The Insider

Inside the Pentagon highlights
By John Liang
February 22, 2018 at 11:59 AM

Some must-reads from this week's edition of Inside the Pentagon:

1. The Strategic Capabilities Office is seeking nearly $1.5 billion in fiscal year 2019 -- an increase of more than 20 percent over FY-18 -- to develop new and surprising ways of using existing technology to bolster conventional deterrence against China and Russia.

Full story: DOD seeking $1.5B for SCO in FY-19, including $438M for seven new projects

2. The Pentagon will soon deliver a proposal to the director of national intelligence to reform the security clearance process by relying more on the use of "continuous evaluation" technologies and automated record checks rather than periodic background investigations.

Full story: Pentagon developing proposal to reform security clearance process

3. The military service vice chiefs, who last year generated alarm by testifying before the Senate Armed Services Committee that U.S. military readiness had been compromised, recently delivered a more optimistic message following a bipartisan budget deal poised to pump an additional $165 billion into the Defense Department over the next two years.

Full story: Military's tone on readiness shifts from alarm to guarded optimism

4. The Defense Advanced Research Projects Agency is nearly quadrupling its planned investments in fiscal year 2019 for programs seeking to find new materials, architectures and designs for microelectronics.

Full story: DARPA seeks massive boost in electronics research funding

Leidos, Orbital ATK report increased sales, profit
By Marjorie Censer
February 22, 2018 at 10:53 AM

Leidos said today sales in 2017 hit $10.2 billion, up about 44 percent from $7 billion in 2016.

The company was buoyed by its acquisition of Lockheed Martin's IT services business, which it added in late summer 2016.

Leidos said its profit in 2017 reached $364 million, up nearly 48 percent from $246 million the prior year.

Roger Krone, the company's chief executive, said in a call with analysts this morning the company expects a "material reduction" in its overall tax rate as a result of the new tax legislation.

Leidos will invest more in its bid and proposal efforts and in technology and capital "to increase our advantage in offering innovative solutions," he said.

Asked about General Dynamics' deal to acquire CSRA, which would create a competitor nearly the size of Leidos, Krone said he's not surprised to see further consolidation in the government services industry.

"We don't think it's over," he said. "There’s opportunity for more consolidation."

Leidos also reported today sales in its defense solutions group reached nearly $5 billion in 2017, up about 29 percent from 2016.

"The revenue growth was primarily attributable to the acquired [Lockheed] business and growth in its airborne programs," the company said.

Meanwhile, Orbital ATK said today sales in 2017 hit $4.8 billion, up about 7 percent from 2016. The contractor's profit reached about $310 million, up close to 6 percent from the prior year.

The company, which has agreed to be acquired by Northrop Grumman, said sales in its defense group in 2017 were just shy of $2 billion, up about 8 percent from 2016. The unit's profit reached $193 million for the year, up almost 13 percent from the prior year.

State Department approves $3.2B missile defense sale to Sweden
By Tony Bertuca
February 21, 2018 at 4:43 PM

The State Department has approved a possible $3.2 billion foreign military sale of Patriot Configuration-3+ Modernized Fire Units to Sweden to bolster that country's missile defense capabilities, according to a recent notice from the Defense Security Cooperation Agency.

"This proposed sale will support the foreign policy and national security objectives of the United States by helping to improve the security of a strategic partner which has been, and continues to be, an important force for political stability and economic progress within the Baltic Sea region and across Europe," the Feb. 20 notice states. "The proposed sale of the Patriot missile system will improve Sweden’s missile defense capability. Sweden will use the Patriot system to defend its territorial integrity and promote regional stability. The proposed sale will increase the defensive capabilities of the Swedish military and support interoperability with U.S. and NATO forces."

Raytheon and Lockheed Martin are the prime contractors in the sale, which covers "four (4) Patriot Configuration-3+ Modernized Fire Units consisting of: four (4) AN/MPQ-65 radar sets, four (4) AN/MSQ-132 engagement control stations, nine (9) antenna mast groups, twelve (12) M903 launching stations, one hundred (100) Patriot MIM-104E Guidance Enhanced Missile-TBM (GEM-T) missiles, two hundred (200) Patriot Advanced Capability-3 (PAC-3) Missile Segment Enhancement (MSE) missiles, and four (4) Electrical Power Plants (EPP) III," the Feb. 20 DSCA notices states.

The sale would also include communications equipment, tools and test equipment, range and test programs, support equipment to include associated vehicles, a technical assistance field team and other support services.

