Nouvelles

By: Mackenzie Eaglen House Armed Services Committee Chairman Adam Smith, D-Wash., and Sen. Dick Durbin, D-Ill., ranking member of the Senate Appropriations Subcommittee on Defense, recently wrote in an op-ed on Defense News that Congress “cannot panic and hand out blank checks to defense contractors.” They were concerned with a “lack of detail” in the Pentagon's stimulus funding request. Pentagon officials have responded with said requested detail. It's clear the defense, shipbuilding and aerospace industrial base — an “essential” workforce as designated by the Department of Homeland Security — is indeed in need of help. These critical firms need financial support to the tune of about $11 billion to support more than 100,000 direct jobs. Nor should the military have to take it out of hide, as suggested by some. According to the Defense Department, the data from industry is showing 30-40 percent inefficiency across the defense industrial base, but certain sectors like shipbuilding are experiencing 50-60 percent inefficiency. At shipyards, for example, blue-collar worker attendance ranges from just half to 70 percent. Other short-term sectors at risk include textile manufacturers, body armor suppliers and small business electronics suppliers, who feed guidance systems and wiring harnesses in Army vehicles and aircraft. A sampling of specific reasons for inefficiency include: Confirmed cases or quarantines Government facility closure/standdown test delays Telework Closures due to travel restrictions Logistic implications caused by travel restrictions requiring commercial freight Availability of parts and supplies High absentee rates Local and state lockdowns Foreign government lockdowns Supplier shutdowns Pentagon leaders are worried about the near term, but also permanent damage. Officials are “concerned with a potential loss of critical labor skills,” such as welders. Shipbuilders are in dire straits given the “significant touch labor” required to build a ship and “greater facility impact from social distancing.” The potential shutdown of one of the “big seven” private shipyards is a real risk right now. The Virginia-class attack submarine is currently experiencing delays in its production line, as Newport News Shipbuilding has “prioritized its available workforce on supporting maintenance for in-service submarines and aircraft carriers.” If electricians, engineers and solderers shift from the Virginia assembly line elsewhere, the work is slowed and “the opportunity for the cost to come down on each successive submarine hull is diminished.” Congress has repeatedly supported this program above recent budget requests and presumably cares greatly about this unanticipated cost overrun through no fault of nor negligence by the contractor. The Air Force is experiencing major program delays due to the impact on the aerospace industrial base — both primes and suppliers. Programs impacted include the F-35 Joint Strike Fighter and KC-46 tanker due to facility shutdowns in the U.S., England, Italy and Japan. These two aircraft programs will likely miss major milestones — therefore delaying the time when they become available to the war fighter. Aircraft engine-maker GE Aviation is a “fragility concern” across the armed forces. For the Air Force, the Joint Air-to-Surface Standoff Missile and the Advanced Medium-Range Air-to-Air Missile are “being impacted by reduced workforce and facility availability.” The Small Diameter Bomb motor supplier is being pulled to support the Federal Emergency Management Agency with motors for hospital beds. Aerospace firms with commercial work are reporting problems given the massive decline in commercial demand, which affects defense. Contrary to the assertion that the Pentagon doesn't need more stimulus money to support contractors, the services are “concerned about large commercial companies, like Boeing and GE that are critical to our defense industrial base facing negative cash flow and other associated impacts from COVID-19.” Small businesses and subcontractors are particularly vulnerable as they have far less slack to respond to crises. Many live contract to contract, as indicated by a 2018 Pentagon report. According to the Defense Department, “small businesses ... have been the hit the hardest due to unfamiliarity that [the] defense industrial base is exempt from most local shelter-in-place orders.” The Pentagon's request for more stimulus money is not a case of pork for primes. This industry has “a notably high rate of subcontracted work flow and systems with high component volumes, driving job loss directly to program partners and the supply chain.” So while virtually all of the Pentagon's missiles are built by two primes, 98 percent of the subcontractors making parts for U.S. munitions are the only source for these items. If these unique businesses fail, there may not be any replacements. A study last year by George Mason University found “contractor workforce challenges have a direct impact on the government's ability to ramp up quickly.” Budget fluctuations are particularly hard on small companies that “do not have large enough portfolios to shift people between projects. The contractor workforce loses skills or move on.” These firms operate with “thin margins and low lines of credit.” The additional costs to respond to COVID-19 were not part of the original contracts the companies are currently performing, and warrant stimulus money. Hopefully, Chairman Smith and Sen. Durbin now agree. https://www.defensenews.com/opinion/commentary/2020/08/18/the-defense-industry-remains-in-dire-straits-congress-must-pass-another-relief-package/

