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August 14, 2018 | International, Aerospace, Naval, Land, C4ISR

For IT companies, the secret to success in defense is all about big growth


WASHINGTON — The secret to tackling the defense information technology market may be scale.

Looking specifically at the pure-play IT companies that landed on the 2018 Defense News Top 100 list, many of those that have doubled down in some capacity saw defense revenue increase during fiscal 2017. That came on the tail end of another trend among the largest defense primes, to get out of the IT business.

“The evolution started a couple years ago, where the large defense primes who had boned up on IT service work during the war [on terror] started to realize that for a variety of reasons they might not be able to compete as effectively, or extract the returns they want out of a business like that,” said Jon Raviv, senior analyst and vice president for aerospace and defense at Citi Research.

Divestitures followed, and pure-play IT companies were able to quickly scale up not just in size and their ability to support massive contracts, but also in capability set. The acquisition of Lockheed Martin's IT business transformed Leidos from a $5 billion company to a $10 billion company. That deal closed in late 2016, explaining how the company saw double-digit growth in defense revenue in both 2016 and 2017 — despite the buy actually making the company less defense heavy overall.

Similarly, CACI closed on the acquisition of L3 Technology's National Security Solutions for $550 million in February 2016 — three months before the end of its fiscal year. The associated revenue contributed to the 16 percent increase in defense revenue during 2017.

Leidos CEO Roger Krone, in an interview with Defense News in 2016 soon after the acquisition closed, pointed to “scale, but not scale for scale's sake” as a big factor in the buy — noting, too, the importance of balancing the portfolio and geographic distribution. He also pointed to sheer numbers — 15,000 employees specifically — many with security clearances.

The trend does seem to be continuing. CSRA chose to not participate in the 2018 Top 100 because its $9.7 billion acquisition by General Dynamics closed by the time data collection for the list kicked off. While General Dynamics is a top defense prime, its IT business functions as a largely separate entity, similar to the pure-play IT companies. The acquisition of CSRA, which reported $2.25 billion in defense revenue for fiscal 2016 — will add significant scale to GDIT. It is also likely to influence the company's Top 100 rank next year.

The future promises more cyber and IT-related merger and acquisition activity in the vein of that deal, according to Daniel Gouré, a vice president with the Lexington Institute think tank.

“Raytheon is still in acquisition mode with cyber, so it's an area that's still kind of churning,” he said. “I wouldn't be surprised to see some of these big players acquire some of the more defense-oriented cyber players.”

Unclear is what the sweet spot may be for those exclusively IT-focused firms.

“Where we sit right now, it's not clear what the right size is,” Raviv said. “GDIT and Leidos are about $10 billion in sales; SAIC and CACI and ManTech are lower tier. All of those companies say they are happy with scale but could do a deal. Whether they call it scale, or marrying capability sets — it's all marketing, I suppose.”

And there are other tactics that achieve scale without acquisition. Perspecta emerged on the 2018 Top 100, having launched June 1, 2018 through the combination of DXC Technology's U.S. public sector business, Vencore, and KeyPoint Government Solutions. As one entity, Perspecta reported $2.73 billion in defense revenue and ranked 37. To put that in perspective, Vencore ranked 67 in last year's list, with $886.59 million in defense revenue. And all of these pure-play companies are increasingly marketing themselves as conduits to the “nontraditional players” that the Pentagon is so keen to attract. Amazon Web Services, for example, will often partner with government IT companies on defense contracts to hand off some of the contracting morass.

That said, for all the potential, the bulk of the defense IT market is notoriously fickle. Services often set aside IT projects in an effort to preserve platform buys, and margins can be low. Agencies also struggle to balance upkeep of existing systems versus modernization efforts versus research and development into the next great technological marvel.

But as Raviv noted, it's all IT.

“Yes, there are companies working on high-end cyber, the ability to launch attacks through cyberspace or to harden the communication node on a new missile so it can't be hacked by, say, China. And while the word cyber came up a lot three or four years ago, now you hear a lot about AI, autonomy and machine learning. But it's all technology. And it's a lot of smart people working on a lot of advanced things many of us don't understand.”

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  • Sorry, France: This Fighter Jet Is No F-35 Stealth Fighter

