25 septembre 2018 | International, Terrestre
WASHINGTON — News that SAIC would buy Engility was just the latest in a recent string of acquisitions among the professional services firms. But if you ask the CEO of SAIC, Tony Moraco, unlike some of the company's peers this was not transformational. This was instead a merging of two complementary businesses. In his words, “a momentum builder, as we are stronger together in the marketplace.”
It's also the next phase for a company that technically formed five years ago, with the split of the $11 billion legacy company with the same name.
Defense News sat down with Moraco to see how the acquisition fits into SAIC's future strategy, and how far the company has come since gaining independence.
About a year after SAIC split from Leidos, I asked you about your vision for the company. And you said to return to an $11 billion company. How does this acquisition fit into your vision for SAIC these days?
The Engility acquisition is very much consistent with our current strategy. It is not a deviation or a reset, as perhaps some of the other major transactions have been for some of our peers. But it really is about the theme of being stronger together, with [particular] compatibility of the intelligence community ... and also attributes in space market segments that we think we can both serve better. For us, this is opening market access to channels that we didn't have.
It's momentum building, a vision and a strategy that was five years in the making, and it's a continuation of that strategy going forward.
So have you been looking for an extended period of time? And why Engility specifically?
We consistently look at the market. We were not going to be a high-volume buyer, but more selective. The Scitor [acquisition] was more than three years ago. But we felt that we had a good position in the marketplace to grow organically. And we proved very strong performance over five years and since [that last acquisition of] Scitor. And then we've looked at many deals, large and small, to see what makes the most sense to us, staying true to our strategy.
The attraction with Engility was probably first sparked by the multi-intelligence agency portfolio that they have. Instead of buying a number of smaller concentrated firms, we could get a couple agencies in one larger deal. The company is large enough, they have a mature system. Again, in contrast to perhaps some of the small businesses, we think it has been through its own cultural shift to align very much to ours.
Also of interest is the space market. Today, with denied access and with the threats that we have, space is becoming a much more serious domain. The U.S. wants to invest more in it for a range of reasons. And when we think about space, it does cross, in fact, with the intelligence community, the defense sector with Air Force and the other services, and then also the civilian agencies with NASA, [and the National Oceanic and Atmospheric Administration].
As that market evolves, I think the U.S. government will be a principal customer. I believe that the commercial space entities will find a way where they'll also require key outsourced space services just as the government had.
So for a single transaction at scale where we could in fact use our equity, [and face] probably fewer buyers, filling three or four of our strategic initiatives in market access and in capabilities — we felt it was worth a serious look. But it's not just about space and intel. Defense will still be the largest part of our portfolio — 55 percent after we close [from 61 percent]. With the benefit of having the broader diversification in intel and federal civilian agencies, that serves all of our customers from a technology transfer perspective.
We've seen an interesting transition in the market, where the big primes are shedding portions of their services segments. Have we officially returned to the days when manufacturers focus on platforms only and leave the rest to the professional services companies?
I think we [for a period of time] faced a market that was uncertain. Our customers were reprioritizing their mission areas, and the industry was doing the same — looking at where they were going to focus their precious dollars, identify businesses they were going to protect, and areas that maybe weren't core. Then as the market started to improve and move away from cost reductions to protect margins to having some cash and some flexibility, you started seeing more portfolio shaping from the larger players.
It's not just about scale. There's [a focus on] the diversification because as you know, the whole business is based on past performance and on what qualifications you have in people and in contract vehicles; if you have a broader base concentrated in a few key areas, your ability to compete and win in those domains is improved.
There are a lot of technologies that are more heavily influencing the battlefield — whether ISR, electronic warfare, even still cyber, which is evolving. It seems those areas don't fit quite as neatly in one model or the other.
We've been around. It's not a body shop service that we run. It is services and solutions. But technology integration is a direct link to the customer's demand for modernization, the interest in innovative solutions from nontraditional players, the ability to field capabilities faster in a much shorter development cycle, and that leads you to a technology integration model that we have.
It allows us to take mission understanding and translate requirements into capability needs. So we can integrate, we can innovate with the technology and we can implement the solutions, which is fundamentally what the customer needs to migrate them from a current state to a future state.