Andrew Eversden WASHINGTON — An information warfare project run by Naval Information Warfare Systems Command (NAVWAR) recently received hundreds of millions of dollars in new funds after a successful first 18 months, NAVWAR announced Aug. 17. NAVWAR's Information Warfare Research Project (IWRP), which uses an agile acquisition tool known as an Other Transaction Authority to quickly contract for and deliver IW tools, recently received a $400 million funding increase and two-year performance period extension after hitting its $100 million funding ceiling a year before the project was set to expire next summer. The massive bump was approved by Assistant Secretary of the Navy for Research, Development and Acquisition James Geurts. The project, which kicked off in October 2018, now has a $500 million ceiling and a five-year performance period. “IWRP has proven its effectiveness and successfulness as a streamlined approach to rapid prototyping,” said Jee Youn Fickling, IWRP program manager at Naval Information Warfare Center (NIWC) Atlantic, in a statement. “As interest increases to do more prototyping in order to keep up with the pace of technology, IWRP OTA offers the flexibility and speed within 14 technology areas. The growth in interest from IWRP users across many Navy and Marine Corps commands and program offices and the growth in the size of the consortium, speaks volumes to the need to quickly make awards for prototypes.” The project focuses on technology areas that include tools for cyber warfare, autonomous systems, cloud computing and data analytics. IWRP partners with industry and academia through a consortium managed by Advanced Technology International, a non-profit that builds research and development partnerships. In the last 18 months, the IWRP has released more than 800 prototyping opportunities, according to the NAVWAR press release. The consortium has more than 580 partners. IWRP users include NAVWAR, NIWC Atlantic, NIWC Pacific, Naval Sea Systems Command Logistics, Maintenance and Industrial Operations, Program Executive Office (PEO) for Digital Enterprise Services, PEO for Manpower, Logistics and Business Solutions, PEO Command, Control, Communications, Computers and Intelligence Space Systems, PEO Integrated Warfare Systems, Marine Corps Systems Command, Naval Analytics Office and Office of Naval Research. “IWRP has been a game changer and has proven to be a key enabler in rapid delivery of IW capability to the warfighter,” said Nicole Stone, director of rapid prototyping – information warfare at NIWC Pacific, in a statement. “Collaboration with our partners in industry, small business and academia, with the flexibility necessary to adapt to evolving requirements, is critical to our success in winning the fight. IWRP provides that platform for us.” https://www.c4isrnet.com/information-warfare/2020/08/18/navy-information-warfare-project-received-400-million-funding-boost/

Reliance on foreign suppliers in the defense industrial base rose—notably in packaged software and IT services—even as calls for reshoring increase, according to a new report. Reshoring the defense supply chain may reduce national security risks, but a new report detailing a heavy dependency on goods and services from foreign countries like China shows reshoring may be easier said than done. Researchers at Govini, a decision science company supporting the defense industry, analyzed data from over 1,000 Defense Department vendors across 100 industries to show how supply chain reliance on products from foreign countries has increased over the past decade. According to the survey, the number of Chinese suppliers in DOD's base increased by a total of 420% since 2010. For cyber and information technology, two statistics stick out. The share of companies based in foreign nations in the supply chain grew the most in the packaged software and IT services between 2010 and 2019. Companies based in foreign countries made up 3% of the packaged software supplier base in 2010. That number rose to 7% in 2019. The numbers are similar for IT services: Companies based in foreign countries made up 3% of the IT services supplier base in 2010 and 7% in 2019. Tara Murphy Dougherty, CEO of Govini, told Nextgov increasing adoption of IT infrastructure is critical for the Defense Department, particularly as COVID-19 forced the agency's workforce into mass telework. But that means it is imperative DOD addresses supply chain concerns for information and communications technology. Murphy Dougherty said these two investment areas are only going to continue to grow, which means the department needs to act to clearly define its stance on IT supply chain security. “What are you doing, other than responding to some of the legislation that we've seen come out of the Hill mandating investigation of this?” she said. “It would be great to see more options.” A key mandate from Congress related to supply chain was supposed to take effect on an interim basis Thursday. Section 889 (a)(1)(b) of the 2019 National Defense Authorization Act bans agencies from contracting with companies that do business with five Chinese firms, including Huawei and ZTE. But according to a Defense News report, the Pentagon received a temporary waiver from the Director of National Intelligence pushing back the compliance date until September 30. Defense Undersecretary for Acquisitions and Sustainment Ellen Lord said at a Professional Services Council webinar Thursday she needs feedback from industry on what's working and what's not when it comes to implementing the rule. “I know we're all aligned in that we do not want adversaries in our supply chain. We don't want further theft of intellectual property. We don't want these nefarious actions going on,” Lord said. “But how do we get the language into the contracts, how do we practice the behaviors of ensuring we understand what we have in our supply chains for telecommunications equipment? What we need to do is continue to hear from you.” It's not yet clear how the brief deadline extension will affect the implementation process. Regardless, visibility down the supply chain remains a key concern. Murphy Dougherty said there needs to be more transparency in supply chains if the industry is going to address security risks. The Govini report focuses on firms in the mid-tier of the supply chain, with less visibility than a large company like Boeing. For companies further down the supply chain, U.S.-based companies make up less than half of the supplier base, according to the report. Chinese companies make up anywhere from 5% to 9% of the supplier base in the middle to lower ranges of the supply chain. Murphy Dougherty said it's going to take time to see changes in the data. How to address the industrial base at a structural level remains an unanswered question, she said, and collaboration between DOD and industry will be critical in coming up with a new system to ensure supply chain security. “It begs the question of do we have the right models in place today and the right framework for the department to get all of the goodness and partnership it possibly can out of the American commercial economy,” Murphy Dougherty said. https://www.defenseone.com/threats/2020/08/number-foreign-companies-within-defense-supply-chain-grew-over-past-decade-report-says/167767/

