19 août 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
By: Doug Berenson and Chris Higgins
This year's Defense News Top 100 list of global defense companies coincides with a steep economic downturn created by COVID-19. Although the defense sector has faced pandemic-related business disruptions, it remains a safe haven, with most defense-oriented firms reporting only modest impact on revenues and profits. Seeing how diversified players rely on their defense units is of particular interest at a time when the commercial aviation market has all but collapsed. While many defense firms are bracing for stagnation in defense-spending growth, other markets could experience an extended downturn.
Avascent drew on the Top 100 list to examine the broader mix of market exposure among firms comprising the global defense industrial base. We segmented company revenues across more than two dozen defense and commercial end markets. This analysis provides insight into how companies with defense business leverage exposure to other markets, either as a complement or as a hedge to their defense activities.
One can think of defense companies in three categories:
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Defense/government pure-plays: Companies that focus overwhelmingly on military markets generate about 23 percent of the defense-oriented revenue on this year's list. To the extent these companies have revenue outside defense, it comes from close adjacencies in intelligence, civil space or others. Indeed, the top ranks of the Defense News Top 100 list includes numerous firms for whom defense and government comprise 85 percent or more of total revenue. Lockheed Martin, Northrop Grumman, BAE Systems, LIG Nex1, and Huntington Ingalls Industries and many others fall in this category. BAE Systems and L3Harris maintain significant positions in the commercial aviation supply chain, but these activities represent a small portion of their total revenues.
The unique demands of military and government markets — complex acquisition processes, challenging sales channels, burdensome regulatory compliance — has led many leading defense players to maximize their position across the defense product range. These frustratingly unique features of government customers have deterred many commercial technology firms from pursuing this space, a fact that the U.S. Department of Defense is struggling to reverse. Firms in this category have optimized their financial management, business development and other processes to the particular demands of government customers.
Within government markets, the different economics that characterize the sale of products and services has increasingly led to the separation between these two distinct segments. Many of the market leaders in U.S. government services, including Leidos, Booz Allen Hamilton, CACI International, SAIC and others, feature a near-exclusive focus on government customers. A range of firms providing such services continue to find business with both the government and commercial clients, to be sure, including Bechtel, Jacobs, Babcock International and KBR, to list just a few on this year's Top 100 list. But companies with a significant focus on mission-oriented requirements have increasingly focused solely on government customers.
Commercial and defense sectors: Nearly 60 percent of the defense revenue tracked in the Top 100 list comes from firms that compete in sectors that cross the defense-commercial divide. These include shipbuilders and automotive manufacturers, but the vast majority of firms serving both defense and commercial customers are focused on commercial aerospace. A range of firms recognize the unique complementarity between military and commercial aerospace technology in their business mix. Airframe primes like Boeing and Airbus are chief among these, sitting atop vast aerospace supply chains. But many other household names have sought opportunity in commercial aviation, either as airframe primes (General Dynamics via Gulfstream, Textron via Cessna) or as suppliers of avionics, structures, and other content.
Because it calculates 2019 revenue, this year's Defense News list does not count Raytheon Technologies, which was created with the merger of Raytheon Company and United Technologies Corp. in April 2020. The new “RTX” would have pro forma 2019 revenue of about $43.4 billion in defense and $33.7 billion in commercial markets; this excludes Otis (elevators) and Carrier (air conditioners), which were spun off concomitant with the Raytheon-UTC merger.
Many firms with heavy commercial market exposure now face unprecedented economic headwinds. Between March 1 and Aug. 1, 2020, stock prices for firms spanning defense and commercial aerospace declined by 33 percent, as global air travel nearly ground to a halt amid the coronavirus pandemic. By contrast, an index representing defense/government pure-plays has dropped by just 5 percent over the same period. Conglomerates were in the middle, declining about 16 percent.
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The silver lining, however, may be the ability of some companies to draw on defense-related cash flows to sustain commercial aerospace investment in preparation for an eventual upturn.
Industrial conglomerates: Finally, there are firms with a foot squarely in defense but which also pursue markets far afield, in terms of customer types and market economics.
About 18 percent of the defense revenue tracked in the Top 100 list is earned by firms with interests that have almost no technical or customer link with defense. Large Asian conglomerates — including China North Industries Group Corporation Limited, also known as NORINCO; Japan's Mitsubishi Heavy Industries; and South Korea's Hanwha — top this category in total revenue.
But several Western firms also follow this approach to varying degrees: Textron, Ball Corporation, Diehl Group and others combine widely disparate product lines in a holding company structure.
With defense versus commercial valuations relatively high, there may be competing instincts in the boardrooms of these giants. On one hand, these companies may decide to reorient their portfolio more toward defense activities by exiting underperforming industrial businesses. On the other hand, firms could elect to use defense cashflows to support the broader corporation and position the company for an economic rebound.
Trends to monitor
While defense budgets could face downward pressure in much of the world, many U.S. contractors have good predictability through 2021 because of DoD outlays already in process. It is the wider commercial economy where the real uncertainty lies.
This makes it hard to predict how many firms active in defense markets will fare over the next year, given the variety of other markets they serve.
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Over half the revenue earned by the Defense News Top 100 is generated from commercial sectors. Commercial aviation markets are likely to languish at pre-2019 levels through 2022 or later.
The outlook for other commercial markets is more heterogeneous, but challenges exist across areas like shipbuilding, automotive, industrial equipment and energy. To the extent that countries pursue infrastructure-led stimulus, some of the more diversified companies may find pockets of sunshine amid the gloom.
Doug Berenson is a managing director at Avascent, where Chris Higgins is a principal.
6 décembre 2023 | International, Aérospatial
Britain's Serious Fraud Office said it made one arrest on Wednesday after launching a criminal investigation into allegations that London-based firm AOG Technics had distributed fake parts for aircraft engines.
