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  15 octobre 2018 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

  Harris and L3 CEOs talk merger, divestitures and why we all should have seen this coming

  By: Jill Aitoro If you ask Chris Kubasik, CEO of L3 Technologies, the company's pending merger with Harris Corp. should not come as a surprise to anyone. Such a move made sense on paper for years, even if the timing was never quite right. Now it is: Both companies are on an upswing, and both companies are led by individuals with an inclination to get it done. The result will be a deal — the largest defense merger in history, if you look at market capitalization — to create the seventh largest defense prime in the world. Defense News spoke to Kubasik and Bill Brown, the CEO of Harris, to find out more about the newly rechristened L3 Harris Technologies. Chris, you called this an acquisition that many felt made sense. So what were the challenges to making it happen, and why is now the perfect time? Chris Kubasik: I think in reality, people thought for years that this combination made sense. It was due to Bill and I working hard that we actually got it done. I think that now is the perfect time because of the customer's needs and demands for innovation and solution. Like I said, with the upswing in both companies, and both companies being strong, I think that gives us the opportunity to put this together, generate the cash and the synergies and position us for long-term value creation for our shareholders. The challenges of all these acquisitions [are so often] culture and leadership. Here, the cultures are aligned. Bill and I are completely aligned. We've known each other for years. We have a clear understanding of roles and responsibilities. We're going to jointly chair the integration committee to make sure we get the best of the best — best people, best processes, best system. I'm sure I've never been more excited in my career than I am today, so it's going to be a lot of fun. The stakeholders are all going to benefit. Bill, how much was the 2015 acquisition of Exelis a building block toward this deal? Not necessarily a merger with L3 specifically, but really big merger that would really transform the company? Did you see this coming? Bill Brown: I've been here for seven years, so we really started early on in developing a culture of operational excellence. I think that has been pretty well embedded within the company. We've made some good progress here. We've leveraged a lot of those tools, effectively integrating Exelis. We reached the cost savings targets we thought we would deliver and we delivered it a year early. So I think we built a little bit of a muscle on how to do an integration. I think this is a great potential combination for us. It does position us well within the defense industrial based hierarchy. We'll generate a lot of savings. But more importantly, the portfolio capabilities is going to allow us to do different things, to provide different capabilities to the war fighter and different things that are clearly laid out in the National Defense Strategy. So as I look at this, it's the right transaction. It's the right time. It's the right environment to do this. A lot of this comes down to the leaders of the organization, and Chris and I [are] completely aligned in what to do and how to create value. So much of this also involves combining and integrating in a smart and efficient way, so should we expect any more divestitures? I know L3 just did a couple recently. Any more to come? Brown: I think if you look at what L3 has done recently, and what we've done over the last five or six years, we both have taken a critical eye to the business portfolio we had. If there's assets we think that are better owned by somebody other than [ourselves], we take a dispassionate view of that. And we transition those assets to a different owner. I think Chris and I will take a look at that going forward. I think there will be [divestitures], given the diversity of the business mix we'll have together. It does create the optionality for additional portfolio shaping. Nothing to mention today, but something we'll be taking a close look at over the coming months and years. Okay, so the couple of years before the transition, in terms of leadership — should I figure that those two years are going to be spent really establishing the integrated company? Kubasik: Absolutely. The top two focuses of Bill and I and the team will be the integration, and continuing to execute on our existing programs and commitments. That is first and foremost. We're going to generate a lot of cash. It's going to take several hundred million dollars of investments to integrate these companies. Then the rest of the cash we're going to maintain a competitive dividend, consistent with what we've done. We're very similar in that regard. In the first year, we're going to use the excess cash to repurchase shares. So the likelihood of acquisition from those first two years are very low. As Bill said, we'll look at the portfolio. We've clearly spent a lot of time together, but the next few months we'll get into it more and more and see what makes sense. The way I sum it up is, the merger creates better benefits and growth opportunities than either company could have achieved alone. I know both companies are incredibly strong in terms of C4ISR and a lot of what you might call the future warfare capabilities. What kind of growth do you anticipate in that area? Brown: When I look at the next several years, you're hitting on the right spot. When you look at C4ISR, it's a broad category. When you look at the pieces underneath that, I think Chris and I, our companies, bring great capabilities [that are] complementary. When you think about what we do at Harris, we've got a very strong position in tactical radios — global leadership, U.S. leadership. A lot of it's ground, starting the movements to airborne tier, starting to provide systems. Chris's business is very strong in avionics. It's very strong in data links, very strong in satcom, very strong between the two of us in optical capability. When you look at all of that broad way of getting better ISR information, I think we bring the right capabilities to the fight. Kubasik: We'll be spending about 4% of our revenues on R&D, which I think is aggressive. And we talk about the customers, just to clarify — we have two sets. We have the usual industry partners, who I think will benefit from this combination, the same way that our end-user DoD customer will as well. Are there any programs that you both were competing on, where there's going to need to be some sort management to eliminate conflicts of interest? Brown: Very, very small. It's almost negligible in terms of where we compete head to head. Again, it's a very complimentary set of businesses, so we don't see that as being a big concern. What kind of layoffs are you all anticipating? Brown: We expect half a billion dollars of cost savings, and half of it is going to come from supply chain and facility rationalization — consolidating our mutual footprint. About half of that other half, so 25 percent, is split from corporate and segment overhead reduction in functional efficiencies, shared services — things that we've done and Chris is now driving at all three. But we're in a market today where the unemployment rate's very low. We both were out there hiring people, trying to hire talented engineers