10 octobre 2019 | Local, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

Opinion: How To Assess Defense Prospects For The Future

Byron Callan

During upcoming earnings conference calls, expect some defense contractors to again state that they are well-positioned in high-priority programs and markets that fully align with customer priorities. In addition, planners and analysts are going to be asking a lot more questions about contractor positioning and the outcome of the 2020 U.S. election. Who will be best positioned if President Donald Trump is reelected or if there is a Democrat in the White House in 2021?

On the first assertion of “well-positioned,” to a degree it is axiomatic. Defense requirements are validated, so by that very process, they take priority over emerging and yet-to-be-funded requirements. However, if one accepts the premises that Defense Department budgets may be flat for a multi-year period and that demand signals for security are going to rise, the sector will be entering a far more dynamic period in the 2020s than the past 4-5 years. Instead of being “well-positioned,” a broader set of filters may need to be applied. Posture may be a better way to assess contractor outlooks. There are five attributes on which this may be assessed.

1. The priority and relative safety of programs matters both in U.S. and international markets. But that needs to be assessed and reassessed against changed defense needs. Today's major programs of record are likely to change. If there is doubt on that issue, a reading of the U.S. Marine Corps Commandant's Planning Guidance released last July may dispel notions that the next 10 years are going to be stable and predictable.

2. One contractor can disrupt others through new product and service offerings or even a new business model. Examples of the former include Boeing's T-X/T-7 aircraft, which, if evolved into a fighter/attack aircraft, may be good enough for some missions. Kratos' Valkyrie is another example, which could affect demand for manned combat aircraft. On the latter, the Pentagon now intends to purchase launch services instead of expendable launch vehicles. Where else might these sorts of “as a service” models be applied?

3. The pipeline of bid opportunities: There are some large programs that are in competition and for which decisions are pending. The Ground-Based Strategic Deterrent, Long-Range Standoff, Army aviation and ground-vehicle modernization and Navy FFG(X) programs are some of the larger ones that could be decided, but there also are classified ones and swaths of opportunity in unmanned systems, hypersonics, software for data and artificial intelligence, and cybersecurity. International opportunity also clearly matters in assessing how a contractor is postured.

4. The ability to execute within cost and schedule is essential. Human capital, technology application and risk, contracting and supply chain management are critical attributes. This also will tie into the bid pipeline and the degree to which a contractor is postured to pursue new opportunities or if the contractor will have challenges managing its current portfolio of products and services. From the outside looking in at contractors, this attribute may be difficult to measure. Open job position data can be sketchy, but it is one metric to consider. Performance on current programs is another.

5. Contractor culture will be critical in the 2020s. One aspect of culture is how well a contractor anticipates potential changes in defense and security needs. Another is how receptive company leaders are to positioning or repositioning to capitalize on those changes. There will not be solid metrics here, although there are plenty of good questions to ask.

In order to anticipate change, contractors are going to have to be wired to understand when and where change is occurring. This has to allow perspectives that may differ from the consensus view to reach leaders so they can assess whether ideas are worth pursuing or if there is a threat to be addressed. Part of this posture entails a willingness to create top cover and breathing space for conflicting views.

There will be a natural tendency of company leaders to continue to exploit current business models and protect major products and services. There will likely be very strong pressure from shareholders to sustain or increase operational margins and cash flow and stay within current business lanes. Posture, however, may also include a willingness to take some short-term or even intermediate-term pain and risk in order to better position for the future.

Innovation is an overused term these days, and it may be like former Supreme Court Justice Potter Stewart's assertion on obscenity: “I know it when I see it.” Be that as it may, contractors must dedicate time to innovation every week in order to achieve it.

https://aviationweek.com/defense/opinion-how-assess-defense-prospects-future

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  • How COVID-19 could remake Canada’s military

    7 avril 2020 | Local, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

    How COVID-19 could remake Canada’s military

    By Elliot Hughes. Published on Apr 6, 2020 10:20am "It's safe to say that everyone involved in defence procurement should expect a significant shift to the right in timelines, and a retrenchment and re-focus towards projects that align with the government's recast military and geopolitical priorities." Since everyone is either overrun with work or inundated with COVID-19 news, here's the bottom line up front (or the BLUF in military jargon): the COVID-19 pandemic will have a material impact on all aspects of Strong, Secure, Engaged (SSE), Canada's defence policy. These changes will be felt acutely in defence funding, overseas operations, and defence procurement, though it's too early to predict the scale of the impact. There you have it. You can now go back to watching Tik Tok videos. For those choosing to forge ahead, it was only last week that Defence Minister Harjit Sajjan and Chief of the Defence Staff General Jonathan Vance laid out the domestic military response plan to the COVID-19 pandemic. Dubbed Op LASER, the plan will prioritize slowing the spread of COVID-19, support vulnerable communities, and assist provincial, territorial and municipal partners, if needed, by mobilizing up to 24,000 regular and reserve force members, all while maintaining the Canadian Armed Force's (CAF) ability to respond to natural disasters in Canada via Op LENTUS. This announcement was preceded by a letter to all CAF members from General Vance where he outlined the global pandemic's impact on Canada's military. In the letter, General Vance tells troops and their families in no uncertain terms that ‘normal activities have changed dramatically'. Too true. But the impacts of COVID-19 won't stop with the women and men in uniform. SSE was a historical investment in Canada's military, with new funding in the tens of billions of dollars ($48.9B on an accrual basis, $62.3B on a cash basis) from a party that some felt was not inherently defence friendly. The 20-year plan set aside hundreds of billions of dollars ($497B on an accrual basis, or $553B on a cash basis) to rebuild, retool, and refocus Canada's military after years of neglect during the Harper years. With unprecedented levels of new funding, DND finally had the plan, the funding, and the political commitment to move forward with confidence, poised to become the agile and adept military of the future. Then the world was hit with a global health crisis. In the face of the pandemic, the federal government has, to date, announced combined direct economic measures and tax deferrals of $190B. The numbers are eye-popping, and the implications of such spending are hard to fathom. The deficit this year and next could creep up towards $200B. Now, there's no question these fiscal measures are necessary and non-structural, meaning they could be unwound depending on how the Canadian economy looks post-COVID-19. The soaring deficits will place tremendous pressure on government to reduce its spending in non-COVID-19 areas in favour of healthcare and related priorities. DND/CAF had already been struggling to spend the money it had been allocated in SSE, and that was before their annual budgets increased significantly. People within and outside of government were beginning to question the department's ability to absorb the money they had been given. It is my view that COVID-19 will force Defence officials, with or without urging from Finance Canada, to use the upcoming five-year review period of SSE to re-assess and re-prioritize the entire strategy. In fact, that work is likely already underway. There are some who suggest that defence spending is a good way to get money flowing back into the domestic economy, particularly through the manufacturing supply chain. And there are areas that should remain off-limits to claw backs including big ticket procurements like the Canadian Surface Combatants (CSC) and Future Fighter Capability Project (FFCP), programs that directly support troops and their families, domestic operations and disaster relief, investments to support the development of defence and security capabilities such as the IDEaS program, IT investments (including in data analytics and updating key IT infrastructure), deferred maintenance, and perhaps most critically, cyber defence. Everything else will be fair game. Ring-fencing and reprioritizing essential programs won't be easy. But under the current circumstances, it's the right thing to do. Every department should be prepared to do the same. 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  • FORMATION SUR LE MARCHÉ CANADIEN DE LA DÉFENSE

    30 octobre 2019 | Local, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

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  • Ottawa on track to invest less on new military kit than promised for second year

    12 novembre 2018 | Local, Aérospatial, Naval, Terrestre

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