23 mars 2021 | International, Aérospatial
Safran s'est engagé à livrer à l'armée de Terre un premier système de drone SD (Patroller), à savoir cinq vecteurs et deux stations sol par système, au cours du premier semestre 2022. « Ce dont l'armée de Terre a besoin, c'est de réceptionner et de mettre en œuvre un matériel sûr et fiable. L'arrivée de ces drones constitue un défi important pour l'armée de Terre », explique son chef d'état-major, le général Thierry Burkhard, dans une interview à La Tribune. La Tribune du 23 mars 2021
4 novembre 2019 | International, Aérospatial, Sécurité
by Lisa Gordon Often referred to as the “SuperScooper,” the Canadair CL-415 and its older sibling, the CL-215, are known around the world for their aerial firefighting capabilities. First introduced in 1967 by Canadair, the original CL-215 had piston engines. When Bombardier bought the company in 1986 and obtained the type certificate for the aerial firefighter, it spearheaded a turbine engine conversion in 1989 and named it the CL-215T. Subsequently, the manufacturer developed the turbine-powered CL-415 in the 1990s. The amphibious aircraft are capable of scooping just over 6,000 litres from a body of water within 12 seconds. After flying to a fire, the aircraft drop their loads and return to the water source to do it all over again. There are just under 170 Canadair amphibious firefighting aircraft flying worldwide, and while each may only log 200 to 300 flight hours annually, their missions are demanding. The airspace around a wildfire is busy with limited visibility, and it's crucial for waterbombers to see and be seen. On any given mission, they may be flying in concert with other resources deployed to fight a fire, which could include tankers carrying fire retardant, helicopters slinging water in Bambi buckets, and Bird Dog aircraft overseeing the entire operation. As the original CL-215T and CL-415 aircraft age, their outdated avionics are posing a significant challenge. In a world implementing technology such as ADS-B Out and controller pilot data link communications (CPDLC), the CL-215T and 415 family is becoming obsolete. A good start Viking Air Ltd. of Sidney, B.C., which obtained the Canadair amphibious aircraft type certificates from Bombardier in 2016 and now supports the worldwide fleet, is working to address this problem with a cockpit upgrade. It will enable the legendary aerial firefighters to fly in any airspace and is expected to extend their service lives by 25 years. “This aircraft has had a long life and a long history,” said Dan Seroussi, director, Programs at Viking. “The design originated in the 1960s with a piston engine. When we took over the program, we wanted to provide our operators with an evolution to give them more service life and a better dispatchability. We wanted to have a good start and immediately show our commitment to the aircraft and to our operator group.” So, Viking asked CL-215T and CL-415 operators about the biggest challenges faced by their fleets. “It was obsolescence,” explained Seroussi. “They came to us with a lot of issues which led to a focus on the avionics. It was an opportunity to extend the life of the existing fleet. “New requirements are mandatory, such as ADS-B Out,” he continued. “On top of that, the technology has evolved. Even if it's not mandatory, more modern technology is available to help this aircraft accomplish its mission. We wanted to take this opportunity to upgrade the avionics suite and improve performance wherever possible.” The result is the Avionics Upgrade Program (AUP) for the Canadair CL-215T and CL-415 aircraft, launched in May 2019. Viking selected fellow B.C.-based company, Cascade Aerospace of Abbotsford, to perform the integration of a new Collins Aerospace Pro Line Fusion avionics suite with embedded display system. “Cascade defines the requirements and manages the design and certification activities,” explained Seroussi. “They will install and certify the upgraded avionics and as the aircraft OEM, Viking will integrate the modification into the type certificate of the CL platform.” The design of the modification is currently under development and is nearing the preliminary design review stage. The first CL-415 to undergo the modification process will be used as the prototype and is expected to be completed “with all the options” and certified by the end of 2021. Seroussi reported good progress so far, adding it will take approximately 6,000 hours of work to complete subsequent installations, after program certification and learning curve amortization is taken into account. He estimated the potential market for this avionics upgrade could exceed 100 aircraft worldwide. “The Pro Line Fusion avionics suite is well suited to this application because of its software-enabled scalability and flexible architecture,” he said. “We will start with one standard cockpit layout optimized for the 415, then we will try to familiarize the upgraded cockpit for the CL-215T as much as possible.” The baseline (core) configuration of the avionics suite will include all of the required avionics capabilities, including (but not limited to) flight director, engine hydraulic, surface control, communication and crew alerting system indications on the displays, flight management system (FMS) coupled with SBAS-GPS providing LPV capability, mutable terrain awareness warning system (TAWS), traffic collision avoidance system (TCAS) II 7.1, ADS-B Out, synthetic vision, night vision imaging system compatibility, enhanced mapping, AirNav maps, voice radio, navaids systems, and a multi-function keyboard panel along with two cursor controls that provide a fully equivalent alternative to the touchscreen commands. Autopilot, flight monitoring system, weather radar, satcom, flight data recorder or datalink are a few of the numerous options that can be incorporated based on each operator's requirements. The cockpit upgrade will cost less than the alternative of incorporating three individual upgrade STCs, with each only providing one of the many new functionalities now included in the AUP core configuration. So far, there has been “significant interest” from the aerial firefighting community, and Seroussi expects that to increase once the first aircraft has been completed. He told Skies that Viking is also close to finalizing arrangements with the avionics upgrade program's CL-415 launch customer. While the work proceeds, Seroussi said Viking is also likely to utilize the advancements made in the AUP as the basis for a proposed CL-415 replacement, called the CL-515. https://www.skiesmag.com/news/avionics-upgrade-slated-for-iconic-aerial-firefighters