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  April 6, 2020 | International, Aerospace, Naval, Land, C4ISR, Security

  Daily Memo: Emergency Funding For Suppliers, Aftermarket Providers

  Sean Broderick The Coronavirus Aid, Relief, and Economic Security (CARES) Act sets up several new programs and adjusts some existing ones—each aimed at pumping much-needed cash into specific sized organizations or industry sectors. Large portions of the U.S. commercial aviation industry got specific carve-outs in the $2 trillion economic relief package enacted March 27. While these loans and grants will help air carriers and other key industry players offset some financial strife caused by the COVID-19 outbreak, most suppliers will be looking elsewhere for money. Thankfully, CARES gives even the smallest companies options. Topping the list is the Paycheck Protection Program (PPP), a $349 billion pot of money designed to enable the U.S. Small Business Administration (SBA) to provide “expeditious” relief to eligible businesses, an interim final rule published late April 2 said. PPP provides SBA-guaranteed loans equal to up to 2.5 times monthly payroll costs, with a $10 million cap, that businesses can use to keep the lights on for two months. Eligible expenses include payroll, health care benefits, rent and utility payments, as well as some interest expenses. The loans come with a 1% interest rate, maximum two-year terms, and require no collateral or personal guarantees. But they will be forgiven if 75% or more of the funds are used to cover payroll. Among the PPP's wrinkles: only the first $100,000 in an employee's salary can be counted when calculating payroll expenses. Contractors are eligible to apply for their own relief, so their costs can't be counted at all. Also ineligible for counting in the payroll expenses: salaries of employees that live outside the U.S. Businesses can only apply for one PPP loan, so the SBA advises applying for the maximum eligible amount. Determining eligibility is straightforward: a business must find its North American Industry Classification System (NAICS) code, check the maximum employee size for its business category, and compare it to its staff size. While the general small-business benchmark is 500 or fewer employees, aerospace has many exceptions. The threshold for aircraft engine and engine parts manufacturing/maintenance (NAICS code 336412) is 1,500 employees. For aeronautical instruments manufacturing (334511), it's 1,250. If your business falls into multiple codes, the one that generates the most work determines your NAICS code. SBA has an online tool that walks through the process at www.sba.gov/size-standards. The PPP application window opened on April 3. The program's sheer size—SBA's cornerstone 7(a) loan program issued about $20 billion in loans in all of 2019—and its first-come, first-served basis triggered a massive, front-loaded surge of applications. The interim final rule contained key guidance that banks needed to service the program, which meant not all lenders were ready to start processing applications right away. But the situation was improving hourly throughout the day April 3 as more lenders came onboard. Another SBA program that CARES leans on is the Economic Injury Disaster Loan (EIDL). Capped at $2 million with a 3.75% interest rate, EIDLs can be used for a wider variety of expenses than the PPP. Unlike the PPP, however, they are not eligible for forgiveness. CARES also gives the U.S. Treasury Department the authority to make special loan allowances for medium-sized businesses, generally those that are too large for an SBA program and have up to 10,000 employees. Among the caveats: maintaining or restoring 90% of its equivalent workforce as of Feb. 1, 2020 within four months of the official U.S. declaration that the COVID-19 public health emergency is over. Further guidance from Treasury, including basics such as how to apply, are in the works. Some suppliers are eligible to apply for shares of the aviation-specific funds set aside in CARES. FAA-certificated repair stations are mentioned as being eligible for some of the $29 billion in CARES loans, specifically from the $25 billion pot allocated for passenger airlines. But the law says they should exhaust other available CARES funding options first. There is another pot of $17 billion in loans set aside for companies critical to national security. Neither the law nor Treasury defines the term, however, so eligibility remains unclear. If Treasury looks to the U.S. Department of Homeland Security's Critical Infrastructure guidance, aircraft and engine supply-chains would qualify, as would repair stations. Payroll grants for suppliers are murkier. CARES language has a $3 billion set-aside for contractors that both work for airlines and are on-airport. Many maintenance providers would seem to fit here, though Treasury will have the final say. Industry trade associations and legal experts working the issue are learning more by the hour. Their one common piece of advice for businesses: consult with an attorney or tax expert, determine what your business qualifies for, and weigh your options. Many businesses will qualify for multiple programs that cannot be mixed, creating an either/or choice that comes down to the various strings attached to each. https://aviationweek.com/air-transport/aircraft-propulsion/daily-memo-emergency-funding-suppliers-aftermarket-providers

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  February 25, 2020 | International, Aerospace

  Convincing Congress: Secretive programs could prove harmful to Air Force funding plans

