November 6, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
The COVID-19 pandemic has exacerbated some of the risks that have always existed in the defense industrial base. Although government assistance and a robust Pentagon budget have helped offset initial trials, more challenges are looming.
One of the biggest risks to the defense industrial base is that some companies serving the military are too heavily leveraged toward the commercial sector or too reliant on international companies, financial analysts told Aviation Week's DefenseChain Conference.
“Some of these places are two weeks from bankruptcy,” says Chris Celtruda, managing principal at Destiny Equity Partners, says. Suppliers are beginning to falter because of a combination of factors, including the need to comply with cybersecurity standards, the pressure that prime contractors such as Boeing and Lockheed Martin have applied to them and their reliance on commercial business. A prime example is the recent bankruptcy of Impresa Aerospace, a Wichita-based company that made parts using computer numerical control machines as well as sheet metal parts and assemblies for Boeing and Lockheed military aircraft but was highly dependent on its work for the commercial Boeing 737 MAX.
The U.S. federal Paycheck Protection Program helped delay some business failures, but others are inevitable, says Rick Nagel, managing partner of Acorn Growth. “The Impresa bankruptcy is an example of a lot more insolvencies we may see,” he adds.
Weakness among niche companies could pose a problem for the Defense Department in the future. “I'm always amazed at how many critical systems have multiple single points of failure on major programs,” he says.
At the Pentagon, officials have been working to keep essential suppliers afloat and to keep production moving through its sprawling international industrial base.
For the U.S. Army, that has meant initial disruptions to Apache fuselage production in India and to the flow of generators from Mexico. The Pentagon and the State Department helped ease the stoppage, but the incident has caused them to review the full range of risks to its international supply chain.
“I think that we can navigate through this, though it's certainly always going to be complex in today's global economy,” says Patrick Mason, deputy program executive officer for U.S. Army Aviation, adding that he is in the position of putting pressure on vendors to reduce cost, particularly to provide savings on multiyear aircraft contracts.
One trend emerging along with the pandemic is a movement toward onshoring or reshoring overseas business for reasons of cybersecurity and the protection of the U.S. industrial base.
As that happens, and as the commercial aviation market sags, Raanan Horowitz, president and CEO of Elbit Systems of America sees opportunity. “We are trying to position ourselves around some of those discontinuities,” Horowitz says, adding that the company likes going after opportunities that are not necessarily glitzy but hold value. “We are intensifying efforts toward looking at licensing, taking over orphan product lines and positioning ourselves to be part of the long-term solution.”
Horowitz says Elbit is investing in U.S. infrastructure to capture new business. Industry officials see broad support for bringing more of the defense supply chain back to the U.S. The shift stems in part from the COVID-19-related economic downturn but also from longstanding concerns about China. In the fiscal 2020 National Defense Authorization Act, Congress passed restrictions on contracting with companies that use Chinese telecommunications equipment.
Though companies first look for the best value, the threat posed by Chinese parts that either do not work or could transmit classified information back to China is an ongoing concern, says John Luddy, vice president for national security policy at the Aerospace Industries Association. “The concept of reshoring of supplies to better connect our allies and friends, both from a production standpoint and from an operational functionality and alliance standpoint, I think the volume is getting turned up on that a little bit,” he says. “There's also a strong impetus in Congress to look at exactly how vulnerable we are. That's going to be a more intense discussion in the year to come than it has been.”
And that trend toward reshoring could have unintended consequences, warns Steve Grundman, founder and principal of Grundman Advisory.
“I'm genuinely concerned that benign moves to secure our supply chain to prevent nefarious supplies and code [coming] into particularly our defense supply chain or commercial aerospace supply chain could slip very easily into protectionism,” Grundman says. “If you want to really put pressure on the defense budget, ask the defense industry to reshore the supply chain.
https://aviationweek.com/defense-space/supply-chain/how-covid-19-affecting-defense-industrial-base
May 19, 2024 | International, Land
The Belgian Army continue to rapidly expand its artillery capabilities as the service looks to induct 150mm Caesar and 120mm Griffon systems.