We think that p-LEO is a big deal. And there's got to be a revolution that has to hit the ground segment, says Phil Carrai, president of Kratos's space, training and cyber division. By THERESA HITCHENSon August 17, 2020 at 1:20 PM WASHINGTON: As DoD and commercial industry scramble to develop small satellite constellations in Low Earth Orbit for everything from high-speed communications to near-real time Earth observation, Kratos is quietly working to solidify a central role providing the new ground systems required to make them work. While there is enormous military and commercial interest in the proliferation of small LEO satellites, known as p-LEO, not nearly as much attention has been paid to the radically different ground-based infrastructure to support those constellations. But the necessary changes in ground architecture will be monumental, and extremely lucrative for those companies at the crest of that wave. “We think that p-LEO is a big deal. And there's got to be a revolution that has to hit the ground segment,” says Phil Carrai, president of Kratos' space, training and cyber division. “We think this is kind of our play for the next many years. ... We've been making some substantial investments in that, in the sense of taking what was analog and stovepiped and moving it into a digital, dynamic, cloud infrastructure.” Kratos, headquartered in San Diego, is a mid-tier company with $750- to $800 million in annual revenue, and is perhaps best known in the defense arena right now for its low-cost attritable drones. Its XQ-58A Valkyrie is one of the top contenders for the Air Force's high-profile Skyborg program to build autonomous drones that can mate with piloted aircraft for a variety of missions; it also is providing an airframe, based on its Mako UTAP-22, as a subcontractor to Dynetics in DARPA's Gremlins program to develop drone swarms. But space-related work is the firm's bread and butter. Kratos' space, training and cyber Division is the company's biggest, Carrai said, with a large, but often behind-the-scenes, footprint in both the military and commercial satellite communications markets. Indeed, while Valkyrie's role in the Air Force's Advanced Battle Management System (ABMS), which is developing new technologies to support command and control of future all-domain operations, has been well documented, Kratos space-related comms systems and ground equipment are actually playing a bigger part as subsystems within many other company's offerings, company officials explained in a teleconference with Breaking D. “Our space portfolio really is all about communications and the ground segment, if you will, so that's been our heritage,” Carrai said. “Probably 90 percent of US satellite missions use our technology in one form or fashion. So, we are rather unique in the sense that we can claim the US Air Force and SMC [Space and Missile Systems Center] as one of our largest customers, and, probably in our top 10 or top five, Intelsat and SES are also very large customers.” The advent of 5G mobile telecommunications networks, and its promise of hyper-connectivity through the Internet of Things including from space, has mesmerized DoD and the Intelligence Community, as well as industry. The chief benefit of tying together satcom and wireless and terrestrial networks, for both national security and commercial communications, is expanded reach to hard-to-access areas. For example, satellite signals have trouble penetrating areas like ‘urban canyons'; laying fiber and erecting cell-towers in rural and harsh terrain such as mountainous regions is very costly if not impossible, but satellite communications is relatively simple. The challenge is integrating currently incompatible (in more ways than one) and heavily stovepiped networks in a seamless fashion that allows near-instantaneous roaming among them. That is why the ground system issue is so important. “We think that there's a substantial change that needs to take place from the ground perspective,” Carrai said. Not only will there need to be “way more sites” to connect to fast-moving LEO satellites due to the simple laws of physics, but satellite ground stations will need to be configured more like terrestrial communications nodes with machine-to-machine operations ensuring the best link to any one satellite at a given place or time. Chris Badgett, Kratos VP for Technology, explained that this kind of “dynamic resource allocation or that dynamic situational awareness” is particularly important to military users in order to provide jam-proof communications. In essence, this would allow a military radio to ‘jump' from one frequency being jammed to another that is open. Today, if ‘changing the channel' is possible, it is up to a solider or sailor or Marine to figure that out and manually flip switches. The ultimate goal is to automate that frequency and network ‘hopping' capability so that users don't even notice that it's being done. The mess that is the world of DoD satcom terminals is a long-standing sore-thumb for operators, particularly in the Army. As Breaking D readers know, DoD currently maintains 17,000 terminals with “approximately 135 different designs,” as the Government Accountability office found. Those terminals operate across diverse platforms—such as ships, backpacks, vehicles and aircraft — all with differing system requirements, so that for the most part each terminal system (i.e. each type of radio) is tied to only