August 14, 2018 | International, Aerospace, Naval, Land, C4ISR
By: Jill Aitoro
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.”
November 28, 2023 | International, Land
Early Ford-class maintenance costs are lower than expected, meaning the aircraft carriers could save more than predicted compared to the Nimitz class.
January 11, 2019 | International, Aerospace
SAO PAULO and CHICAGO, Jan. 10, 2019 /PRNewswire/ -- Embraer [B3: EMBR3, NYSE: ERJ] and Boeing [NYSE: BA] have welcomed approval by the Government of Brazil of the strategic partnership that will position both companies to accelerate growth in global aerospace markets. The government's approval comes after the two companies last month approved terms for the joint venture that will be made up of the commercial aircraft and services operations of Embraer. Boeing will hold an 80 percent ownership stake in the new company and Embraer will hold the remaining 20 percent. The companies have also agreed to the terms of another joint venture to promote and develop new markets for the multi-mission medium airlift KC-390. Under the terms of this proposed partnership, Embraer will own a 51 percent stake in the joint venture, with Boeing owning the remaining 49 percent. Once Embraer's Board of Directors ratifies its prior approval, the two companies will then execute definitive transaction documents. The closing of the transaction will be subject to shareholder and regulatory approvals and customary closing conditions. Assuming the approvals are received in a timely manner, the transaction is intended to close by the end of 2019. Forward-Looking Information Is Subject to Risk and Uncertainty Certain statements in this release may be "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the proposed terms of the transaction, the ability of the parties to satisfy the conditions to executing or closing the transaction and the timing thereof, and the benefits and synergies of the proposed transaction, as well as any other statement that does not directly relate to any historical or current fact. Forward-looking statements are based on current assumptions about future events that may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially from these forward-looking statements. As a result, these statements speak only as of the date they are made and neither party undertakes an obligation to update or revise any forward-looking statement, except as required by law. Specific factors that could cause actual results to differ materially from these forward-looking statements include the effect of global economic conditions, the ability of the parties to reach final agreement on a transaction, consummate such a transaction and realize anticipated synergies, and other important factors disclosed previously and from time to time in the filings of The Boeing Company and/or Embraer with the Securities and Exchange Commission. Media Contacts: Chaz Bickers Boeing Communications charles.n.bickers@boeing.com 312-544-2002 Valtecio Alencar Global Corporate Communications Embraer Valtecio.alencar@embraer.com.br 11-3040-6891 SOURCE Boeing https://boeing.mediaroom.com/2019-01-10-Embraer-and-Boeing-Welcome-Brazilian-Government-Approval-of-Strategic-Partnership
April 21, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
PENTAGON: The Pentagon's acquisition chief today said she expects major defense programs to be delayed by around three months due to COVID-19 closures and disruptions, while DoD rushes to pump $3 billion into the defense industry to bolster programs at greatest risk. Speaking to reporters here this morning, Lord said she expects to have to ask the White House and Congress for “billions” more to reimburse contractors affected by work delays and broken supply chains. “We believe it will cost us something,” she said, declining to get any more specific than “billions” of dollars. The months-long delays to programs will likely be spread throughout the defense industry as small parts suppliers shut down operations for days or weeks at a time. “We're looking at schedule delays and inefficiencies and so forth: this isn't about a particular program.” Lord singled out “a slowdown in the shipyards, to an extent. Aviation is actually the most highly impacted sector we have right now.” It's unclear what programs are at highest risk, but the Navy has been bullish on speeding up its new frigate program to award contracts some time this summer. If work slowdowns continue, that could be pushed further down the road. The Army and Navy have also been moving ahead on their nascent hypersonic weapons program, with a series of critical tests planned this year. Lord pointedly suggested that large defense companies need to start pushing more money into their supplier base to ensure small parts suppliers don't go out of business, further impacting new programs and ongoing maintenance efforts. She did praise Lockheed and Boeing for increasing cash flow to lower-tier suppliers, then not-so-subtly says, she is “hoping for similar public announcements from other major primes.” Last month, Lockheed said it would advance more than $100 million to suppliers hurt by the slowdown, and this week Boeing said it was reopening the Philadelphia-area facility where it makes the Chinook, the V-22 Osprey and other helicopters. The Pentagon is starting to award higher progress payment rates this week, pumping $3 billion dollars in increased cash flow to industry. “We try to anticipate the problems and work with the companies to keep going to the greatest degree possible,” Lord said. As part of that effort, DoD's first priority is the modernization process of the nuclear triad, she said: “we look at the Missile Defense Agency, we look at the critical capabilities. We're looking where the greatest pain points are.” While she singled out Lockheed and Boeing, shipbuilder Huntington Ingalls is making a push to speed up contracts and get money into the hands of sub-tier suppliers early, in order to ensure companies way down the supply base food chain can continue chugging along. In a recent interview, company representatives told me they've reached out to over 2,000 suppliers in 48 of the 50 US states. “We need their products today, but we also need them in 90 days, so we want to help them brave the storm,” said Lucas Hicks, vice president of new construction aircraft carrier programs. “We've actually changed some payment terms on some of our supplier contracts to try to make sure that we can front them what they need to stay afloat. We're doing some creative stuff to try and help them be able to weather the storm.” The Department's efforts to backstop the defense industrial base while taking steps to protect its workforce and purchase critical protective clothing like facemasks is still in its relative stages, despite the COVID-19 pandemic having been with us for months. “We are just really beginning to pick up momentum,” Lord said. https://breakingdefense.com/2020/04/pentagon-pumps-3b-into-industry-as-covid-19-delays-loom