  By: Valerie Insinna WASHINGTON — The words “classified program” conjure up images of experimental planes, highly advanced super weapons and unidentified flying objects operating under cloak and dagger at Area 51. But as the U.S. Air Force gears up to defend its fiscal 2021 budget on Capitol Hill, lifting the veil of secrecy on some of these programs will be key to getting lawmakers on board with controversial retirements of legacy aircraft, defense analysts said. In its FY21 budget proposal, the Air Force asked to cut 17 B-1 bombers, 44 A-10 jet aircraft, 24 Global Hawk Block 2 and 3 surveillance drones, as well as 13 KC-135 and 16 KC-10 tankers. It is also cutting the number of contractor-flown MQ-9 Reaper combat air patrols, and it will replace 24 C-130H airlifters with 19 C-130Js coming online. Those reductions net $21 billion in savings over the next five years, with about 40 percent of that spent on classified programs buried in the black budget, creating the initial appearance of capabilities disappearing without any kind of a replacement and no obvious boost to research and development funds. That could create a challenge for the Air Force as it tries to get members of Congress and their staff on board, Air Force Chief of Staff Gen. Dave Goldfein acknowledged during an exclusive interview on Feb. 18 with Defense News. “Most of what we're giving up is unclassified. On the minus column you're going to see things that are real, that are flying right now that are all legacy, real legacy capability. It's a real risk to combatant commanders today. What we're buying — not all but a lot of it — is in the classified realm,” Goldfein said. “As we go forward with Congress, I think our biggest challenge, quite frankly, is we were able to talk up to the secret level and above inside the Department of Defense in most of our conversations. That's harder to do with Congress,” he added. The Air Force is trying to combat that by “doubling down” on office calls with lawmakers and congressional staff to discuss the classified investments. Goldfein said the service has done “well over 20” meetings with members of the congressional defense committees and is on track to brief every lawmaker willing to sit down for a classified briefing before public budget hearings start next month. But Mackenzie Eaglen, a defense budget expert at the American Enterprise Institute, noted that such briefings are time-consuming and may not be of interest to most lawmakers. "The members that are going to take the time to go to a [secure room] and get read in and figure out what's what — there are even some members of the armed services [that won't do that]. It's pretty limited who is going to have that kind of time,” she said. It will be important for the Air Force to publicly justify — at unclassified hearings and other venues — what its classified investments are going to enable, said Todd Harrison, a budget analyst with the Center for Strategic and International Studies. “How does it contribute to implementation of the [National Defense Strategy]? How does it address vulnerabilities in the force? How does it create strategic challenges for our adversaries? If they can talk about that and then [be] more explicit with Congress about how the money is being used, I think that could help mitigate some of this,” Harrison said. “If you can't talk about the new investment, the positive aspect for 40 percent of the cases, I think the Air Force is effectively going into this fight with one arm tied behind its back.” While the large investment in classified programs is a challenge, it is not insurmountable, said David Deptula, the dean of the Mitchell Institute for Aerospace Studies and a retired Air Force lieutenant general. “Because a good chunk is classified, that's a good thing. These are truly strategic advantages that we're investing in, and they're not items that you'd want out there in the public space,” he said. Goldfein is confident he will be able to convey to Congress the importance of retiring key aircraft at this point in time. “At least we can lay out the why,” he said. “It's going to be hard. Asking Congress to retire legacy aircraft is always hard. But I think we have a really positive story to tell, with the analysis behind it.” Across the board — whether the Air Force has to defend cuts to the B-1, A-10, Global Hawk or tanker fleet — the argument comes down to fleet management, he said. “We're putting on the table 17 B-1s, at least to this point,” Goldfein said. “Many of those 17 B-1s are on the ramp, but they were not flying. Then you do your business case on what it would take to actually get them back to a high enough readiness rate, and the business case actually doesn't justify it. “You'll see the same methodology we used for each of those weapons systems. How do you retire the oldest of each, refunnel that money into the remaining fleet so you can keep that fleet flying for longer?” But any skeptics in Congress will want to see hard data proving there are benefits to retiring some of these aircraft, or a plan to drive down risk, Harrison said. For instance, the Air Force is retiring its oldest, least capable B-1 bombers, but it will keep all associated maintainers and infrastructure, which cuts down on the savings. To make a case to Congress, the Air Force must make a strong argument on why that reduction could improve mission-capable rates, and the service must provide the statistics, he said. Regarding the KC-10 and KC-135 tanker reductions, Harrison said the Air Force must describe exactly what it will do to ameliorate a demand for aerial refueling that already exceeds what the service can provide. “What is the Air Force going to do over the next few years to mitigate the lack of tanker support? Is the Air Force going to go forward with some of the plans they've previously had to do contracted tanking as an interim solution like the Navy has been doing?” he wondered. And to justify the Global Hawk fleet, Harrison said, the Air Force may be called to defend why it is getting rid of those highly utilized assets instead of the aging inventory of U-2 spy planes. The biggest arguments in favor of keeping legacy aircraft will likely come from lawmakers in districts affected by retirements of legacy aircraft. It will be up to the Air Force to explain to those members what capabilities will come on board to replace it, or why these divestments need to take place even if there is no immediate replacement, Deptula said. “We'll see what happens,” he said. “I think in some districts you'll see understanding and support. If you look at the bomber issue ... with the promise of modernized B-21s that are coming on board, I think that there are some congressional districts and members who will go: ‘Yeah, OK, we understand that logic.' ” https://www.defensenews.com/digital-show-dailies/air-warfare-symposium/2020/02/24/convincing-congress-secretive-programs-could-prove-harmful-to-air-force-funding-plans/