ManTech reports sales, profit boosts
By Marjorie Censer
February 21, 2018 at 4:31 PM

ManTech International said today sales in 2017 reached $1.7 billion, up about 7 percent from 2016.

The contractor's profit for the year hit $114 million, up from $56 million the prior year.

ManTech said it recorded a reduction of about $51 million in income tax expense during the last quarter of the year as a result of the new tax legislation.

Navy expects ESSM to reach full-rate production in 2023
By Justin Katz
February 21, 2018 at 4:28 PM

The Navy anticipates full-rate production rounds of Ratheyon's Evolved Seasparrow Missile Block II will be delivered to the fleet in 2023, one of several new acquisition milestones laid out in new budget justification documents.

After two successful controlled test vehicle flights last June, the service is planning three more test flights in fiscal year 2018. It also expects to reach milestone C this fiscal year.

In 2020, the upgraded missile is expected to reach initial operational capability on Aegis platforms and begin low-rate initial production deliveries.

The Navy expects to reach IOC for Ship Self Defense System platforms in 2023. Additionally, the service anticipates full-rate production rounds will be delivered to the fleet that year.

Evolved Seasparrow Missile is an international program with several NATO partners designed to provide "crucial defense battlespace and fire power against the fast, low altitude, highly maneuverable Anti-Ship Cruise Missile (ASCM) threat," according to the budget documents. Block II replaces a "largely obsolete guidance section with a dual mode active/semi-active X-band seeker" capability. 

General Dynamics CFO: 'You either have to consolidate or get consolidated out'
By Marjorie Censer
February 21, 2018 at 3:31 PM

Acquiring CSRA will help General Dynamics better compete in the consolidating IT services market, GD's chief financial officer said today.

Speaking at an investor conference hosted by Citi, Jason Aiken said services work has been a key part of General Dynamics' sales for many years.

"You take a step back and think about General Dynamics, which is appropriately characterized based on the strong platform positions we have," he said. "But if you look at the makeup of our revenue base, we've actually been . . . 35 [percent] to 40 percent services across our portfolio over the past number of years."

But he said the government IT services market has started to change.

"We've seen over the past several years a consolidation around us in this market, to the point that it's made us instead of a top one or two player, we're now back in the middle of the pack," Aiken told investors. "In a consolidating market, our thesis is that you either have to consolidate or get consolidated out."

The consolidation, he continued, is a reaction to the government's push for lower prices and its increased use of sizeable contracting programs to purchase these services.

"We believe that this is an industry where scale matters, number one from a cost perspective . . . and bringing these two together certainly puts us at the top end of the market in terms of scale," Aiken said. "But also you're seeing a customer environment where  the customer is . . . redoubling their emphasis on IT infrastructure, cyber protections . . . and they're doing so in what we refer to as megadeals."

Aiken said the two companies have similarities, but don't have significant customer overlap. Though both work in the defense, intelligence and federal civilian markets, CSRA and General Dynamics often have different customers within those organizations, he said.

"When you think about those customers and the issues of customer intimacy . . . you've now brought this together in a way that gives you a step a forward," Aiken said.

The INSIDER daily digest -- Feb. 21, 2018
By John Liang
February 21, 2018 at 2:08 PM

The Pentagon's ongoing audit, prospects for an increase to the Army's budget, the Pentagon's Strategic Capabilities Office and more highlight this Wednesday INSIDER Daily Digest.

Senate Budget Committee Chairman Mike Enzi (R-WY) wants a "line-item breakdown" of the $551 million slated to be used to rectify problems identified by more than 1,200 independent auditors:

Enzi seeks cost and schedule details on Pentagon's $2 trillion audit

Senate Budget Committee Chairman Mike Enzi (R-WY) wants Defense Secretary Jim Mattis to provide him with detailed cost and time line information on the Defense Department's ongoing $2 trillion audit, according to a recent letter the lawmaker sent to the Pentagon.

Document: Senator's letter to DOD on the Pentagon's $2 trillion audit


Lt. Gen. Thomas Horlander, military deputy to the Army comptroller, said this morning the working assumption is that the service could see a budget increase of approximately $6.5 billion in fiscal year 2018:

Horlander offers estimate of FY-18 topline increase, notes Congress has final word

The Bipartisan Budget Act of 2018 provides for topline increases for the Defense Department in fiscal year 2018 and FY-19, but the Army's share of that funding growth has not yet been finalized, according to a senior service official.

