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June 11, 2020 | International, Aerospace, Naval, Land, C4ISR, Security

Defense industry’s COVID costs could tank DoD modernization plans

By:

WASHINGTON ― The Pentagon is facing billions of dollars in pandemic-related claims, which may force it to dip into modernization and readiness accounts if Congress doesn't backfill the money, the department's top acquisitions official said Wednesday.

Testifying at the House Armed Services Committee, Undersecretary of Defense for Acquisition and Sustainment Ellen Lord reaffirmed the Pentagon's commitment to request supplemental appropriations from Congress, beyond its fiscal 2021 budget of $740 billion. It's been seven weeks since Department of Defense officials first publicly disclosed a request was coming; that request is currently sitting with the White House Office of Management and Budget.

The defense industry claims are expected to be covered by Section 3610 of the coronavirus relief package, among other provisions, Lord said. To give an idea of the scope, one of the major prime contractors told the DoD it and its suppliers could claim as much as $1 billion.

Under Section 3610, the Pentagon and other agencies can reimburse suppliers for expenses to keep workers employed. Under other provisions, contractors can seek reimbursement for leave and DoD-directed purchases of personal protective equipment, cleaning, and costs associated with spacing out workers in factories.

“The department does not have the funding to cover these costs,” Lord said, which she later said were “in the lower end” of “double-digit billions of dollars.”

Lord affirmed the Defense Department would need Congress to pass supplemental appropriations beyond its fiscal 2021 budget during an exchange with HASC ranking member Mac Thornberry, R-Texas.

“Otherwise these contractors are going to have to eat several billion dollars, which could well come at their employees' expense, which this was supposed to help to begin with,” Thornberry noted.

“There's a choice there,” Lord said. “Whether we want to eat into readiness and modernization ― and slow down modernization or readiness on an ongoing basis ― or whether we want to remedy the situation in the next six months or so ... and continue to have the ready forces we need for our national security.”

Though some House Democrats have expressed reservations about the size of the Pentagon's budget request, HASC Seapower and Projection Forces Subcommittee Chairman Joe Courtney, D-Conn., expressed support, saying: "The intent of Congress needs to be followed up on with an appropriation.”

Courtney called on the DoD to provide Congress the data underlying its request, when the request actually arrives on Capitol Hill, saying it would foster conversation among lawmakers.

The Pentagon has rough calculations, but contractors have not yet filed claims, Lord said, because Congress has not drafted an appropriations bill. She speculated the full extent of the issues will emerge over time.

“I believe they are concerned that they'll get a one-time shot and want to make sure what the entire situation is,” she said. “We believe we understand the lower end of the number.”

https://www.defensenews.com/congress/2020/06/10/defense-industrys-covid-costs-could-tank-dod-modernization-plans/

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  • French defense firms fête formidable profits in 2019

