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19 août 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

When the challenge of coronavirus becomes a catalyst to change

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One way to understand how the United States' largest defense companies are responding to the coronavirus pandemic is to listen to what their leaders said on the most recent round of earnings calls.

Consider this anecdote from General Dynamics.

Phebe Novakovic, the company's chief executive, told analysts in late July that when COVID-19 struck, “our classified customers closed their sites to all but mission-essential employees. This impacted revenue and earnings and will continue to do so. Some of IT services' highest-margin programs have come to a hard stop because of COVID-19.”

Novakovic described the pandemic as a time of “significant uncertainty.”

That story was not unusual.

David Calhoun, Boeing's CEO, described this as “a historically dynamic and challenging time.” Greg Hayes, Raytheon Technologies' top executive, opened his second-quarter call by stating: “As everyone knows, these last several months have been incredibly challenging.” And Bill Brown, the CEO of L3Harris, said: “The pandemic has challenged us all to find new ways of working effectively.”

To be clear, defense contractors have lost roughly 20 percent of their value in the last six months, by tracking exchange-traded funds. That's the worst run for publicly traded companies in at least a decade.

So what to make of this?

James Taiclet, Lockheed Martin's new leader, said his philosophy is that there may be “an opportunity for us if there is a downturn, we're going to look at the silver linings that may be there.” He was talking about mergers and acquisitions.

But defense companies of all sizes should look for another opportunity: a reason to operate differently, not an excuse to get back to basics. Leaders should reexamine how to embrace new talent, how to effectively telework, and how to add new equipment or partnerships with unexpected sources.

Military leaders for years have said they value agility. Now they will get to watch firsthand who changes, who is prepared for the long term, who adapts and who merely talks about adapting. These “challenges” can give acquisition officials a reason to reward agility.

But back to the earnings calls. Officials hinted about what may happen next, before we — fingers crossed — enter a post-pandemic world. Lockheed's Kenneth Possenriede, the company's chief financial officer, said that while solicitations may be slower getting out the door, final deadlines have not changed.

Brown at L3Harris said: “We believe that the heightened threat environment will drive the trajectory of U.S military spending regardless of the election.”

Novakovic seconded that notion. “There's a general consensus that the threat has not dissipated,” she said. “In fact, arguably some of our potential adversaries have raised additional questions. ... We'll see going forward, but [I'm] not hearing a lot at the grassroots level on ... any pending defense cuts.”

The threat may not have changed. Nor may the business of defense. Yet.

But it's impossible to ignore that almost everything else has.

https://www.defensenews.com/opinion/2020/08/17/when-the-challenge-of-coronavirus-becomes-a-catalyst-to-change/

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