26 mars 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
Andrew Eversden
To stop the spread of the new coronavirus, federal agencies could shutter facilities. States and localities are already issuing shelter-in-place orders. And with obscure rules surrounding telework for federal contractors as well as the potential for supply chain disruptions and employee infections, there could be a new level of unpredictability for the contractor community.
“There's both a little bit of stability and a fair amount of uncertainty,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council, an interest group representing more than 400 government contractors.
“Things that were normal yesterday are not normal today. Behaviors that were planned for over the last couple days have been changed as government missions are changing,” he added.
In the near term, schedules laid out in contracts will likely experience delays and costs may increase due to disruptions caused by COVID-19, said Jonathan Aronie, head of law firm Sheppard Mullin's government contracts practice group. These disruptions could be caused by employees not coming into work, or their suppliers' employees not working.
President Donald Trump said March 18 that he's willing to use the Defense Production Act to force companies to manufacture goods the government needs to fight the virus, like ventilators or masks. These orders become “rated,” essentially allowing the government to skip to the front of the line.
That poses other challenges.
“While some companies are going to have problems that are slowing them down, other companies are going to have the problems associated with an influx of new orders,” Aronie said.
Aronie warned of a complex web of orders that companies could have to fulfill, pulling businesses in different directions. For example, he said, companies could get an order from a hospital, an order from a state government with a preexisting contract, and then a rated order from the federal government as well as agencies without rated authorities — potentially overwhelming and confusing manufacturers.
“Somehow you're going to have to make sense of this all,” Aronie said.
Effects of telework
Across the government, federal employees eligible for telework have generally been allowed to do so. But contractors haven't always followed the same rules. Not allowing contractors to telework could have significant ramifications, experts warned. Many contractors are required by their contracts to work in government facilities. But to stop the spread of COVID-19, access to these facilities could be limited or completely shut off.
This conundrum leaves contractors with questions for the government.
“Are there going to be access issues? Are contractors going to be asked in some cases to work from home where previously they were going into a government facility? What does that mean from a performance perspective? What does that mean from a cost perspective? How do you work that out with the government?” said Roger Waldron, president of the Coalition for Government Procurement. “These are some of the thing people are thinking about.”
On March 20, the Office of Management and Budget's deputy director for management, Margaret Weichert, released a memo urging agencies to “maximize telework for contractor employees.” But, as reported by Federal News Network, Weichert's memo did not mandate telework for federal contractors, leaving industry frustrated.
Several interest groups that represent government contractors called on congressional leaders and the White House to allow contractors to work from home. PSC wrote a letter to OMB on March 18 warning that not issuing guidance regarding extending telework flexibility to contractors could lead to layoffs.
“The duration of this is a huge uncertainty, if it does get worse before it gets better, if folks are really unable to perform the kind of work that need to be done at some government locations, that'll have some impact on people,” Chvotkin told Federal Times.
Over the last few days, several states such as California and New York have begun following shutdown orders that could leave contractors in tenuous positions. A Justice Department memo from March 20 also directed U.S. attorneys general to tell state and local officials that federal employees must be allowed to travel and commute, “even when travel restrictions are in place.” This action didn't mention contractors either.
State governments are going to have to “recognize that exceptions are going to be essential and some federal missions are just going to be so important to continue on that they'll have to accommodate them,” Chvotkin said.
How does this compare to the government shutdown?
This is the second consecutive year that contractors have faced challenges due to a crisis; last year's was the record 35-day government shutdown.
Some aspects of the 2019 shutdown and the coronavirus crisis are the same. For example, Aronie said, both increase delays and incur higher costs on contractors. The big difference is that some companies will receive more work, instead of less.
Another significant difference is that employees, both from the federal government and contractors, are still working — many federal employees from home.
This increase in telework has increased agencies' demands for IT infrastructure as they work to accommodate the rise in telework. Last week, the White House requested several billion dollars for agencies to improve their IT infrastructure.
Under the COVID-19 pandemic, the uncertainty is greater than during a government shutdown, experts said, because the ending was solely in the hands of the government.
“Even in the shutdown ... everybody recognized that it was going to end sooner or later. It was under both the congressional and presidential control to bring an end to it — not so here,” Chvotkin said. “There's nobody who can just decree that the coronavirus has been cured.”