and scientists, get people through clearances. So fortunately, we're in an environment where we need more people, not fewer people. Okay, so you think it'll be relatively modest, getting rid of where there might be overlap? Brown: There's going to be some overlap. There'll be some movement of people, but we're not prepared to talk about any employment reduction today. But again, look, it's an environment today where we're looking for more people, especially in the STEM field. The decision to make Melbourne, Florida the headquarters — will that be permanent? Brown: Yeah, it'll be as soon as we close. It'll be the headquarters in Melbourne, and Chris is going to move to Melbourne. We have about 7,000 people in Brevard County. We've been there for 40 years, very deep, entrenched infrastructure. If you know the area, a lot of the defense players, aerospace defense players, are moving now to the Space Coast. It's a very vibrant community. Again, we've been there for a while. We're deeply embedded into the community with a lot of infrastructure at Harris, so that's what we decided to do. Bill, I was convinced you guys were going to move to Washington for a while, but you proved me wrong. Brown: You know, it's interesting. Look, that came up for us, when we did Exelis, but Chris and I've talked about this. It just doesn't make sense for both companies to move headquarters at the same time. That provides an additional risk in a deal. We thought we need to move to one place or the other. We both thought that Melbourne was a better place for the headquarters of the company. Chris, you get to move again. Kubasik: You know, it's been a couple of years, time to move. I'm getting used to it, so if things slow down this week, maybe one night at 10:00 I'll log onto a real estate website and try to be a first mover before the prices increase down there. [laughter] I know you said in the next couple years no acquisitions would be on the horizon, but do you anticipate even more areas of business that would meld with those that you already play well in? Brown: Look, I would say you started out the question the way I'd answer it, which is: it's too soon to determine that. I think the next couple of years will be about integrating the companies. It'll be about divesting. If we see opportunities for portfolio shaping, making sure that happens, so we stay focused on the business where strategically it makes sense for us to be in longer term. But I think Chris and I both have talked very publicly, individually as companies, about M&A is a part of our long-term growth strategy. So over time, we do anticipate, under Chris's leadership, that there'll be other M&As that will happen over time. But I think in the next couple of years, unless it's something exceptional, must have, we're going to stand down on M&A and really focus on integrating the portfolios that we have. Kubasik: Now the organic growth opportunities, and the beauty of having two leaders at the top, will allow us to focus on our customers, not only in D.C., but globally. And you know how much I love to travel internationally — we're going to have customers in over 100 countries. I still look at that in amazement. We'll be able to deepen those relationships. We both work in a lot of the same countries, but when you have a larger combined content, I think we'll be able to advance internationally maybe further, quicker than we would have individually. So I think one of my focus areas is going to be to help grow the business and meet with those customers around the globe. Chris I've spoken to you a couple of times on the big plans and aspirations to be a non-traditional six prime. You got there way faster than I thought you would. Kubasik: Oh, thank you, I'm an impatient person. I know you also said to me that you didn't envision, and I quote, “building multi-billion-dollar satellites, airplanes and ships.” Does that vision of what the company is, and will be, as a six prime remain intact with this merger? Kubasik: We don't really have any major platforms, [but] when I look at the different domains that we're going to be able to serve, whether it's air, space, land or sea or cyber, that's the exciting part. On the air side, as an example, on a combined basis we have some pretty exciting capabilities with avionics and electronic warfare, as an example. So we'll be able to be on the legacy programs, like the F-16 and F-18, which we already are, and we'll have more content on the next-gen platforms like an F-35. So if we go domain by domain, you see the ability to better connect the different platforms to focus on the secured communication. I think we're well positioned for the multi-domain, command and control and communication systems. I'm excited about the small satellite business that Harris had. I think that's great. You know about our UUVs, our UAVs. I think it's going to work well in conjunction with the industry prime. It'll be a collaborative, cooperative relationship. Brown: I think we're not a company that does or will do a lot of these big, major platforms that the big primes are doing today. The way we look at it, 72 percent of the combined business will be prime, meaning sales to and customers. I think that's an important point to make. Bill you've talked to me about space superiority. How key is space to the combined business? Brown: We have a pretty broad business in space in terms of space superiority. A lot of it, it's ground-based capabilities that provide offensive and defensive capabilities to that space architecture. We've developed a lot of exquisite systems and components that have now moved into end-to-end mission solutions for small satellites. We've got a lot of capabilities on our end, in optics. Chris's business, L3, is also strong in small optics, and they've got really good signal intelligence capabilities that I think can augment the things that we do with some of the space architecture. So I see that as helping us continue to broaden that set of mission solutions in the space domain, that I think we spent the last several decades, actually, developing. What does this merger mean to the top primes? Brown: We have at Harris a great relationship with all of the primes. [We] do a lot of work particularly with Boeing and Lockheed. We do quite a bit now with Raytheon as well, so I think we have great partnerships, and I think if anything [this] is going to be additive to that partnership. I think it'll be favorably received by those guys. Kubasik: I agree a 100 percent. I think they're going to be equally excited as the DoD customer for the same reasons. We'll have the money to innovate the R&D, maybe bundle some solutions. They'll also share over time in the affordability of this synergy. I think it's a win-win for the industry and the DoD customers. Bill, in two years you hand the CEO spot to Chris. I'm asking you to look at a couple years down the road, and I know you're remaining on the board, but any other big plans? Brown: Look, that's three and a half years down the road. If I look at six months between sign and close – that's a lifetime year, as you can imagine. I've been CEO here for seven years. That puts me 10 years at the company. I think with Chris, we'll put the company together on the right track. Look, I'll find something productive to do with my life at that point. https://www.defensenews.com/interviews/2018/10/15/harris-and-l3-ceos-talk-merger-divestitures-and-why-we-all-should-have-seen-this-coming

