What’s standing in the way of multidomain operations?

On the same subject

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  March 16, 2020 | International, Aerospace

  Opinion: How New ‘Predators’ Are Reshaping Aerospace Landscape

  By Antoine Gelain Behind the big aerospace and defense (A&D) primes like Boeing and Airbus and the “Super Tier-1s” such as United Technologies (UTC) and GE, a very different type of company is shaping the global A&D industrial landscape in a way that may be even more impactful than high-profile UTC-Raytheon-type mergers. Companies such as Teledyne, TransDigm and Heico are the spearheads of a breed of A&D players dedicated to “components and subsystems,” with explicit and perfectly executed “horizontal” external growth strategies. Their track records are impressive: These three companies—with combined revenues of more than $10 billion—have collectively made close to 200 acquisitions and delivered more than 20% average annual growth rate in either profitability or share value over the last 20 years. Thanks to such returns and skyrocketing market valuations, they are able to outbid most other contenders when going after an acquisition target by leveraging the so-called “accretive effect.” This effect boosts the acquiring company's earnings per share, as long as the price paid for the target as a ratio of the enterprise value (EV) over its earnings before interest, taxes, depreciation and amortization (EBITDA) is lower than that of the acquiring firm. As it happens, the current EV/EBITDA ratio of the three above-mentioned companies stands at more than 18 (see graph). By comparison, most other A&D companies have an EV/EBITDA ratio in the 9-13 range. Such “buying power” is enhanced by operational synergies (for instance, in corporate overheads, sales and marketing), which immediately boost the profitability of the acquired company and can therefore be factored in the offer price. This gives them an additional edge against pure financial investors like private equity (PE) funds, which have historically been strong buyers of such component and subsystem businesses. Two recent deals in Europe (one still ongoing) illustrate this new balance of power. The first concerns Souriau-Sunbank, a $360 million-revenue specialist in interconnection technology for harsh environments. After being owned successively by two PE funds and bought by Esterline (now TransDigm) in 2011, it was again put up for sale last year. While expectations were that a PE fund would grab it, another industrial buyer, Eaton Corp., won the contest, paying the hefty price of $920 million (an EV/EBITDA multiple of 12). The second deal relates to a French company called Photonis, a world leader in night-vision technology for defense and space applications, for which Teledyne is apparently bidding—and offering a price 30% higher than the highest PE bid! These deals highlight the limits of the traditional private equity model (too short-term and too short-sighted) and why the “new predators”—all publicly listed companies—are in a much better position to continue to thrive. In fact, by combining “private equity-like growth in value with liquidity of a public market,” as TransDigm puts it, they are not only beating PE players at their own game, but they are also capturing a significant share of the A&D capital market by offering investors an attractive alternative to the traditional vertically integrated groups such as UTC, Thales or Safran. These groups are typically too busy focusing on large systems and equipment to realize that they would actually benefit from articulating a proper “component and subsystem” strategy. They would benefit not only because their portfolios are still full of such businesses, but also because their long-term competitiveness largely depends on their ability to nurture a strong network of strategic suppliers, in terms of both criticality for their own systems and national sovereignty. As it happens, Photonis seems to be such a strategic supplier, since the current French government just announced it would veto the Teledyne deal, hoping to give other French or European companies or investors time to make a competitive offer for the business. But because PE funds, at least in Europe, are somewhat faint-hearted when it comes to ambitious sector-specific “horizontal” portfolio strategies, and because Europe has no industrial player able to compete with the likes of Teledyne, the outcome of the process is still highly uncertain. In any case, Teledyne, Heico, Transdigm and similar companies are surreptitiously reshaping the A&D industrial landscape by buying technological nuggets and component businesses left and right, on both sides of the Atlantic. In the process, they are boosting their shareholders' returns and changing the balance of power with both traditional private equity investors and large vertically integrated A&D groups. As the saying goes: One man's meat is another man's poison. https://aviationweek.com/aerospace/manufacturing-supply-chain/opinion-how-new-predators-are-reshaping-aerospace-landscape

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  January 28, 2019 | International, Aerospace

  If the money is there, new and improved F-15s could be coming soon to the Air Force