one satellite network and one type of platform. And while fixing the current problem is already a Herculean task, it could be a show-stopper to Dod's vision of future all-domain operations, linking sensors and shooters provided by all the services together via a Joint All-Domain Command and Control (JADC2) network. “The major obstacle that we have from a ground system standpoint is the current ground architectures have all been designed and developed in a very stove-piped and mission-specific sense. And so each ground system was designed for the mission that it was supporting,” said Frank Backes, senior VP for Kratos Space Federal Solutions. “Where we're going now with a joint, or combined, capability is the integration of those ground systems. And therein lies the complexity. “How do you take a legacy-based architecture that was very stovepipe designed and integrate it together into a common system that gives you enterprise-wide control of the infrastructure, and also gives you the awareness of all the systems? It's very easy to become overwhelmed in the information that a combined system provides,” Backe added. As Breaking D readers know, sorting out those answers is what Gen. Jay Raymond, head of the Space Force, set out to do with his Vision for Enterprise Satellite Communications (SATCOM). That is aimed at creating a seamless network of military and commercial communications satellites in all orbits, accessible to troops, vehicles, ships and aircraft via ground terminals and mobile receivers that would automatically “hop” from one satellite network to another. Carrai said Kratos believes that ultimately the “current analog stovepipe infrastructure that exists today” must simply be replaced. What is needed for integrated satcom is “a roaming modem or a roaming terminal,” and the ability to integrate satellite-provided imagery into the network, a “kind of a virtual antenna.” “If you don't have that capability, you're not going to be resilient, it's going to cost a lot of money, and you're going to create a huge exposure because everybody's going to know what antennas are used for what purpose,” he added. All that said, Carrai opined that partly because of push from the Space Force, the stovepipe problem with milsatcom networks is beginning to change. “It's still a struggle,” he said, because “there's a lot of drive from the spacecraft manufacturers to link the ground system with it. You know, that's what makes it a multibillion dollar system.” In addition, he said, the scramble by commercial satcom operators to get on the 5G bandwagon is forcing them to figure out how to open up proprietary networks. “Commercial operators all see that 5G and data is their future, not broadcast, he said. “The commercial operators are going to lead if not the defense side because they have to interoperate with the telecom operators if they're going to survive.” https://breakingdefense.com/2020/08/kratos-targets-ground-system-revolution

Mark Pomerleau WASHINGTON — As Lockheed Martin works on the U.S. Army's first ground-based integrated signals intelligence, electronic warfare and cyber system, the company is placing a heavy focus on coalition interoperability. The Army awarded Lockheed a $6 million other transaction authority contract — a highly flexible contracting tool — in May to build the first phase of the Terrestrial Layer System-Large. Boeing subsidiary Digital Receiver Technology also won an award for the program for $7.6 million. The two companies will build and outfit their systems to Stryker vehicles during the 16-month-long phase one, while also participating in operational assessments, after which the Army will choose one company to move on. John Wojnar, director for cyber and electronic warfare strategy at Lockheed, told C4ISRNET in a July interview that the company had a keen eye toward integrating its system with international partners as well as the Army, given the U.S. military doesn't fight alone. “Being able to bring in our coalition partners, maybe starting with the Five Eyes first and in particular the U.K., and aligning the architecture that we provided ... really drove us to the architecture that we came up with,” he said. He added that Lockheed examined the building blocks of the U.K.'s cyber and electromagnetic activities to help inform the offering. Being in close partnership with coalition members is key, he said, so whatever architectures the company designs should be interoperable with partners to maximize effectiveness on the battlefield. Lockheed's system was an internal research and development project that is a companion of sorts to its aerial cyber/electronic warfare system Silent Crow, which the Army awarded a year ago for its Multi-Function Electronic Warfare-Air Large system. Wojnar said the ground system went through testing in September at the Army's Cyber Blitz event, which helps the service understand how to mature cyber and electronic warfare operations with traditional units through actual experimentation with emerging technologies and soldiers at Joint Base McGuire-Dix-Lakehurst. “Based on lessons learned from those tests as well as the other activities that have been underway tied to Silent Crow IRAD, we were able to leverage the best of the best to then come up with our TLS-Large system offering,” he said. The work that will be ongoing between now and next summer when the first phase of TLS wraps up, Wojnar added, includes ensuring all the component parts developed internally and externally have been acquired and integrated into the ground vehicles, as well as conducting a variety of software drops. https://www.c4isrnet.com/electronic-warfare/2020/08/17/lockheed-develops-electronic-warfare-tools-with-eye-toward-multinational-interoperability/

