3 novembre 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
By: Joe Gould
WASHINGTON ― Anyone will tell you this is the most important election in U.S. history ― unless they happen to run a major American defense firm.
In earnings call after earnings call, defense industry executives projected calm ahead of Tuesday's election, mainly because they see the coronavirus pandemic carrying greater uncertainty (especially for firms with commercial aviation businesses). But another reason is that, despite wide projections of flat 2021 defense budgets no matter who controls the White House, industry is confident in the Pentagon's commitment to modernization.
“We continue to believe that bipartisan support for defense spending will endure and that our portfolio is well-aligned to support our National Defense Strategy,” Northrop Grumman CEO Kathy Warden said in remarks typical of third-quarter earnings calls last week. “While we plan for various budget scenarios, defense spending is largely threat-driven and today's threat environment warrants a strong defense. Emerging threats are intensifying, and we believe both political parties are committed to effectively countering these threats.”
If defense firms are upbeat, then Wall Street seems skeptical, with pure-play defense firms down this year and lagging the stock market, said Capital Alpha Partners' aerospace and defense analyst Byron Callan. Partisan gridlock, he noted, is what led to the budget caps that bedeviled federal budgeting for the last decade.
“You could argue that some of this underperformance is related to concerns about what the election's outcome could be. Even if the president wins, no one's predicting the House will flip, and then you'll still have gridlock in Congress,” Callan said. “Let's say there's a 50-50 split in the Senate. Things can get pretty sporty.”
Defense executives were comfortable making warm predictions about 2021, but the lack of comment about 2022 and 2023 was telling, said Callan. Also, Pentagon officials have warned they will have to tap modernization and readiness funds if Congress does not appropriate about $10 billion for defense contractors' coronavirus-related expenses.
So why didn't any CEOs use their earnings calls to amplify that message? “That was one of the dogs that didn't bark here. Either industry doesn't see it as an issue, or that it's inevitable it's not going to happen," Callan said.
With Democrats readying to debate steep defense cuts if they sweep the election, the expectation is that swollen national deficits ― driven by pandemic aid and Republican-led tax cuts ― will pressure the defense budget downward. But industry is banking on Washington's drive to prepare militarily for a rising China, a disruptive Russia and an unpredictable North Korea.
“Whether it's flat with a little bit of rise or flat with a little bit of fall may depend on the election, but I think that's a fairly narrow space you're working in politically, given the deficit and the threat vectors,” Bill Lynn, the CEO of defense and aerospace conglomerate Leonardo DRS, said in an interview. Lynn is a former deputy defense secretary and Raytheon lobbyist.
Though there's been speculation Democrats would cut defense spending, former vice president Joe Biden, who is running against Republican President Donald Trump, would face pressure not to for economic and political reasons, said Michael Herson, president and chief executive at American Defense International, a defense lobbying firm. (Biden has said, if elected, he doesn't foresee major defense cuts.)
“The first thing that Biden's going to worry about is COVID and the economic recovery,” Herson said in an interview. “So do you really want to touch defense spending, and add to your economic woes ― because it increases unemployment ― in the first year of your presidency?”
Defense Secretary Mark Esper has warned that a flat budget will force the armed services to make budgetary trade-offs and likely cuts to legacy programs. But the Pentagon has also communicated a commitment to modernization, and that's part of industry's confidence.
In September, Northrop won a $13.3 billion award for the Ground Based Strategic Deterrent program, the U.S. Air Force's effort to replace the LGM-30G Minuteman III intercontinental ballistic missile. But some Democrats have attempted to defund it, and investors grilled executives about the program's post-election survival prospects ― and those of Northrop's B-21 Raider.
Warden, Northrop's CEO, argued the nuclear triad becomes more of a budgetary priority when conventional military forces are under pressure.
“So we're confident that a new administration would recognize that value and continue to support the modernization efforts that are well underway for both GBSD and B-21,” she said.
The Pentagon over recent years has oriented itself toward technological competition with China, with related investments in artificial intelligence, next-generation networks, cybersecurity and space. Companies did not see signs of that momentum reversing.
“The government doesn't pivot on a dime,” Booz Allen Hamilton's chief financial officer, Lloyd Howell Jr., told investors. “And a lot of the programs that we currently support ... are increasingly tied to their missions, which is politically agnostic.”
The CEO of infrared imaging maker FLIR Systems, Jim Cannon, acknowledged there will be “top-line pressure on the budget ... no matter what happens with the election,” but he put stock in Army leaders' assurances that the service must remedy long-underfunded modernization efforts.
“The message that was sent out to industry loud and clear is that, after four decades largely without significant modernization transformation, now is the time,” Cannon said. “And if we look at the priorities that we're aligned against and the work that we've been doing for the past two years, we think we're well positioned there. But look: I agree there's a lot of uncertainty, a lot of work yet for us to do, but that's our perspective right now.”
When asked, L3Harris downplayed how a drawdown from Afghanistan ― which Trump and Biden both favor ― or hypothetical cuts to end strength would impact the sales of radios or night vision goggles.