    March 2, 2020 | International, Aerospace, Naval, Land, C4ISR, Security

    French defense firms fête formidable profits in 2019

    By: Christina Mackenzie PARIS – France's major defense companies are looking back at a strong 2019, thanks to a combination of exceptional contracts and the country's overall healthy economy, executives said this week. In the naval sector, Naval Group's orders shot up 44 percent to €5.3 billion ($5.8 billion) in 2019, taking the company's order book to a total of €15.1 billion ($16.6 billion). Of this, 38 percent is for the export market and 62 percent is for France. Roughly three quarters of the business were in the shipbuilding sector, with almost one quarter in services. These figures do not include the whole of the contract to build 12 submarines for Australia, “as this income will be shown as it is paid, tranche by tranche,” explained outgoing CEO Hervé Guillou. In addition, the group saw a 6 percent rise in EBIT (earnings before interest and taxes) to €282 million ($310 million) and a 3 percent rise in revenues to €3.7 billion ($4 billion). Guillou, who will be replaced as CEO in March by Pierre-Eric Pommellet, said his successor had four main challenges for the future: delivering the Suffren submarine; accelerating production in the face of Chinese competition; consolidating the group's international presence; and developing the workforce. In the land sector, revenues for Arquus, the French company which is the defense arm of Sweden's Volvo Group, rocketed 72.5 percent between 2017 and 2019. CEO Emmanuel Levacher said he was not allowed to give revenue and sales figures for Arquus, whose revenues are included in the Volvo “Group functions and other” column. However, those data show net sales for 2019 were SEK8.8 billion ($911.4 million), which means they are likely around the $660 million mark. Levacher was all smiles announcing “a very great year” that was “exceptionally rich,” remarking that “this is remarkable growth for an industrial company.” He said he expected the company to grow a further 10 percent in 2020. Exports accounted for 42 percent of the revenue. Levacher was able to put a figure on contracts signed in 2019: €1.2 billion ($1.3 billion) “mostly in Africa,” but also a tranche of €214 million ($235 million) in the framework of the CaMo contract with Belgium for 382 Griffon multirole armored vehicles and 60 Jaguar armored reconnaissance and combat vehicles to be delivered between 2025 and 2030. Levacher said contracts were also signed for “a few dozen” Sherpa and Dagger vehicles for the Middle East. He was optimistic for the future, remarking that “all of the French army's military trucks, whether they be 4×4s, 6×6s, 8×8s all need to be changed in the next five years.” He said the company had developed a specific truck to meet these needs as the call for tender will be published before the end of this year. In the defense-electronics sector, Thales's CEO Patrice Cain also described 2019 as “a good year in which we progressed.” Its EBIT rose 19 percent to slightly over €2 billion ($2.2 billion), “the first time we've gone over the symbolic bar of €2 billion,” he said. Defense accounts for 40 percent of the group's revenues. Order intakes in the defense and security sector rose a record 17 percent to €9.9 billion ($11 billion) while sales rose 6.4 percent, “a little higher than anticipated,” according to CFO Pascal Bouchiat, to €8.3 billion ($9 billion). These include Thales and Babcock winning the bid for the T31 frigate in the UK against BAE Systems. Bouchiat noted that “several multi-year contracts” had been signed “underpinning long-term growth” for the group. Finally, in the military-aircraft sector, Dassault Aviation recorded an order intake of €3.3 billion (against €2.7 billion in 2018), the bulk of which (€2.6 billion) was for France and includes the integrated support contract for the French Rafale over the next 10 years and an additional order for supplemental development and integration work concerning communications for the F4 standard of the aircraft. Net sales shot up 44 percent to €7.3 billion due to the record number of 26 Rafales delivered in 2019. CEO Eric Trappier said that in 2020 Dassault expected to deliver 13 Rafales and he saw a tendency of governmental authorities to buying the company's Falcon business jet for surveillance and reconnaissance missions. Trappier said that in 2020 the company would continue to try and export the Rafale and was notably working on the Finnish and Swiss fighter competitions. Both countries are expected to make their decisions in 2021. https://www.defensenews.com/global/europe/2020/02/28/french-defense-firms-fete-formidable-profits-in-2019

  • U.S. arms makers and medical device firms team up to make ventilators

    May 5, 2020 | International, Land

    U.S. arms makers and medical device firms team up to make ventilators

    WASHINGTON (Reuters) - U.S. weapons makers have teamed up with medical device companies to increase the supply of ventilators that can be used to combat the coronavirus pandemic, people working on the project said. The two groups do not regularly partner on projects, but when a defense industry consultant with an engineering background realized weapons makers could help solve supply-chain problems within the U.S. ventilator industry, the creation of Vent Connect was set in motion and is set to be announced on Monday, the people said. The idea gathered momentum when industry associations like the Aerospace Industries Association, which represents plane makers and defense contractors including Lockheed Martin Corp (LMT.N) and General Dynamics Corp (GD.N), teamed up with AdvaMed, the Advanced Medical Technology Association, whose members include vent manufacturers. A handful of ventilator makers including ResMed Inc (RMD.N), and Zoll, an Asahi Kasei Corp (3407.T) company, post requests in the ventilator parts marketplace to a group of 60 weapons and airplane makers to help meet surging demand for the life-saving machines, an AdvaMed representative said. Working since March to cut through challenges as varied as how to handle intellectual property, confidentiality issues, cybersecurity and logistics, the two associations created the marketplace that is now serving as a new avenue for the ventilator supply chain. The defense companies involved in the project did not want their names published because they did not want to appear to seek credit for their efforts. At its outset, the task was gargantuan. One ventilator maker, Medtronic (MDT.N), released a parts list with over 1,500 items to see if there was any crossover with the defense supply chain, two of the people said. Alphabet Inc's Google (GOOGL.O) was brought in to help set up a website so that the companies could better coordinate online. The two industries share some common equipment. For example, fighter jets use pressure sensors to regulate oxygen to their face masks, which are also a key element in a ventilator to ensure that the rhythm of a patient's breathing pattern is monitored and maintained for the person's comfort. The efforts to try to stem the ventilator shortage are being worked on by the U.S. Army as well. In mid-April, Army Secretary Ryan McCarthy offered an investment of $100,000 to innovators who could come up with a “rapid ventilator production system to support field hospitals that are still requiring critical infrastructure.” https://www.reuters.com/article/us-health-coronavirus-industry/u-s-arms-makers-and-medical-device-firms-team-up-to-make-ventilators-idUSKBN22G12C

  • Major players bid for chance to build US Marine Corps’ next recon vehicle

    May 5, 2021 | International, Naval, Land

    Major players bid for chance to build US Marine Corps’ next recon vehicle

    Bids are in for the U.S. Marine Corps competition to build an advanced reconnaissance vehicle prototype.

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