By: Mike Gruss The adage is that it is difficult for an aircraft carrier to turn on a dime. The same could be said for the defense industry or Pentagon budgets and as such, the Defense News Top 100 list. Changes are slow and can take time to appear on our list. For example, for the first time, this year's list reflects the result of the L3-Harris merger. L3, ranked 18th on last year's list, and Harris, ranked 26th a year ago, merged to form what everyone expected: one of the world's largest defense corporations in L3Harris Technologies, ranked 9th on our list. Next year, observers will see the results of the merger between Raytheon, ranked 5th on this year's list, and United Technologies Corp., ranked 10th on this year's list. Thematically, the shifts that defense and military leaders have spent years discussing are becoming fully reflected in industry. China's heavy investments in defense are becoming evident by the inclusion of Aviation Industry Corporation of China (6th), China North Industries Group Corporation Limited (8th), and China Aerospace Science and Industry Corporation (11th) on this year's list. The role of integration and communication tools is becoming more important, as is evidenced by Leidos, Peraton and Perspecta's inclusion. Medium-sized businesses are becoming increasingly critical players. And, for years, U.S. military leaders have heard from Silicon Valley startups that it remains too difficult to break into the defense market in a meaningful way. Advocates will likely point by how few are in the list. Other companies have complained that the big primes have too much of a lock on Pentagon contracts, perhaps seen in how the top five bring in more than twice the revenue of the next five. Each year, the Defense News Top 100 is part art, part science. Every year, the Defense News team tries to push it a bit closer to science. This year's list, like years past, is a snapshot of what's happening in defense markets and maybe, just maybe, a hint of what's to come. https://www.defensenews.com/top-100/2020/08/17/the-list-is-here-find-out-how-global-defense-companies-performed-in-fy19/

By: Joe Gould 5:00 AM WASHINGTON ― Defense revenues of the top 100 defense companies in the world climbed for a fourth straight year, pushed upward by U.S. defense spending growth combined with strong foreign military sales. Fiscal 2019 defense revenues recorded in Defense News' Top 100 list totaled $524 billion, up about 7 percent from $488 billion in fiscal 2018, according to numbers compiled by Defense News as part of the annual Top 100 list. “The single most striking thing about these data is the year-over-year growth, the median of which is 7 percent,” said Atlantic Council Senior Fellow Steven Grundman. “For an industry generally regarded as mature, revenue growth that runs at two times global GDP is downright sporty.” The defense industry remained top heavy, as the top 10 firms accounted for 50 percent of total defense revenue on this year's list, and the top 25 companies accounted for about 75 percent of the total. Geographically, U.S. firms made up seven of the top 10, and 10 of the top 25. The combined defense revenue of the 41 U.S. firms in the Top 100 list comprised more than half of the total defense revenue. China this year had five firms in the top 15 companies versus six last year. Eight Chinese firms made the Top 100 list this year, with a combined $95 billion in defense revenue for FY19 ― which is $11.7 billion shy of the list's total for Europe and Turkey. The Aviation Industry Corporation of China, which appeared with other Chinese firms for the first time last year, fell from No. 5 to No. 6, though its defense revenue grew by a percentage point over last year. China South Industries Group Corporation fell from No. 11 to No. 18, as its revenue declined 26 percent, from about $12 billion to around $9 billion. China is unquestionably a defense giant in the Asia-Pacific region, dwarfing its nine neighbors (excluding Russia) on the list. Their 2019 defense revenues totaled $21 billion. The combined revenues of the Chinese firms marks the country as the rising superpower it's billed to be in political and strategic circles, said Daniel Gouré, a senior vice president with the Lexington Institute. “For all the discussions we have been having over the last weeks and months about China as a potential threat and challenges, they are building all kinds of blue-water ship classes that mirror the U.S. Navy,” he said. “For a country that was once thought of as a continental or near-shore power, it's amazing the stuff they're building, and its reflected in these companies.” From Europe and Turkey, a NATO ally, there were 35 firms across the list. The combined defense revenue there comprised roughly 20 percent of the Top 100 total. Seven Turkish firms made the list, with FNSS Savunma Sistemleri A.S., and Havelsan A.S. joining the list at No. 98 and No. 99 respectively. For Russia, some past participants declined to provide data this year for unknown reasons. The two that participated made it into the list: Almaz-Antey placed 17th, with $9.2 billion in defense revenue for 2019, and Tactical Missiles Corporation JSC placed 35th, with $3.5 billion in defense revenue. The annual Defense News Top 100 list relies for the most part on self-reporting from companies, many of whom provide estimates rather than definitive data for their defense percentages. That means that while the list is the industry standard, the numbers come with some variance. Heritage firms dominate Lockheed Martin was a lock for No. 1, for the 21st year in a row, with defense revenue that represents nearly 11 percent of the total. Its defense revenue jumped 12 percent between FY18 and FY19, from $51 billion to $57 billion ― with Boeing trailing at No. 2 at $34 billion in defense revenue for FY19. Within the top five, General Dynamics climbed back from No. 6 last year, passing both Raytheon and Northrop Grumman. Northrop fell from No. 3 to No. 4, likely based on a full-year accounting of its acquisition of Orbital ATK in 2017, said analyst Roman Schweizer, managing director of Cowen and Company. GD led Northrop by $912 million in defense revenue, with Raytheon (5th place) trailing Northrop by $1.2 billion in defense revenue. Ten companies increased their defense revenue by $1 billion or more, and Lockheed Martin led the pack with a $6 billion boost. The merger between L3 Technologies (18th place last year) and Harris Corp. (26th place last year) saw a new entry, L3Harris Technologies, take