“We're not even 40 percent through the modernization ramp with radio. So even if end strength comes down, as I expect it likely will, I don't think it's going to affect the growth rate in our radio business,” said CEO Bill Brown, arguing that night vision goggles and radios had “under-penetrated the force.”
“So if anything, reduced end strength might actually free up some dollars to be put onto modernization investments that really affect a broad part of our business,” he added.
Executives at companies without a stake in a specific major platform had a good story to tell, and several pointed to investments in cybersecurity or artificial intelligence. Leonardo DRS' Lynn said the firm's investments in communications, sensors and computing systems had made it “ambidextrous."
"We can go in any direction,” he said. “The larger companies have greater exposure across the breadth of the defense budget. We're more in targeted areas and haven't got broad exposure.
“We're in Army sensors, satellite communications; we're in 10 or 12 segments. We can be targeted, and frankly in a flat budget environment, that ability to target's important to grow at all.”
26 août 2021 | International, Aérospatial
New upgrades are afoot for the Command Control Battle Management and Communications system linking missile defense capability globally.
22 novembre 2019 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
By Byron Callan Unlike in the U.S. health care or energy sectors, it is so far hard to discern much of a stock market reaction for the defense sector in the run-up to the 2020 U.S. election. There has not been the equivalent of issues such as Medicare for all or fracking that has grabbed the attention of defense investors. That might be because defense and security issues have been absent from the debates so far, and Democratic candidates have put forth few detailed defense and foreign policy plans and proposals. It is way too soon to act with conviction on the potential outcomes of the 2020 election and their implications for defense. Polls can and will change. The likely Democratic presidential candidate may not be known until April, when most of the primaries are completed, or July 2020, when the party holds its convention. And it remains to be seen how that candidate will fare against President Donald Trump, presuming he is not removed from office. Still, leaders at defense companies and analysts have to assess potential outcomes and what they may entail for 2021 and beyond. The current consensus is that there likely will be split-party control of Congress and the White House in 2021-22. The House probably will remain in Democratic control, but the Republicans may retain a slim majority in the Senate, given the number of “safe” seats they will defend. Democrats might sweep in, but they are very unlikely to gain a 60-seat majority, and it is arguable that if they do not, the chamber will vote to do away with cloture, which gives the minority party in the Senate power to shape and channel legislation. This alone should temper expectations that there will be radical changes for defense. Moreover, the day after the 2020 election, both parties will have their eyes on the 2022 election, when 12 Democratic and 22 Republican seats will be contested. If Trump is reelected, the simplest path forward will be to conclude that current defense policies will remain in place. Congress has not been willing to approve the deep nondefense discretionary cuts the administration has proposed for 2017-19, and it is not clear what would change this posture in 2021-22. Barring a major change in the global security outlook, U.S. defense spending may thus remain hemmed in by debt/deficit concerns and demands for parity in increases of nondefense spending. Trump is likely to continue to browbeat allies in Europe and Asia to spend more on defense. The Pentagon will push ahead with its current major modernization and technology priorities, including artificial intelligence, directed energy and hypersonics, and there should be some continuity with civilian leadership at the Pentagon. However, the global security outlook may be the biggest variable for the sector to assess. Iran has not shown any readiness to bow to U.S. “maximum pressure,” and North Korea has not denuclearized. How Russia and China respond to the prospects of another four years of Trump also has to be weighed. NATO and other alliances also may be under more stress. And inevitably, there are likely to be new security issues in the early 2020s that are not top of mind or even conceivable today. There are a range of defense views and perspectives among the leading Democratic candidates. The views of the two most progressive candidates—Sen. Bernie Sanders (I-Vt.) and Sen. Elizabeth Warren (D-Mass.)—could be viewed as potentially the most disruptive for defense. Warren, in particular, has emphasized her view of “agency capture” by major U.S. contractors, and her health care plan is to be paid for in part by a $798 billion cut to defense spending over 10 years, though the baseline of those cuts has not been stipulated. If a progressive candidate appears to do well in the Democratic nomination process and in polling against Trump, however, it will be useful to recall the congressional dynamic noted above. Congress could act as a firewall against steeper cuts and sweeping change. Equally, it is useful to recall that what candidates promise is not always what they do once they are in office. A more moderate, centrist Democratic candidate such as former Vice President Joe Biden or South Bend, Illinois, Mayor Pete Buttigieg may appear benign for defense and will very likely face the same geopolitical security challenges that Trump could face. If there is a shift back toward a U.S. promotion of democracy and human rights, that could affect recent international defense export patterns and raise tensions with China, Russia and other autocratic regimes. Probably, there will be a bigger debate over nuclear strategic forces modernization, the role of technology in defense and whether it can deliver credible military capability and deterrence at lower cost. Even if U.S. defense spending evidences little real growth in the early 2020s, these factors could be the most important for contractors to navigate. https://aviationweek.com/defense/opinion-how-2020-election-likely-affect-defense