March 12, 2020 | International, Aerospace
Space Force will ask for 2022 money for commercial satcom, but the funds will not be for buying services as industry would like -- rather for R&D. By THERESA HITCHENS SATELLITE 2020: The Space Force is drafting a new Transformative Acquisition Strategy for buying commercial satellite communications capacity, Clare Grason, the chief of the service's Commercial Satellite Communications Office (CSCO), told a panel here today. The new strategy is bouncing off of the new “Vision for Satellite Communications” signed Jan. 23 by Space Command head, and Space Force chief, Gen. Jay Raymond. It's designed to enable the creation of seamless web of communications capabilities to warfighters, even during conflict. David Myers, president of Peraton's Communications sector, told me in an interview that CSCO will likely replace it's current program, known as the Future Commercial SATCOM Acquisition Program, “with something unique to Space Command that better suits this mission of interoperability between between commercial and government.” Indeed, Peraton on March 3 announced they had been granted a $218.6 million contract to provide commercial satellite communications services for Africa Command (AFRICOM). According to the company's March 3 announcement, the “single award, blanket purchase agreement” is a first of its kind, whereby the company “will provide communications services leveraging satellites and emerging technologies from across multiple satellite fleet operators.” At the same time, Grason told me afterwards, the office is in the process of putting together a funding request for 2022 for a newish, congressionally-mandated program of record to buy commercial satcom directly from operators — although she did not reveal the sum. “We are POMing against the commercial satcom program of record,” she said. “We're going through that process right now.” Congress created the independent program element for commercial satcom within the DoD budget in the 2019, putting $49.5 million into the pot. It added $5 million to the program in 2020, although DoD did not ask for funding. There is no money in the 2021 budget request, Grason explained, although she is working on an unfunded requirements request that might be able to fill that gap. The program of record, however, will not be used — at least in the near term — to provide satellite communications services to military users in a manner similar to how terrestrial telecom providers like AT&T sell you a data plan for your phone, as a number of commercial satcom operators have been advocating. Instead, those congressionally appropriated funds would be used “for research and development purposes, to assess capabilities that are emerging,” Grason told me. Once proven, new capabilities might be fed back into the operational program. “Or we could do isolated projects in cooperation with others,” she said. “There's a lot of flexibility and potential for the arrangement.” CSCO is leery of crossing the working capital and congressionally appropriated funding streams, Grason explained. “It's key when it comes down to the program of record that those activities are outside of the scope of our core ... transactions,” she told me. “There are legalities there.” Currently, the CSCO buys commercial satellite bandwidth using a DoD working capital fund — a kind of revolving fund that works a bit like a checking account. CSCO negotiates one-on-one contracts between a satcom provider and a military customer, Grayson said. At any one time, she told the Satellite 2020 audience, the office is negotiating about 30 different deals. “Our office is responsible for connecting a customer to the marketplace,” she explained. Under that system, DoD essentially leases commercial bandwidth for short periods of time — an acquisition model that has been widely disparaged by commercial satcom operators. Indeed, Congress in the 2018 National Defense Authorization Act (NDAA) shifted Grason's office from its original home within the Defense Information Systems Agency (DISA) to Air Force Space Command. That, of course, has now been subsumed by the new Space Force. The goal of the new acquisition strategy, Grason said, is to streamline that process via a kind of bundling of current contracts with providers. “We do have a Transformative Acquisition Strategy under development now, that will evolve how we acquire and deliver commercial satcom on an aggregated basis through a smaller number of contracts,” she said, that will “centralize procurement with industry.” CSCO will then turn around and sign so-called ‘service letter agreements' with military customers that, in effect, make them subscribers to commercial services. “So in essence we'd become like a Direct TV with different cable plans,” she told me, and would managing the relationship between the user and the providers. “It's a challenging objective, but we believe the benefit lies in the fact that we're aggregating buying power, we won't have duplication, we'll have [broad] coverage, and the ability to shift resources without having to set up new contracts.” A first draft of which is due at the end of the year, she said. DoD currently contracts for satcom bandwidth with a number of providers, such as Peraton and Intelsat, which has been vocal in pushing the Pentagon to move to a ‘satellite-as-a-service' model. “There's going to be a very significant change required in the mindset,” Rebecca Cowen-Hirsch, senior vice president for government strategy and policy at Inmarsat Government, told the panel. But the bulk of DoD's satcom services and bandwidth comes via the Enhanced Mobile Satellite Services (EMMS) program, for which Iridium Communications was awarded a $738.5 million, seven-year, fixed-price contract in December 2019. The US military is heavily reliant on commercial satcom, given the fact that military comsat networks, such as the Advanced Extremely High Frequency satellites built by Lockheed Martin and the Wideband Global SATCOM satellites built by Boeing, have limited bandwidth to go around. In fact, Grason told me, access to milsatcom bandwidth is granted via a “prioritization scheme that customers generally speaking are highly dissatisfied with.” That said, she admitted that military users of CSCO's services are naturally a bit skeptical about a new approach.They want to know “how are you going to ensure that the capabilities that we're getting today are not degraded?” she said. “The linchpin is that the customer will pay for the capability in the form of a service level agreement with us.” Myer said one model DoD might want to think about is “buying a pool of capacity that gives them portability to move capacity around.” This would it to leverage buying power, he said. https://breakingdefense.com/2020/03/dod-drafts-new-acquisition-strategy-for-commercial-satcom
July 9, 2021 | International, Aerospace
By 2036, F-35 sustainment costs could exceed the U.S. military's affordability parameters by $6 billion per year.