But we're seeing more and more opportunities through the [Defense Innovation Unit], the [other transaction authorities], and other contract vehicles that provide a little more rapid prototyping flexibility.
SAIC bid for the Marine Corps Amphibious Combat Vehicle and is now working to compete for the Army's Mobile Protected Firepower program.How does that all fit into the broader strategy?
We do see it as a viable area, and I would characterize it as the next tier of complex technology integration, system integration. It's an extension of our command-and-control and ISR integration. I recall we pushed through 30,000 MRAP systematic build packages. That kind of integration of subsystems into a platform is what we felt was a baseline business that we could look to expand; and as the customer looked at, in this case, starting with Assault Amphibious Vehicle. Not a start-from-scratch build — the survivability upgrade really was around the armor, the underbelly and then your armaments protecting the vehicle. And then the related mobility requirements to change out transmissions and engines to support that extra weight. We felt that those subsystems and our mission knowledge afforded us the ability to extend to a little more of the physical platform itself.
We're doing work on the next-gen combat vehicle. And we're using a services model for MPF. Again, nondevelopmental, major integration of existing platforms for rapid field development. That fits well into our technology and integration model.
We see the ground vehicles and perhaps maritime [areas] as one that was probably more approachable versus, say, airframes. Modernization of aircraft has its own barriers of entry of getting flight readiness and the like.
We've extended our test-equipment knowledge to partnering with Lockheed on the propulsion system for torpedoes, for example. So we're just looking for selective areas to do more complex system integration under this broad technology integration umbrella. It just happens to be bigger subsystems. Complex system integration sets us apart from some of the current peers in the marketplace right now. But we're selective in what we go after.
How hard of a hit was the loss of the Marine Corps Amphibious Combat Vehicle in moving forward with that?
It's disappointing. We try to be practical and objective about our market position. It's an alternative model. It's still early in the life cycle. But I think that as we see different opportunities, we learn from it as the customers get more comfortable. So yes, disappointing on ACV, but at the same time we learned a lot from it and I think the customer ultimately got a very good result by having a competitive phase.
And we think that the Army [with MPF] will be as successful and come up with [the] best solution if they can maintain a competitiveness early in the process.
When the split first happened, you and Leidos were generally two different companies. With this acquisition, and with the Leidos acquisition from Lockheed, have you all started to mirror each other more?
I think we may be looking a little more alike. Five years ago I did not expect it. I think we had very clear strategies that [we] were intending to diverge, and therefore we did not have any formal noncompetes. We were looking at the services business model, and Leidos was looking to do more system development. I think their execution of that didn't play out as fast as they'd like. Roger [Krone, Leidos CEO], buying back in the services, more of the information system side, was a bit of a surprise. So if anything, they came back towards us versus us changing direction.
So I'd say they probably navigated slightly different than expected. But even today we're still two different companies. We're still very focused on letting our investors and customers know what we do, and Leidos still has a pretty diverse portfolio from health systems and some engineering services. We compete in similar subsegments but not in all. We're also organized very differently, we go to market differently.
When the deal closes, where does that put your total revenue at?
Right around $6.5 billion.
You told me you wanted to get back to $11 billion. Should we expect more?
No, not right away. That was very tongue in cheek at the time.
You knew I'd remember though.
Oh, I know. I remember it too, actually, because we laughed. There are lots of things we can do, but I felt very comfortable then and still do that we've got a great future and can grow the business organically as well as through acquisition. But it's not to chase the size. It really is about the market leadership. Running good margins and providing good mission capabilities for our employees. I think our market is still very motivated by mission. Our employees are very motivated to serve in different capacities whether it's in uniform or not.
