CAE USA continues Fixed-Wing Flight Training Service with U.S. Army

On the same subject

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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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  December 14, 2023 | International, Aerospace

  US special ops may be buying too many Armed Overwatch planes, says GAO

  The Sky Warden aircraft is intended to carry out close air support, strike and ISR missions against violent extremist groups in permissive areas.

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  March 10, 2020 | International, Naval

  Navy Needs Bigger Budget Than Other Services: Rep. Wittman

  “You can have the greatest brigade combat team in the world," Rep. Wittman said, "but if they can't get to the fight because we don't have a robust ready reserve fleet, that's pretty shortsighted.” By PAUL MCLEARY ]WASHINGTON: A prominent lawmaker waded into the inter-service money wars today by calling for the Navy receiving a larger share of the budget than the other branches of the armed forces. The Army, Rep. Rob Wittman emphasized, can't even deploy abroad without the Navy's help. “We need to look at the one-third, one-third, one-third allocation of defense dollars to all the different service branches,” said Wittman, the top Republican on the Democratic-controlled House Seapower and Projection Forces subcommittee. (The actual allocation is a bit trickier than that, but it's close). “No offense in any way, shape, or form to the other service branches, but we're going to need capability in certain areas and we're going to need those at a faster pace than in other areas.” Wittman represents the shipbuilding powerhouse of Virginia — home to massive naval bases and Newport News Shipbuilding, which makes all the nation's nuclear-powered aircraft carriers and half its nuclear submarines. He appeared at the Hudson Institute today alongside Rep. Joe Courtney, who chairs the subcommittee and who represents Connecticut, where the other half of the nation's nuclear subs are built at Electric Boat. But it wasn't any of these high-tech, high-cost warships that Wittman singled out today. Instead, the congressman was referring to the major shortfalls in allocating money to modernize the nation's sealift fleet, humble but essential transports. A recent exercise showed the sealift fleet would be unable to haul military equipment overseas quickly in the event of a national security emergency. The snap drill found that of the 33 ships activated, only 22 were ready enough to leave port, according to a December paper from US Transportation Command. Shifting more money to the Navy would be a tough sell in Congress, with its hundreds of parochial interests, but Courtney added that his committee might take up the sealift shortage in its markup of the 2021 budget request in a few weeks, a move that could have wide-ranging implications for the Navy's budget. Wittman didn't lay out plans for shifting money to the Navy, but said “a great example” of why sealift needs to be a priority is “you can have the greatest brigade combat team in the world, you can have the greatest Stryker brigade in the world, but if they can't get to the fight because we don't have a robust ready reserve fleet, that's pretty shortsighted.” Splitting the budget roughly in thirds between the services “is not letting the strategy drive the budget, it's letting the budget drive the strategy,” added, which “creates a strategic vulnerability.” Wittman's comments come in the wake of a earlier dust-up between the services over their share of the budget, after Chief of Naval Operations Adm. Michael Gilday told a navy conference in January “we need more money,” in order to modernize. Budgeting as usual, he said, which means “a one-third, one-third, one-third cut, does not reflect the strategy,” laid in in 2019's National Defense Strategy, Gilday said. “It isn't necessarily aligned with where we need to go against the pacing threat that we face.” The Navy is in many ways faced with the trickiest path to modernizing among all the branches of the military. Even as the service continues to struggle to get ships out of repair availabilities on time, it has also committed to building a new class of aircraft carriers, and has to overhaul its Virginia-class submarines. On top of all that comes the biggest-ticket item — a new class of nuclear-powered submarines about to begin construction, which will eat up over 30 percent of Gilday's budget in a few years. The first of the 12 Columbia subs is scheduled to begin construction in 2021 and enter service in 2031. Once completed they'll carry a staggering 70 percent of the country's nuclear arsenal. To clear space, and the chart a path toward a planned 355-ship fleet, the Navy is scrambling. Last week, plans leaked of Acting Navy Secretary Thomas Modly's intent to stand up a Future Carrier 2030 Task Force, which will take six months to study how carriers stack up against new generations of stealthy submarines and long-range precision weapons being fielded by China and Russia. The study likely won't be ready until after Defense Secretary Mark Esper wraps up his assessment of the Navy's 30-year shipbuilding plan and its new force structure assessment, however. Esper took control over both studies last month. The Navy is also looking to speed up the acquisition of a new class of 20 frigates, which would be a relative bargain of about $900 each if the service can stick to its plans and things work out the way they envision. In an attempt to clear some budgetary space for all of this, Modly has kicked off a new ‘Stem to Stern' review of back office functions to try and wrong more money out of existing accounts, which he's hoping to find about $8 billion a year in savings. https://breakingdefense.com/2020/03/navy-needs-bigger-budget-than-other-services-rep-wittman/