8 février 2018 | International, Aérospatial, Naval, Terrestre, C4ISR
Par Challenges le 08.02.2018 à 08h45 Régénérer les hommes et moderniser les équipements, durement sollicités, tout en préparant l'avenir : c'est l'ambition du nouveau projet de loi de programmation militaire (LPM) français, qui prévoit de consacrer 295 milliards d'euros à la défense de 2019 à 2025. Régénérer les hommes et moderniser les équipements, durement sollicités, tout en préparant l'avenir : c'est l'ambition du nouveau projet de loi de programmation militaire (LPM) français, qui prévoit de consacrer 295 milliards d'euros à la défense de 2019 à 2025. Objectif de cet "effort budgétaire inédit", selon les propos du président Emmanuel Macron : porter les dépenses de défense de la France à 2% du PIB en 2025, conformément à ce que réclame l'Otan de la part de ses membres, selon cette LPM présentée jeudi matin en conseil des ministres dont l'AFP a obtenu les détails. Le budget des armées, de 34,2 milliards d'euros en 2018, va bénéficier d'une hausse de 1,7 milliard d'euros par an jusqu'en 2022, avant des "marches" de 3 milliards par an à partir de 2023. Soit après la prochaine élection présidentielle. Cette trajectoire budgétaire ascendante contraste avec les réductions d'effectifs et les tensions financières endurées pendant plus d'une décennie par l'institution militaire, avant un redressement amorcé après les attentats de 2015. Reste une incertitude quant à la forte hausse des moyens programmée en 2024 et 2025, au-delà du quinquennat Macron. Pour l'heure, ce sont 198 milliards d'euros de besoins, de 2019 à 2023, qui sont "couverts de manière ferme", souligne-t-on au ministère. Les montants des années suivantes seront "précisés" lors d'une actualisation de la LPM en 2021. L'ancien chef d'Etat-major des armées Pierre de Villiers a appelé à la vigilance mercredi soir sur France 3, en soulignant que la mise en oeuvre de ces projections budgétaires était rarement fidèle aux engagements initiaux. "Nous sommes sur une pente à 1,7 milliard jusqu'en 2022 et ensuite la pente est à 3 milliards à partir de 2023 (...) Evidemment, nous avons l'expérience, il faudra être vigilant" sur l'exécution de ces engagements, a lancé le général, qui a démissionné en juillet 2017 après un conflit avec le chef de l'Etat en raison de coupes budgétaires. Le projet de LPM érige en priorités l'amélioration du quotidien du soldat et à la modernisation d'équipements à bout de souffle, alors que la France est engagée tous azimuts, au Sahel (opération Barkhane), au Levant (Chammal) et sur le territoire national (Sentinelle). Livraisons accélérées et augmentées Après quelque 60.000 suppressions d'effectifs entre 2005 et 2015, le ministère des Armées ambitionne de créer quelque 6.000 postes d'ici à 2025, en particulier dans la cyberdéfense (1.500) et le renseignement (1.500). Pour améliorer la condition des quelque 200.000 militaires français et les fidéliser, la LPM augmente nettement les crédits consacrés aux petits équipements (+34% sur 2019-23) -- gilets pare-balles, treillis... --, à l'entretien du matériel (+30%) et aux infrastructures (+71%), longtemps négligés. Deuxième grand axe : la modernisation accélérée des matériels existants, nombreux à aligner plusieurs décennies de service, a été privilégiée, et l'accent mis sur les capacités de renseignement (avions, drones, satellites...) susceptibles d'accroître l'autonomie stratégique française et européenne. L'armée de Terre va voir le renouvellement accéléré de ses véhicules blindés médians (programme Scorpion), dont 50% des nouveaux modèles seront livrés d'ici à 2025. Les fameux VAB, 40 ans au compteur, seront remplacés par les blindés Griffon, dont 150 exemplaires supplémentaires seront commandés. La Marine obtient quatre pétroliers ravitailleurs nouvelle génération, dont deux d'ici à 2025, un b'timent spécialisé dans le recueil de renseignement, et 19 patrouilleurs au lieu des 17 prévus pour surveiller les zones économiques exclusives françaises outre-mer. L'armée de l'Air se voit allouer 8 avions légers de surveillance, et le renouvellement accéléré de sa flotte quinquagénaire d'avions ravitailleurs Boeing KC-135 par 15 A330 MRTT, dont 12 auront été livrés en 2023. Pour préparer l'avenir, la France va lancer des études sur le remplacement de son unique porte-avions, qui sera retiré du service vers 2040. Seront également financées des études sur le système de combat aérien du futur et sur le char de combat du futur. Sur le plan de la dissuasion nucléaire, clé de voûte de la défense française, les travaux de renouvellement des deux composantes (navale et aérienne) seront engagés au cours du quinquennat. Budget estimé : 37 milliards d'euros entre 2019 et 2025. (Avec AFP) https://www.challenges.fr/entreprise/defense/la-france-veut-consacrer-pres-de-300-milliards-d-euros-a-sa-defense-en-sept-ans_566000