12 septembre 2023 | International, Aérospatial
Aerospace suppliers and airlines around the world warned of rising costs and a squeeze on plane capacity after U.S. engine maker RTX disclosed that a rare manufacturing flaw could ground hundreds of Airbus jets in coming years.
21 mai 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
Michael Bruno May 20, 2020 If you like the cadre of big aerospace and defense companies now, you are going to love them later. Among the major trends the novel coronavirus is expected to catalyze within aerospace and defense (A&D) manufacturing is that the big will get bigger by gobbling up others or taking back more work. In the next few years, vertical integration should pick up momentum, according to several executives and consultants. After decades of OEMs, primes and top-tier companies outsourcing major work on their programs, many see the pendulum swinging back to bringing more of it in-house. “We've already seen signs of more vertical integration coming through the industry and potentially where some of that could be accelerated as we work through the crisis,” says one advisor. Boeing started this a few years ago as it insourced avionics and other niche segments. Major consolidation picked up last year with the mergers of Raytheon and United Technologies Corp. and L3 Technologies and Harris Corp. Now, whether it be protecting profits or securing supply, the reasons to own more of the work are burgeoning as industry is refashioned in the COVID-19 crisis. For starters, aerospace suppliers are facing diminished economies of scale but a greater share of fixed-cost in production, with a likely loss in profitability and competitiveness, say Roland Berger advisors Robert Thomson and Manfred Hader. So-called organic top-line increases, through insourcing and acquisition of additional work packages, are possible but only to a limited degree. A fixed-cost reduction likewise is only feasible up to a certain level due to equipment and overhead structures. So consolidation is an important lever to consider. Part and parcel to that will be the financial distress into which suppliers in Tier 2 and below fall—and the opportunity to roll them up. Top CEOs are watching. Speaking May 13 to an investor conference, Honeywell International Chairman, CEO and President Darius Adamczyk cited an inflection point. “For a couple of years now, I've been talking about how it is a seller's market, not a buyer's market,” he told Goldman Sachs. “But that calculus may change in the second half of the year, and I think it could become a bit more of a buyer's market, and the valuations may be better and different. That's something that we want to partake in.” Feeding the phenomenon could be a desire to bring supply closer to home, both for reliability and geopolitical reasons. Suppliers overseas once were revered for their low-cost footprint, but suddenly they are seen as vulnerable to pandemics, economic stress and global trade wars. In turn, consultants expect industry leaders to take another look at favoring local regions. Even in the defense realm, which for now is considered safer during this downturn, there is talk of larger firms becoming even more powerful. “Large pure-plays should come through the pandemic relatively unscathed but may be looking at lower spending growth outlooks,” Capital Alpha Partners Managing Director Byron Callan noted May 13. “Mergers and acquisitions may thus be more important in delivering growth—even though it's not organic growth—in 2021-25.” So where to look for vertical integration and consolidation from the top? Clues are already emerging, according to advisor presentations. First, look at niches where top suppliers already are prevalent—environmental and flight-control systems, landing gear, electrical power and interiors—and others where they are not there yet, including maintenance, repair and overhaul, logistics, aerostructures and engines. Next, look at the supply base from the perspective of a top supplier. Who is distressed or drawing down credit lines? What revenue mix do certain potential targets have—e.g., commercial vs. defense, products vs. services or aging vs. next-generation platforms? Finally, consider where the new nucleus of consolidation will be. Will more “super Tier 1s” such as Raytheon Technologies emerge, or will conglomeration occur among Tier 2 and 3 providers? The first would allow rationalization of capacity for detailed part production from Tier 1 to 3, for instance, with the super Tier 1s able to secure through-value-chain control and prevent subtier supplier failure, according to Roland Berger. The latter likely would be opportunistically driven rather than following any overarching industry logic. For smaller suppliers, the questions are more concise, as one consultant says. Do you want to be a buyer, a seller or risk it as is? A simpler question, for sure, but no less difficult to answer. https://aviationweek.com/aerospace/manufacturing-supply-chain/manufacturing-reshapes-after-covid-19-size-will-matter
9 janvier 2024 | International, Aérospatial