  By: Jeff Martin IN THE AIR OVER KENTUCKY — The U.S. Air Force could buy a new version of the F-15, known as the F-15X, as long as there is enough money in future defense budgets, Air Force Chief of Staff Gen. David Goldfein told Defense News Saturday. And regardless of whether the service does buy the new jets this year, Goldfein said the new aircraft won't be taking money from the Lockheed Martin F-35. “I'm not backing an inch off of the F-35” Goldfein said. “The F-35 buy that we're on continues to remain on track. And I'm not interested in taking a nickel out of it when it comes to buying anything else in the fighter portfolio.” The FY2020 defense budget has been the focus of speculation for months, and the Pentagon has still not released a final topline figure. Original planning had called for a $733 billion topline, which dwindled down to $700 billion after calls from President Donald Trump to slash federal spending and then ballooned up to $750 billion after the intervention of then-Defense Secretary Jim Mattis. In December 2018, Air Force Secretary Heather Wilson told Defense News that “all options are on the table," and on Saturday Goldfein acknowledged that the service had built multiple budgets as different figures were proposed. “We built the [$]730[billion] budget, and we went in and did a drill said what if we only get [$]700[billion] and what do we subtract, and what if there was a [$]750[billion] budget?” he said. Goldfein would not directly confirm that the Air Force has the money in the budget for the new planes. But he hinted strongly that the service would pull the trigger on acquiring them. The F-15X is an improved model from Boeing, teaming a new airframe with an improved radar, cockpit, electronic warfare suite and the ability to carry more missiles, bringing in upgrades that have been developed for the F-15s sold to Qatar and Saudi Arabia. Late last year, Bloomberg reported that the Air Force was planning to request $1.2 billion for 12 of the fourth-generation jets in the 2020 budget request. The report said the aircraft would go to the Air National Guard to replace the olders F-15Cs, which date to the 1980s. And that age is why the Air Force is looking at a new variant. The service currently has about 230 F-15C and D model aircraft in service. However, Goldfein acknowledged those aircraft don't have the lifespan to make it to 2030 like other current fourth-generation aircraft, such as the F-15E, the F-16 and A-10. “It [has] performed brilliantly, but the cost growth runs to a point to where you're spending too much money," Goldfein said. The Air Force's decision to buy new F-15s came as a surprise late last year, as Air Force leadership had previously pushed back on the Boeing sales pitch. As recently as September 2018, Air Force Secretary Heather Wilson said that the Air Force needed to prioritize buying fifth-generation aircraft. "We are currently 80 percent fourth-gen aircraft and 20 percent fifth-generation aircraft,” she said at the time. "In any of the fights that we have been asked to plan for, more fifth-gen aircraft make a huge difference, and we think that getting to 50-50 means not buying new fourth-gen aircraft, it means continuing to increase the fifth generation.” But, Goldfein said Saturday that the decision to possibly refresh the F-15 fleet comes down to the need for more fighters in service, regardless of generation. “They complement each other,” he said. “They each make each other better.” When asked if that meant compromising for quantity over quality, he said that would not be the case. “We've got to refresh the F-15C fleet because I can't afford to not have that capacity to do the job and the missions.” Goldfein explained. “That's what this is all about. If we're refreshing the F-15C fleet, as we're building up the F-35 fleet, this is not about any kind of a trade.” He added that Air Force needs to buy 72 fighters a year to get to the amount they need in the future — and to drive average aircraft age down from 28 years to 15 years. And while Goldfein might want all 72 to be fifth generation F-35s, budgetary concerns likely won't let that happen. “If we had the money, those would be 72 F-35s. But we've gotta look at this from a cost/business case.” he explained. “An F-15 will never be an F-35. Never. But I need capacity.” https://www.defensenews.com/newsletters/2019/01/26/if-the-money-is-there-new-and-improved-f-15s-could-be-coming-soon-to-the-air-force

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  August 21, 2018 | International, Land

  Army Wants 70 Self-Driving Supply Trucks By 2020

  By SYDNEY J. FREEDBERG JR. The Army is ready for unmanned vehicles but not yet for a completely unmanned convoy. The 2020 iteration is called Expedient Leader-Follower because the Army still wants a human soldier driving the lead vehicle, with up to nine autonomous trucks following in its trail. But Oshkosh and Robotic Research told me they could take the humans out altogether, if the Army wanted. If you find self-driving cars impressive today, think about Army trucks that can drive themselves off-road, in a war zone, less than three years from now. For all the Army's embrace of high technology, the service still wants the lead vehicle in the convoy to have a human driver, at least at first. But the unmanned trucks that follow behind will need to stick to the trail without relying on street signs, lane markings, pavement, or GPS. They might not even have a clear line of sight to the vehicle ahead of them, which may turn a corner in a city or disappear into a cloud of dust driving cross-country. En route, they have to avoid not only pedestrians, animals, and vehicles, like civilian self-driving cars, but also rubble, rocks, trees, and shell holes. And they have to avoid solid obstacles without stopping every time they see tall grass, a low-hanging branch, or a dust cloud in their path — the kind of common-sense distinction that's easy for humans but very hard for computer vision. But the Army is confident it can be done. Army Secretary Mark Esper has publicly enthused about the technology after riding in a prototype, saying it could both free up manpower for the front line — most troops work on logistics and maintenance, not in combat units — and save lives from roadside bombs and ambushes — to which supply convoysare particularly vulnerable. After years of tinkering, the Army has accelerated its Automated Ground Resupply (AGR) program by spinning off something called the Expedient Leader-Follower demonstration. Contractors are currently installing Robotic Research LLC's computer brains and sensors on 10 Oshkosh M1075 PLS (Palletized Loader System) trucks that'll be used for safety certification tests in 2019. They'll convert 60 more to self-driving vehicles in time to equip two Army transportation companies in 2020. While the two units' main job will be to demonstrate the technology works in field conditions, “if they get called to deploy, they will deploy with the vehicles,” said Alberto Lacaze, president of Robotic Research, in an interview with me yesterday. “That could happen fairly quickly.” Exactly when the large-scale demo starts in 2020 is still a moving target, based mainly on how 2019's safety testing goes, said Pat Williams, VP for Army and Marine Corps programs at Oshkosh Defense. It's the Army's call on whether to compress the timeline, he told me, but “there's interest in pulling that left where possible.” Full article: https://breakingdefense.com/2018/08/army-wants-70-self-driving-supply-trucks-by-2020