the No. 9 spot, with $13.9 billion in defense revenue ― just ahead of United Technologies Corp., which acquired Rockwell Collins in 2018 and whose merger with Raytheon should be reflected in next year's list. At the same time, the data doesn't support the argument that the defense industry is growing progressively more concentrated, according to Grundman. “The top-quartile of firms account for exactly three-quarters of the revenue both in 2018 and 2019,” he said. “Looking back at the data for 2013, the top quartile took 73 percent of the revenue, but that's not appreciably less than last year.” Still, despite the Pentagon's push to work with nontraditional suppliers, the top of this year's list, and the list overall, is almost like the automotive sector, it's so dominated by familiar names, said Byron Callan, an analyst with Capital Alpha Partners. “The interesting thing is just the relative stability of this,” Callan said. “For all of DoD's emphasis to get new entrants into the sector, and reach out to innovative suppliers, you just don't see it. When you compare it to the technology sector, we're all using things made by companies that weren't even household names 10 years ago. ... Where is the Tesla [of the defense sector]?” It's not out of the question that the list changes over the next five years, if the U.S. Department of Defense and foreign militaries make good on their promises to boost innovation, Callan said. For all the DoD's discussion of the growing role of software, artificial intelligence and machine learning, there's no company known for those things on the list, Gouré observed. Beyond General Dynamics, which completed its acquisition of IT services giant CSRA in 2018, “AI, software, IT aren't there because they're still subcontractors,” Gouré said. “Microsoft and Amazon Web Services, they aren't anywhere on the list.” That's not to say there isn't massive spending on all of the above, but it remains a subcomponent within companies, and therefore not captured on the list, Gouré said. “If we keep saying it's the kill chain, the network matters and the country with the best AI will win, are we not investing enough, are we doing the right thing?” Gouré wondered. “There are more questions than answers.” (Booz Allen Hamilton, No. 26 this year, did win an $800 million Pentagon artificial intelligence contract. But as that occurred in May 2020, it will likely impact future lists.) For now, the large, multiplatform firms dominate and should continue to do so, even if government defense spending declines, Gouré said. “These guys are showing it's good to have a finger in many pies.” Furthermore, the data tend to contradict the conventional wisdom that defense is an industry of mostly large-scale, pure-play firms, according to Grundman. “In fact, the median [defense] revenue of the top 100 is only $2 billion. And on average, only slightly more than half each firm's revenue ... derives from defense sales,” he said. Flat-budget future? The consensus among analysts is that government defense spending will level off amid the coronavirus pandemic, and its effects as well as the result of the upcoming U.S. presidential election in November will be reflected in future lists. “Successful years of investment spending growth appears to be ending, but outlays are still growing due to the surge in spending over the last three years. But they are starting to taper significantly after this year,” Schweizer said. Schweizer sees foreign spending softening, at least in the short term due to COVID-19, but he predicts defense budgets, backlogs, outlays and foreign military sales will hold together for at least 12-18 months to help defense firms weather the unprecedented damage visiting the commercial aerospace sector. The biggest risk is the U.S. budget trajectory, which is likely to be flat, at best, or decline in mid-single digits, at worst, over the next five years, Schweitzer added. He anticipates a drop of 3-5 percent, but with the Pentagon's eye on Russia and China, the department will likely make trade-offs to protect core modernization areas. As global growth rates slow, future lists may see some familiar companies grow leaner. “These companies are going to figure out what their growth businesses are so they can shrink to grow,” Callan said. “They all say they're well positioned [for slower defense spending], but what the hell does that mean? They can't all be right.” Other notable moves included Reston, Virginia-based engineering and construction company Bechtel, which fell to No. 47 from No. 31 last year; the firm's defense revenue declined 39 percent, from $3.7 billion to $2.3 billion. In France, Safran's defense revenue jumped from $1.6 billion in FY18 to $4.4 billion in FY19, bumping it from No. 56 to No. 28. However, the company told Defense News that it attributes the large rise to a difference in calculation for this year's list. Since 2015, the data from Safran were made up of Safran Electronics & Defense activities. This year, the firm changed its approach by adding the military activities of the group's other subsidiaries. Also in France, Dassault nearly doubled its revenue from $2.9 billion in FY18 to $5.7 billion in FY19 ― jumping from No. 38 to No. 22. Japan's Mitsubishi Heavy Industries vaulted back onto the list to No. 21, with $6.6 billion in defense revenue. However, it's worth noting that defense revenue numbers reflect awards made by the Japanese Ministry of Defense, which leads to more year-over-year volatility among Japanese firms. The three Israeli companies on this year's list — Elbit Systems, Israel Aerospace Industries and Rafael Advanced Defense Systems — moved up in the ranking. The sole South American company on the lsit, Embraer, also moved up, from No. 84 to No. 79. Meanwhile, the only non-U.S. North American company on this year's list — Canada's CAE — dropped four spots to No. 74, but its defense revenue grew by a percentage point. https://www.defensenews.com/top-100/2020/08/17/arms-trade-momentum-globalization-and-us-defense-spending-drive-defense-industry-growth