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By: Kelsey D. Atherton To understand the future of Russia's drone program, we have to grasp its present and immediate past. While the modern era of unmanned aircraft is perhaps best typified by American Reaper drones flying missions with Hellfire missiles slung under wing, the overall picture of drones in combat has evolved and changed. The Pentagon's primacy in aerial robotics is no longer a sure thing, in part because of the waning unipolar moment and in part because building a drone capability is cheaper today than it was two decades ago. To sort out what the past year means, to see if any of the battlefield experience from the multiple irregular wars Russia is part of has factored into drone design or force planning, C4ISRNET spoke with Samuel Bendett, an adviser at the Center for Naval Analyses and a Fellow in Russia Studies at the American Foreign Policy Council. C4ISRNET: Bottom line up front: What's the single sentence takeaway for next year in Russian drones? BENDETT: As Russia develops its lineup of long-range UCAVs [unmanned combat aerial vehicles], it will challenge American dominance with such technologies that Washington held for the past 17-18 years. C4ISRNET: That's ambitious, to say the least. How is the Ministry of Defence preparing to make that challenge, and did Russia learn anything from fighting in Syria that might lead to changes in how it uses drones in 2019? BENDETT: [The week of Dec. 17] marked a series of key announcements from the Russian Ministry of Defence about the country's growing unmanned aerial systems capabilities. Going into Syria in 2015, Russia was lacking a key combat element — the ability to hit targets quickly following their identification, one of the key functions of UCAVs around the world today. Moscow's experience in Syria underscored that point — despite fielding a large number of ISR drones that enabled Russian to be more precise in combat, the majority of targets were hit by manned aviation or manned artillery forces. Hence, the push today to field an entire lineup of strike UAVs for a diverse range of missions. Public statements by the Russian government and the military establishment also highlight the importance of unmanned systems for the country's military and its ability to wage war. Just recently, President Putin stated key propriety areas for his military in 2019 — among them was an emphasis on unmanned and robotic systems development. C4ISRNET: What sort of drones are we seeing in that push? BENDETT: The Ministry of Defence mentioned work on a strike version of Forpost mid-range drone. The Forpost UAV is a license copy of an Israeli “Searcher,” itself a design that is decades old at this point. Capable of distances up to 250 kilometers, it is currently Russia's longest-ranged drone. Under the earlier license agreement with Israel, this UAV could only be assembled as an ISR version. Russian military valued this particular unmanned vehicle and has long wanted to turn into something more than an extra pair of eyes in the sky. Today, UZGA Defence enterprise is claiming that the “Russified” version of that UAV is full of Russian-made components, so that no further cooperation with Israel would be necessary. Putting a strike package on Forpost would give Russian an immediate ability to hit targets within a 250 kilometer range — in other words, giving it the ability to strike most adversary targets in Syria where Russian forces are still conducting operations. Given that Forpost itself is an older UAV model, it's likely that the Russian military will use it as a test bed to further refine its UAV manufacturing abilities, as well as to test indigenous munitions for UAV missions. It's likely that out of all UAVs listed by the MOD, this particular one will reach the Russian forces sooner than others. C4ISRNET: What about the Orion? BENDETT: The Ministry also named Orion UAV as another unmanned vehicle to fully see the light of day in 2019. Orion has similar characteristics to Forpost, such as range, at least as advertised at international arms expos [250 kilometers]. It is possible that its range could be extended further — current Orion versions are showcased as ISR models, but there were discussions that it could be offered for export as armed version. This particular UAV has similar design features to the ever-growing family of unmanned aerial vehicles all over the world — it bears close resemblance to the American RQ-9 Reaper, Chinese CH-4 and Ch-5 drones, as well as to the Iranian Shahed and Turkish Anka UAVs. Unlike Forpost, Orion was only recently tested, although there were rumors that it was seen in Syria, with observers possibly confusing it with the Iranian Shahed. C4ISRNET: Are there other large drones in the works for the Ministry of Defence in 2019? BENDETT: The Ohotnik UCAV is the most intriguing and interesting project of its kind in Russia. Originally started around 2011-2012, this UAV has also been delayed by a number of years. This fall, MOD carried out the first “taxing” test, when Ohotnik prototype was accelerated on the runway to test the engine. Next year, the Russian defense establishment is promising a test that will include a short-duration “jump”— the UCAV will rise ever so briefly above the tarmac to test its launching and landing capabilities. At this point, it is going to be heaviest and fastest UAV if and when fielded, but additional