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  9 octobre 2019 | International, Terrestre

  Who Will Build 651 Parachuting Trucks For The Army?

  By SYDNEY J. FREEDBERG JR. WASHINGTON: Three very different teams are vying to build the Army's Infantry Squad Vehicle, a truck tough enough to parachute out of an airplane and then drive away cross-country with nine heavily armed infantrymen. By Nov. 13th, each team owes the Army two vehicles for testing, with the winner getting a contract for 651 ISVs next year. Let's meet the players. The Oshkosh-Flyer team is the closest thing to an incumbent in the competition. The Army had earlier picked the Flyer-72 as an interim air-droppable transport, the A-GMV, and Flyer is offering an upgraded version for the follow-on program, ISV. Actual mass production will be done by Oshkosh, which makes a host of Army trucks — most prominently, the beefed-up successor to the Humvee, the Joint Light Tactical Vehicle (JLTV), which the Army and Marine Corps plan to buy over 50,000 of in the coming decades. What's more, Oshkosh plans to build the 5,000-pound ISV on the same assembly line as all its other vehicles, from the 14,000-lb JLTV to 10-ton FMTV dump trucks. (The earlier version of the Flyer-72 was mass-produced by General Dynamics). The ISV will be the lightest vehicle on the Oshkosh line, VP George Mansfield told me, but the company is confident it can build the air-droppable trucks more affordably than Flyer could — and at least as well. In fact, Mansfield said, he expects the Oshkosh-built version to be more reliable. That's in part because of Oshkosh's manufacturing expertise — it won the JLTV contract in large part because its offering broke down less than half as often as uparmored Humvees — and in part because of Flyer's extensive field experience with the earlier versions built for the Army and Special Operation Command. As a team, Mansfield told me, “we've learned a lot about reliability, we've learned a lot about life-cycle cost, that now we can take here at Oshkosh with our extensive knowledge of all the other product lines we sell to the Army.” Polaris and SAIC both have plenty of defense experience. Polaris's DAGOR did lose the earlier A-GMV contest to Flyer, but numerous DAGOR variants are in widespread service with Special Operations Command, the 82nd Airborne Division (shown in the video above), Canada, and other foreign customers the company can't disclose. “The DAGOR is already certified” — by the Army itself — “for all of the transport requirements that the Army is looking for, whether that's internal air transport, sling-load transport, or air-drop,” Polaris VP Jed Leonard told me. And each of those prior customers required tweaks to the platform or special mission equipment — heavy weapons, sensors, radios — that the DAGOR could easily accommodate. Integrating such high-tech kit is SAIC's core competency. While not a manufacturer itself, SAIC has done decades of integration work for the military, most extensively on the MRAP program, fitting other companies' vehicles with the sophisticated electronics that turn a truck into a weapons system. It also provides extensive maintenance and other support worldwide. The two companies have worked together on and off, on small projects, for years, as various customers bought Polaris vehicles and then asked SAIC to equip them for specific military missions. But the current partnership is a big step up for both. The odd man out is GM Defense, which giant General Motors created — in a sense, re-created — not quite two years ago after selling off most of its defense programs back in 2003. GM Defense president David Albritton just came aboard a year ago and has spent much of his time working with “Mother GM” on potential joint projects and spin-offs, from self-driving car technology to hydrogen fuel cells, he told me in an interview. “I'm not reporting any revenues at this point,” he said, although GM Defense does already have some contracts he