    October 25, 2019 | International, Aerospace

    Sorry, France: This Fighter Jet Is No F-35 Stealth Fighter

    It has a radar cross-section similar to that of a Super Hornet. That means it is nowhere near as stealthy as an F-35. by Sebastien Roblin In January 2019, French Defense Minister Florence Parly announced France would commit $2.3 billion to develop an F4 generation of the Dassault Rafale twin-engine multirole fighter. This would include production in 2022–2024 of the last twenty-eight of the original order of 180 Rafales, followed by the purchase of an additional thirty Rafales F4.2s between 2027–2030, for a total of 210. Since 2008, France has deployed land- and carrier-based Rafales into combat in Afghanistan, Iraq, Libya, Mali and Syria. Despite incorporating stealth technology, the Rafale (“Burst of Fire” or “Gust of Wind”), is not a true stealth aircraft like the F-35. True, the French jet's wings and fuselage are primarily composed of radar-absorbent composite materials and lightweight titanium. Other stealthy design features include S-shaped engine inlets, serrated edges and a channel exhaust cooling scheme designed to reduce infrared signature. These give the Rafale an estimated Radar Cross Section (RCS) of slightly above one square meters—comparable to peers like the Super Hornet and Typhoon, but orders of magnitude greater than that of the F-35 jet. Land-based Rafales are currently priced $76–$82 million per plane, only modestly cheaper than the F-35A which benefits from vastly greater economy of scale, though the Rafale's operating costs are likely lower. Paris particularly prizes maintaining an independent domestic arms industry and has never seriously considered purchasing F-35s. Instead, France is working with Germany and other partners to develop a sixth-generation Future Combat Air System stealth jet to enter service in 2035-2040. Until then, France is doubling down on the 4.5-generation Rafale by integrating additional F-35-style avionics and improving its network-centric warfare capabilities. The Rafale is much more agile than the F-35, with superior climb rate, sustained turn performance, and ability to super-cruise (maintain supersonic flight without using fuel-gulping afterburners) at Mach 1.4 while carrying weapons. The Rafale's all-moving canards—a second set of small wings near the nose—give the Rafale excellent lift and low-altitude speed and performance, as you can see in this majestic airshow display. However, compared to larger fourth-generation twin-engine jets like the Su-35 or F-15, the Rafale can't fly quite as high (service-ceiling of 50,000 instead of 60,000 ft), and has a lower maximum speed (only Mach 1.8 compared to Mach 2-2.5). The Rafale's agility won't help as much if it is engaged at long distances by enemy surface-to-air missiles and stealth jets. To compensate, the Rafale boasts an advanced Spectra electronic warfare system that supposedly can reduce the Rafale's cross-section several times over—it is rumored by reflecting back signals using ‘active canceling.' Spectra also incorporates powerful jammers and flare and chaff dispensers, provides 360-degree early-warning, and can even assist Rafale pilots in targeting weapons to retaliate against attackers. Spectra's capabilities reportedly allowed Rafales to deploy on raids over Libyan airspace in 2011 before air defense missiles had been knocked out. Other key capabilities include sensor fusion of the Rafale's RBE-2AA Active Electronically Scanned Array multi-mode radar, which can track numerous targets over 124 miles away, with its discrete OSF infrared-search and track system, which has an unusually long range of sixty-two miles. Rafale pilots also benefit from uncluttered instrumentation combining voice command with flat-panel touch screens. 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The F4 generation introduces additional network-centric warfare capabilities and data-logistics similar to those on the F-35 Lightning, enabling Rafales on patrol to build a more accurate picture of the battlespace by pooling their sensors over a secure network, and even exchange data using new satellite communications antenna. The pilots also benefit from improved helmet-mounted displays. The Spectra defensive system will receive more powerful jammers and new threat libraries tailored to meet the improving capabilities of potential adversaries. Furthermore, Dassault seeks to use “Big Data” technology to develop a predictive maintenance system reminiscent of the F-35's troubled ALIS system to cost-efficiently implement preventative repairs. Other systems to be tweaked include the air-to-ground mode of the RBE-2AA radar, the M88 turbofan's digital computers, and a new AI-system for its reconnaissance and targeting pod allowing it to rapidly analyze and present information to the pilot. 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Its dual pulse motor will allow it to accelerate just prior to detonation for a greater probability of achieving a kill. For longer range engagements, newer Rafales F3Rs and F4s can launch British Meteor missiles which can sustain Mach 4 speeds. Another weapon set for integration is heavier 2,200-pound variants of the AASM HAMMER, a guidance kit similar to the U.S. JDAM. Previously, the Rafale could only carry 485-pound variants of the weapon which can use either GPS-, laser- or -infrared guidance to deliver precise strikes. Unlike the JDAM, the HAMMER also incorporates a rocket-motor, allowing it to hit targets up to thirty-seven miles away when released at high altitude. The Rafale will also be modified to integrate future upgrades of the French SCALP-EG stealthy subsonic cruise missile and the supersonic ASMP-A cruise missile which carries a 300-kiloton-yield nuclear warhead. Reportedly France may develop a hypersonic AS4NG variant increasing range from 300 miles to over 660 miles. 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All three countries may order additional Rafales, though the price of its initial Rafale order has caused a political scandal in New Delhi. As France must wait nearly two decades before a European stealth fighter can enter service, its armed forces are betting that in the interim adding networked sensors and weapons to the Rafale's superior kinematic performance and powerful electronic warfare systems will keep the agile jet relevant in an era of proliferating stealth aircraft and long-range surface-to-air missiles. Sébastien Roblin holds a master's degree in conflict resolution from Georgetown University and served as a university instructor for the Peace Corps in China. He has also worked in education, editing, and refugee resettlement in France and the United States. He currently writes on security and military history for War Is Boring. This first appeared early in June 2018.

  • Boeing partners with U.S. govt to boost SAF development in APEC countries | Reuters

    November 16, 2023 | International, Aerospace

    Boeing partners with U.S. govt to boost SAF development in APEC countries | Reuters

    Boeing Co said on Thursday it will partner with the U.S. government in a project aimed at addressing challenges faced by Asia Pacific Economic Cooperation (APEC) member countries in developing and scaling use of sustainable aviation fuel (SAF).

  • Booz Allen Hamilton wins massive Pentagon artificial intelligence contract

    May 19, 2020 | International, C4ISR, Security

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