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  December 17, 2020 | International, Land

  US Army and South Korea’s Hanwha will research projects together

  By: Jen Judson WASHINGTON — Hanwha, South Korea's largest defense company, and the U.S. Army have signed an agreement to research and develop defense systems and technologies together, according to a statement from the Asian firm. The Cooperative Research and Development Agreement (CRADA) was signed Dec. 10 by Hanwha Corporation and Hanwha Defense and the U.S. Army Combat Capabilities Development Command Armaments Center (DEVCOM AC). Hanwha is the first Korean company to enter into a CRADA with the U.S. Army, according to the statement. “This is a historic and exciting opportunity,” Ret. U.S. Army Lt. Gen. Bernard Champoux, head of Hanwha's US defense operations and former 8th Army commander, said in the statement. “It not only acknowledges the quality of the Republic of Korea's growing defense sector, but also further strengthens the bilateral US-ROK relationship and the Alliance.” A senior delegation from DEVCOM AC visited South Korea in November 2019 to discuss possible collaboration with Hanwha. “Both parties shared their interest in jointly developing capabilities for the U.S. and other international military markets, with potential commercial spin-off applications,” the statement notes. The agreement will allow the company and DEVCOM AC to exchange resources, technical expertise and intellectual property. Efforts may include extensive simulation, modeling and prototyping throughout the design, development and testing of a wide range of defense solutions such as fire armaments systems, ammunition, vehicle and armaments system interfaces, protection systems, propulsion and robotics. “For Hanwha, this agreement is yet another step in demonstrating its commitment to US defense stakeholders and the US economy by facilitating transfer of technologies that can be incorporated into the American industrial base,” the company states. Hanwha is hoping to build off the momentum from recent international success including competitive participation in Australia's LAND 400 and LAND 8116 programs. Hanwha's Redback Next-Generation Infantry Fighting Vehicle is a top contender for the LAND 400 competition while its K9 Huntsman Self-Propelled Howitzer has been chosen for Australia's LAND 8116 program set up to build 30 new howitzers with upgrade plans in the 2030s. Hanwha is teaming up with Kongsberg Defence Australia on the effort. Australia's LAND 400 program is an effort to procure a new combat reconnaissance vehicle. Hanwha's Redback is going head-to-head in trials with Rheinmetall's KF41 Lynx Infantry Fighting Vehicle. Australia will evaluate the offerings in trials over the next year. In the U.S., many close to or directly involved in the Army's Optionally Manned Fighting Vehicle competition to replace its Bradley Infantry Fighting Vehicle are keeping an eye on Hanwha as a possible competitor. The Army is expected to release its request for proposals for the competition Dec. 18. The Army is embarking on its second attempt to hold a competition for the OMFV program after receiving just one bid sample by its deadline. A physical bid sample is not a requirement in the new competitive effort. Sources confirmed to Defense News at the time that Hanwha had seriously considered a bid, but decided against it. BAE Systems also chose not to compete. Rheinmetall, Hanwha's LAND 400 direct competitor, is expected to submit a proposal to participate in the OMFV competition with a team of Raytheon and Textron. General Dynamics Land Systems and BAE Systems are also expected to submit proposals. The Army is also gearing up for a future mobile howitzer shoot-off in 2021. It is unknown whether Hanwha plans to enter the competition, which is expected to have a deep pool of competitors. The company also demonstrated its BIHO “Flying Tiger” air defense system as a possible Short-Range Air Defense System as the U.S. Army scrambled to develop an interim SHORAD capability in response to an urgent operational need from the European theater just a few years ago. Hanwha “has its foundation in the development and production of energetics with 68 years of accumulated expertise,” the statement says. “The company is recognized for its modernized production of explosives propellants, and advanced precision guided munitions for the Republic of Korea and numerous allied nations.” The company is also a “leading combat ground vehicle and weapons systems developer” in South Korea with almost 50 years of technology development and production, according to the statement. Norway, Finland, Estonia, Poland, India and Turkey have all been customers of Hanwha's self-propelled howitzer solutions, the statement notes. https://www.defensenews.com/land/2020/12/16/us-army-and-south-koreas-hanwha-solidify-joint-defense-research-pact/