security. House Armed Services Committee ranking member Rep. Mac. Thornberry, R-Texas, on Thursday voted for the slightly larger defense spending total, telling reporters the two-year deal would provide much-needed stability for the military. “Given the political turmoil that comes with an election year ... having a two-year budget deal that takes us to the end, hallelujah, of the Budget Control Act is more valuable than if you had held out for a few billion,” Thornberry said. Democrats had misgivings of their own, including the deal's lack of restrictions on Trump's ability to shift money within the budget toward a controversial border wall. The Pentagon was expected to shift a total of about $6.1 billion from its budget to help build a border wall, including about $3.6 billion from military construction projects. But in the end, all but 16 Democrats in the House backed the measure. House members began their extended summer break on Thursday night, leaving the details of separate appropriations bills reflecting the new budget deal to be sorted out in September. The Senate is scheduled to begin their break at the end of next week, after voting on the measure. https://www.militarytimes.com/news/pentagon-congress/2019/07/25/budget-deal-advances-despite-gop-worries-over-costs-smaller-boost-for-military/

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

  Why defense firms need to get systematic about M&A — big and small

  By: Eric Chewning and Frank Coleman III After years of growth, defense budgets will likely flatten (or decline). In such a financial environment, the U.S. Department of Defense will consider trade-offs between funding modernization, sustaining legacy equipment and preserving force structure. These hard choices will be informed by the DoD's strategic acquisition priorities, which will likely continue to reflect the need for innovation around leading-edge capabilities in areas like space, C5ISR, long-range precision fires, unmanned vehicles and artificial intelligence. To support these evolving mission requirements, the defense industry will need to ensure the industrial base is able to deliver technological advantage. This requires attracting world-class talent as well as the necessary financial capital to operate global industrial enterprises. Attracting these resources requires continued value creation through growth and return on invested capital improvements. But in a down budget environment, where is this growth to come from? While many will think organic growth is the best value-creating option (and often is), the answer also lies in augmenting a classic portfolio strategy with a systematic approach to transactions. Mergers and acquisitions are a proven growth accelerant for defense companies, and have generated superior shareholder returns and greater resilience for companies that have pursued it systematically. At first glance, this may simply seem like an obvious description of recent history. The aerospace and defense sector, after all, has seen rapid consolidation in the last five years, with deals worth $358 billion struck between 2015 and 2019, three times the total between 2010 and 2014. The problem for defense companies looking for more of the same is that this wave of consolidation now appears to have run its course. The combined market value of the top five defense hardware players is now more than four times that of the next five; so even as further mega-deals are theoretically possible, they will be increasingly difficult to execute, underscoring the value of programmatic M&A. Distinct from selective or organic deal-making approaches, programmatic M&A involves a company conducting two or more small or midsized deals per year, with an aggregate value greater than 15 percent of its market capitalization over five years, that align with their overall corporate strategy (which is hopefully linked to the “fast streams” of growth in the budget (see exhibit below)). These deals get choreographed around a specific business case, such as scaling or integrating vital digital capabilities, and are rooted in a disciplined appraisal of transactions. In the defense industry, programmatic M&A should be deployed against a strategy supported by the customer's need for innovation, lower costs and better mission outcomes for the war fighter. Our analysis shows that over the last decade, few defense companies took a programmatic approach to M&A. Those who did outperformed their peers in total shareholder returns by 10.4 percent. M&A was also an important key to resilience during the last defense spending downturn in 2007-2011: The top quintile of outperforming companies, as well as optimizing cash and flexing capex, used it as an opportunity to grow less cyclical parts of the business and build digital capabilities. Defense companies may be deterred by the current market environment, featuring stretched valuations, competition from institutional capital and a squeeze on mid-tier players. They may be cautious about the challenge of integrating smaller nondefense acquisitions into company processes and culture — a process that is easier to get wrong than right to be sure. The very complexity of these circumstances creates opportunities for bold players to differentiate themselves from their peers, align their strategies with national defense priorities and add significant value for shareholders. When done well, programmatic M&A can form a central pillar of their growth strategy. With a proactive approach to deal sourcing, holistic diligence, and in-house execution and integration expertise, companies can establish M&A as a critical capability and avoid the risks of reactive, one-off projects. In the challenging environment that confronts the defense industry today, those who act boldly will succeed in creating enduring businesses that can adapt to the evolving needs of the national defense. Eric Chewning and Frank Coleman III are partners at McKinsey and Company. Chewning previously served as chief of staff in the Office of the Secretary of Defense, and before that as the Pentagon's industrial chief. https://www.defensenews.com/opinion/commentary/2020/11/16/why-defense-firms-need-to-get-systematic-about-ma-big-and-small/

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  July 10, 2020 | International, Aerospace

  General Atomics to conduct test flights of SeaGuardian drone in Japan

  BY BEN SAMPSON ON 9TH JULY 2020 General Atomics Aeronautical Systems is to validate its SeaGuardian unmanned drone for use by Japan's Coast Guard Service in mid-September in a series of test flights. The long endurance Remotely Piloted Aircraft Systems (RPAS) SeaGuardian is a variant of the MQ-9 Reaper drone and features lightning protection, composite materials, and sense and avoid technology. The 79 ft (24 m) wingspan aircraft can fly for up to 40 hours at up to 50,000 ft. The validation flights, which will be conducted in partnership with Asia Air Survey (AAS) are expected to run for approximately two months and will include support from the Japan Maritime Self Defense Force (JMSDF) at its Hachinohe base in Aomori Prefecture. The flights aim to validate the wide-area maritime surveillance capabilities of RPAS for carrying out the Japan Coast Guard's (JCG) missions, such as search and rescue, disaster response, and maritime law enforcement. According to the JCG, the flight validation will be conducted in accordance with “the policy on strengthening maritime security systems,” using drones to perform maritime wide-area surveillance using new technology. “We're pleased to support the JCG's goals of validating SeaGuardian's maritime surveillance performance,” said Linden Blue, CEO of General Atomics Aeronautical Systems. “We know there is a need in Japan and worldwide for affordable, long-endurance airborne surveillance in the maritime domain.” The SeaGuardian system features a multi-mode maritime surface-search radar with inverse synthetic aperture radar (ISAR) imaging mode, an automatic identification system (AIS) receiver, and high definition – full motion video sensor equipped with optical and infrared cameras. This sensor suite enables detection and identification of surface vessels over thousands of square nautical miles. The aircraft's Raytheon-supplied SeaVue surface-search radar system provides automatic tracking of maritime targets and correlation of AIS transmitters with radar tracks. General Atomics Aeronautical Systems' SeaGuardian and SkyGuardian RPAS are designed to operate in all-weather and are built to achieve Type Certification based on STANAG (NATO standard) airworthiness compliance. https://www.aerospacetestinginternational.com/news/defense/general-atomics-to-conduct-test-flights-of-seaguardian-drone-in-japan.html