By: Mike Yeo MELBOURNE, Australia — South Korea has over the past decade become a defense industry powerhouse in its own right, and it's seeking to widen its reach, with progress in international markets in recent years marking the maturity of its defense articles. This year's Defense News Top 100 list of the biggest defense companies in the world features four South Korean businesses. They are Hanwha (ranked 32rd), Korea Aerospace Industries (55th), LIG Nex1 (68th) and Hyundai Rotem Company (95th), all of which made last year's list. Continued reform The strong performance of South Korean defense companies comes in the wake of a series of reforms over the past decade, with the latest designed to consolidate industrial gains and create momentum for growth. The defense industry reforms are part of President Moon Jae-in's Defense Reform 2.0 program announced in 2018 — a complement to efforts seeking to create a slimmer, yet more efficient South Korean military that is less reliant on foreign defense technology. The push for further self-reliance is most prominent in Korea Aerospace Industries' KF-X program. KAI is developing a next-generation fighter for the South Korean Air Force. Although an American GE F414 turbofan will power the aircraft, its avionics will primarily be indigenous. These include the active electronically scanned array radar under development by Hanwha and the country's Agency for Defense Development, with support and some components supplied by Israel's Elbit Systems. Defense Reform 2.0 also puts emphasis on defense industry investment, and it comes as little surprise that the domstic market still takes up the biggest share of the pie where sales are concerned, backed up by the steady growth in defense spending: South Korea's defense budget grew 20 percent from 2009 to 2017, reaching $43 billion. Export success The reform program also places an increased priority on defense exports. The country is already successful in this area, with research by the Stockholm International Peace Research Institute think tank showing the country was the 11th biggest arms supplier in the world in 2017, with sales totaling $5.5 billion. In a further indication of how much South Korea's industry has grown, SIPRI also noted in a 2018 report that the country's defense exports grew 94 percent in the 10 years prior, a growth figure only bettered by Turkey for the same period. This growth has been underpinned by two of the highest-profile South Korean defense exports in the past decade: the KAI T-50 Golden Eagle family of trainer and light combat aircraft, and the Hanwha K9 Thunder self-propelled howitzer. The T-50 was earmarked by the Air Force as its mainstay advanced trainer and light combat aircraft. Despite losing a number of trainer competitions, including in Poland, Singapore and the United States, the Golden Eagle has since scored a number of notable contracts for export. Compared to its rivals in the trainer market, such as the Leonardo M-346 and the Boeing T-7, the main draw of the T-50 family is its combat capability in the form of the TA-50 and FA-50 equipped with sophisticated combat capabilities in the form of radars and precision weapons employment capability. This makes the aircraft attractive to nations unable to afford a high-end trainer with a light attack capability, and the list of the type's customers bears this out, with Indonesia, Iraq, the Philippines and Thailand operating the type in their respective air forces. The Philippine Air Force used its FA-50PH fleet to attack Islamic State militants in the southern part of the country in 2018. Meanwhile, Hanwha's K9 Thunder has carved a niche for itself in the global market for self-propelled howitzers. The 52-caliber, 155mm system has been selected by a number of NATO nations, beating out the similar Panzerhaubitze 2000 by Germany's Rheinmetall in Estonia, Finland and Norway. Turkey is building the K9 under license as the T-155 Firtina. The system has also been selected for license production by India and Poland, and had previously been selected by Australia in the early part of the 2010s only to be canceled following budget issues caused by the global financial crisis. Hanwha is also one of two companies left in the running to supply the Australian Army with a new infantry fighting vehicle. The AS21 Redback, which is based on the K21 vehicle operated by the South Korean Army, is to take part in an evaluation program against the Rheinmetall KF41 Lynx to supply 450 vehicles to replace M113 armored personnel carriers. The evaluation will see three of each vehicle delivered to Australia for testing, with the first two Redbacks due to reach Australia at the end of August, having left South Korea by ship late last month. Post-pandemic support Like much the rest of the world, the COVID-19 pandemic has hit South Korea hard, though the worst appears to be over for the country. The local defense industry was forced to adjust financially and operationally, and it remains unclear how revenue will be hit by the events of 2020. The pandemic has claimed at least one sale for the South Korean defense industry, with Argentina, which had appeared set to be the next customer for the T-50 family, deciding in April to put off the acquisition indefinitely. The South American country is yet to sign a contract, despite choosing the aircraft for purchase in July 2019. However, the South Korean government is not waiting for foreign action. Defense Minister Jeong Kyeong-doo has unveiled plans for the country to spend more on locally produced defense articles, partly as a move to help curtail the effects of the pandemic. Jeong said during a mid-June meeting with industry CEOs that his ministry plans to adjust spending plans to continue its drive to spend more on indigenous products, and move delivery timelines to reflect the reality of schedule delays while also waiving penalties for late payments. He also plans to expand an existing strategy aimed at establishing “defense industry innovation clusters”; this move adds to the first one established in April with an initial government investment. As a result, more funding will be made available to industry and research institutes, and will be used to support regional collaboration in defense-related research and development as well as manufacturing. https://www.defensenews.com/top-100/2020/08/17/reform-efforts-in-south-korea-create-ecosystem-for-defense-industry-growth