can't disclose. GM's offering is the only contender without a prior track record in the military. But their ISV is derived from the Chevrolet Colorado, of which US customers have bought more than 100,000 a year of since 2016, giving GM staggering efficiencies of scale no competitor can match. Specifically, the GM ISV a beefed-up, militarized version of the Colorado's offroad racing variant, the ZR2, with which it shares 70 percent of the same parts — parts that are available from Chevy dealers worldwide. GM builds over 10,000 ZR2s a year: a rounding error for General Motors but a megaprogram for the Army. GM's scale advantage is not just in production and parts. It's also in engineering. The company spends over $7 billion a year on R&D, Albritton told me, and its ISV offering includes advanced suspension systems like jounce shocks and dynamic spooling. GM's challenge is overcoming its inexperience in the defense sector — especially, proving it can integrate military electronics onto its civilian-derived vehicle. LRPF: Long-Range Precision Fires. NGCV: Next-Generation Combat Vehicle. FVL: Future Vertical Lift. AMD: Air & Missile Defense. SL: Soldier Lethality. SOURCE: US Army. (Click to expand) The Big Picture Overall, ISV is an especially interesting competition because none of the contenders is a classic defense prime: Oshkosh and Polaris both have lots of civilian customers alongside their extensive military business. Flyer is a subunit of a modest aerospace and defense components-builder called Marvin Group. SAIC is a systems engineering and service firm rather than a traditional Original Equipment Manufacturer. And GM of course is one of the biggest civilian manufacturers in the country. “We make upwards of nine million cars a year,” Albritton told me, each put together out of roughly 30,000 different parts. Compare and contrast the Army's Optionally Manned Fighting Vehicle program, which is de facto down to a single competitor — defense industry stalwart General Dynamics (which bought GM's previous defense business back in 2003). ISV shows the kind of variety that the Army wants to encourage and needs to infuse innovation and competition into its programs. Yes, at 651 trucks — at least, in the initial 2020 contract — this is a modest program in both size and technological ambition. It's easily overshadowed by the hypersonic missiles, high-speed aircraft, and robotic tanks of the Army's Big Six priorities. By contrast, for the predecessor competition (the one Flyer won) back in 2015, we ran eight stories in three months because there was so little else the cash-strapped and acquisition challenged Army was buying at the time. But the Infantry Squad Vehicle is still an important piece of the larger Army puzzle. The Army's infantry brigades — especially its 82nd Airborne parachutists — are its most strategically deployable units, easily packed into aircraft and flown around the world overnight, while heavy armored forces cram two tanks into one C-17 or, more often, go by ship. But once the infantry arrives, it moves on foot. (Although we bet everyone in the 82nd remembers being called a “speed bump” in this Defense Science Board study.) The idea of ISV is a troop transport light enough to be air-dropped or, more often, delivered by helicopter. That way, the troops can land a long distance from their target — specifically, far enough their transport planes or helicopters aren't shot down by anti-aircraft missiles — and then advance quickly overnight before attacking on foot at dawn. We expect to see all three competing vehicles on the show floor at the Association of the US Army megaconference next week. https://breakingdefense.com/2019/10/who-will-build-651-of-the-armys-parachuting-truck/

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  4 décembre 2023 | International, Terrestre

  EU lawmakers finalize tough cyber security rules

  PLUS: Montana TikTok ban ruled unconstitutional; Dollar Tree employee data stolen; critical vulnerabilities