testing and evaluation will have to take place in order for this unmanned system to be fully functional. Its speed — up to 1000 km/hr — and weight — up to 20 tonnes — means that a host of aerodynamic, electronic and hi-tech issues need to be worked out. C4ISRNET: Should we hold our breath waiting for the Ohotnik test flights? BENDETT: Given the delays experienced with “Altius,” MOD would probably be more conservative with Ohotnik estimates. However, the very appearance of Ohotnik rising in the air — a stealthy blended-wing design — will be a powerful PR coup for the country that has lagged behind other nations like the United States, Israel and China in actual UCAV examples and combat use. C4ISRNET: What was the Altius, and what happened with it? BENDETT: The Altius was one of the most ambitious UAV projects in Russia — to build an indigenous drone capable of carrying up to 2.5 tonnes of cargo/equipment/weapons to a distance of 10,000 kilometers. Earlier estimates that this UAV would be fully operational by 2018 did not pan out. Delays in production, a lack of key expertise and hi-tech components meant the entire scheduled pushed “to the right” by many years. [The week of Dec. 17] MOD promised that Altius will take to the skies next year — given the fact that Simonov actually produced a prototype that has already flown, that promise may indeed materialize. The real issue will be the quality of that test flight — whether Altius will fly as intended and with the right amount of key equipment. C4ISRNET: How will these drones change the way Russia plans and conducts war? BENDETT: All these UAVs — if and when fielded as planned and as advertised — will give Russia the capability to strike targets at a range anywhere form 250 kilometers and up to several thousand kilometers. This is a flexibility the Russian military has long sought — its Syrian actions depended on manned airborne assets conducting deep-strike against designated targets, which in turn depended on an extensive logistics and infrastructure to support such missions. Having the ability to launch long-range UCAVs from Russian [or Russian-allied] territory would exponentially increase MOD's ability to conduct missions in the near abroad and possibly around the world. Of course, that would depend largely on the domestic defense sector actually delivering what was initially promised, something that some UAV projects have greatly struggled with. C4ISRNET: Russian forces have used small drones quite a bit. Is any of that transferable to using these new, larger drones? BENDETT: While the Russian military has gained extensive experience operating a wide range of close and short-range UAVs, and has commenced force-wide training and usage of these unmanned systems, operating the large and heavy UAVs would be a different story. This kind of technology requires different training, as well as different logistical and infrastructure support. Getting these UCAVs into the military will require a change to existing CONOPS and TTPs, something that will take time as the Russian military will need to become familiar with a different set of technological sophistication. Still, these UAVs are finally moving past the prototype stage — with the Ministry of Defence paying very close attention to these projects, the likely 2019 appearance is guaranteed for these designs. Their eventual acquisition is still years away. Russian UCAV plans will have important implications for the way Moscow thinks about, designs, tests and eventually conducts warfare. C4ISRNET: Describe, let's say, what Russia drone use looks like in 2030 based on these trends. BENDETT: With the influx of high-precision munitions, development of high-tech weapons and the development of various types of UAVs, future conflicts where Russia will be involved will no longer feature Russian military as a “blunt instrument” — the way Russian tech was used in Chechen wars, in Georgia and even in the early stages of the Syrian conflict. If Russia fields the weapons it is currently designing, then it to will join the ranks of high-tech military powers aiming to strike its adversaries with precision. These UCAVs will have a pivotal role in such a construct. C4ISRNET: What are constraints on Russia achieving this vision? BENDETT: Major constraints for Russia to achieve its vision is lack of experience with hi-tech systems — sensors, key electronics, navigation, cameras, etc. Russians have been able to overcome such problems with simpler, smaller drones, but larger MALE/HALE classes are a different story. This led to production and delivery delays, and despite MOD oversight, there was no silver bullet to deal with these issues. Another constraint has been the effect of Western sanctions and Russian ability to import hi-tech systems and components — today's import-substitution effort by Moscow in hi-tech will take time. C4ISRNET: Any last thoughts? BENDETT: As Russia pursues its own version of the “multidomain battle,” unmanned and robotic systems will form key parts of the Russian way of warfare in 2030 and beyond. However, that will depend on the actual capability of the Russian defense sector to field certain unmanned systems. That vision may change based on the reality of producing such systems, given how many T&E and delivery schedules have already been pushed “to the right.” https://www.c4isrnet.com/newsletters/unmanned-systems/2018/12/26/what-does-2019-hold-for-russias-drones