By: Burak Ege Bekdil   ANKARA, Turkey — The official numbers are impressive. In President Recep Tayyip Erdogan's narrative, the number of Turkish defense industry programs rose from 62 in 2002 to 700 today. In the same period, the number of defense and aerospace companies rose from 56 to 1,500. The government was administering $5.5 billion worth of programs then; now this is at $75 billion. Local industry turnover rose from $1 billion to $10.8 billion; and exports jumped from a mere $248 million to more than $3 billion. Two Turkish companies that weren't on the Defense News Top 100 list last year have made their way onto the list this year, making the total number of Turkish firms on the list to seven, from five the year prior. Those companies are military electronics specialist Aselsan (48th on the list), Turkish Aerospace Industries (53th), armored vehicles maker BMC (89th), missile maker Roketsan (91st), military technologies specialist STM (92nd), armored vehicle maker FNSS (new this year at 98th) and military software specialist Havelsan (new this year at 99th). Of the seven, five are government-controlled companies. BMC, a Turkish-Qatari partnership, and FNSS are privately owned. A success story, by any criteria. Thanks to which, according to the Turkish government, the country's dependence on foreign defense systems plunged from 80 percent to 30 percent. Erdogan says he aims to end dependency on foreign systems by 2023, the centennial of the Turkish republic. However, while the Turkish defense industrial base has made progress, there have been lingering roadblocks along the way. It can be difficult to determine the percentage of foreign input in a system. And what the Turkish authorities portray as “indigenous systems” (or 100 percent national systems, in local jargon) are often not. One of the major weaknesses of the Turkish industry is the lack of engine technology. For instance, one of Turkey's most prestigious “indigenous” programs, the Altay tank, is struggling to make progress, despite a serial production contract, due to the lack of a power pack — the engine and the transmission mechanism. Similarly, Turkey's most ambitious indigenous program — the design, development and production of a national fighter jet, dubbed TF-X — appears stalled, as Turkish aerospace authorities are yet to find an engine for the planned aircraft. The TF-X program was officially launched in December 2010. In January 2015 then-Prime Minister Ahmet Davutoglu announced that the planned fighter would have a twin engine. That was when the search for an engine began. The amphibious assault ship TCG Anadolu, the Turkish Navy's flagship vessel under construction with license from Spain's Navantia, is progressing as planned, but industry experts say it is no more than 60 percent Turkish-made and is a copy of the Spanish Navy warship Juan Carlos I. Turkey's indigenous T129 attack helicopters are a Turkish variant of the A129 built by the Italian-British company AgustaWestland. The T129 is produced under license from AgustaWestland. A $1.5 billion export deal with Pakistan for a batch of 30 T129s has long been stalled as it awaits U.S. export licenses, which is required because the helo is powered by an American engine. For the past decade, Turkey's local industry has been unable to produce a national solution for the need for long-range air and anti-missile defense systems. After years of uncertainty Turkey signed a $2.5 billion deal for the acquisition of the Russian-made S-400 system. In response, the United States ejected Turkey from the American-led multinational Joint Strike Fighter program that builds the F-35 fighter jet. “That will cost the Turkish industry critical capabilities it could have earned during the production cycle,” a Western industry source in Ankara told Defense News. “It also means a loss of significant income for the Turkish industry.” Otherwise, local and international analysts agree that drone, shipbuilding, military electronics and armored vehicles technologies have been progressing exponentially in Turkey. The country has found foreign customers for these systems due to high technological standards and competitive pricing. The combat-proven technologies easily find their place in export markets, especially in countries with which Turkey has friendly political relations. Lucrative markets for Turkish companies include those in Qatar — Turkey's most important regional ally — as well as some north African countries, Azerbaijan, Pakistan, Turkic republics in Central Asia, and Muslim countries in southeast Asia like Indonesia and Malaysia. Turkish exporters have been augmented by a steady decline of the country's national currency. The U.S. dollar was trading at 1.7 Turkish liras five years ago. Today, the exchange rate is $1 to 7 liras. That plunge gives an exchange rate boost to companies with higher local input rates and export potential. In other words, when the local currency experienced a decline, the commodities produced in Turkey generally became cheaper for foreign customers. However, those companies dependent on now pricey foreign technology have seen their international competitiveness badly pruned. The lira's slide downward also slows or altogether suspends government-run programs due to a cash shortage. Overseas investors have withdrawn $7 billion from Turkey's local currency bond market in the first six months of 2020. The economy is in recession, and inflation and unemployment rates are soaring. At the end of May 2020, Turkey's national budget produced a deficit of 90.1 billion liras (U.S. $12.9 billion), or 65 percent of the government's deficit target for the entire year of 2020. That macroeconomic picture may further squeeze the government in financing its weapons programs, economist warn. https://www.defensenews.com/top-100/2020/08/17/turkish-industry-prospers-but-foreign-relations-are-limiting-its-potential/