The Pentagon's request for the Strategic Capabilities Office is the second-largest unclassified pot of research and development funding in the new defense budget:

DOD seeking $1.5B for SCO in FY-19, including $438M for seven new projects

The Strategic Capabilities Office is seeking nearly $1.5 billion in fiscal year 2019 -- an increase of more than 20 percent over FY-18 -- to develop new and surprising ways of using existing technology to bolster conventional deterrence against China and Russia.

DOD's FY-19 budget request seeks funding to develop ultra-fast strike weapons -- which fly at least five times the speed of sound, or Mach 5 -- across a few related projects:

DOD wants more than $400 million in FY-19 for air-launched, hypersonic-strike tech development

The Air Force and the Defense Advanced Research Projects Agency are seeking more than $400 million in fiscal year 2019 -- up about 160 percent from the FY-18 request -- to mature "game-changing" technologies for potential aircraft-launched, hypersonic-strike weapons.

The head of the Army's 1st Armored Division Sustainment Brigade spoke with reporters recently:

Army brigade commander emphasizes role of aerial resupply in Afghanistan

Col. Michael Lalor, commander of the 1st Armored Division Sustainment Brigade, says aerial resupply capability and fuel distribution, as well as expeditionary fuel equipment, were major areas of investment in support of Operation Freedom's Sentinel.

Inside the Army takes a look at the robotics programs the service wants to fund in FY-19:

Army shows commitment to robotics in FY-19 request

Robotics testing and prototypes would receive some sizable gains in the Army's fiscal year 2019 budget request.

Senior House appropriator outlines procedures for member submissions
By John Liang
February 21, 2018 at 1:10 PM

House Appropriations defense subcommittee Chairwoman Kay Granger (R-TX) recently distributed a memo to her congressional colleagues outlining the procedures for submitting language for consideration in the fiscal year 2019 military spending bill.

Granger's missive emphasizes that under House rules, earmarks "should not be included. . . . Members are advised to carefully consider their submissions to the Committee in light of this to avoid inadvertently triggering the earmark rules and requirements."

The deadline for submissions for the defense subcommittee is March 19, according to the letter.

Read the full memo.

Huntington Ingalls makes leadership changes
By Marjorie Censer
February 21, 2018 at 12:00 PM

Huntington Ingalls said today Michael Smith, executive vice president for strategy and development, is moving to the company's technical solutions division to oversee the SN3 business, effective immediately.

Additionally, Scott Stabler, executive vice president for internal audit, has been named chief transformation officer, the shipbuilder said.

Smith joined the company in 2014 as corporate vice president for business growth. He previously worked for BAE Systems.

Stabler was hired by Newport News Shipbuilding in 1984 and has held a variety of positions, including vice president of assembly and vice president of aircraft carrier construction.

"In his new role, Stabler will work directly with HII’s divisions to assess and facilitate implementation of the transformative business model and process changes necessary to meet rapidly evolving customer demands," Huntington Ingalls said. "The scope is open-ended but will initially focus on HII’s digital, technological and supply chain strategies."

Siemens to sell Dresser-Rand government business to Curtiss-Wright
By Marjorie Censer
February 21, 2018 at 11:08 AM

Curtiss-Wright said today it has agreed to acquire the assets of Dresser-Rand's government business for $213 million in cash.

"The acquired business will operate within Curtiss-Wright's Power segment," the company said in its announcement.

Dresser-Rand, which is a business unit of Siemens Government Technologies, the wholly owned U.S. subsidiary of German company Siemens AG, designs and manufactures equipment including compressors, steam turbines and steam system valves. The company's equipment is used on Nimitz-class and Ford-class aircraft carriers, Virginia-class and Columbia-class submarines and other Navy shipbuilding programs.

"Dresser-Rand is the sole supplier of steam turbines and main engine guard valves on all aircraft carrier programs," Curtiss-Wright said. "Through its three service centers, it is also a leading provider of ship repair and maintenance for the U.S. Navy's Atlantic and Pacific fleets."

David Adams, the chief executive of Curtiss-Wright, said in a statement the acquisition would grow the company's footprint on Navy nuclear vessels and establish a significant presence at shipyards.

The Dresser-Rand government business has about 150 employees and is expected to produce sales of about $95 million in fiscal year 2018. The deal is expected to close in April.

Jumper to retire from Leidos board
By Marjorie Censer
February 21, 2018 at 10:37 AM

Leidos said today John Jumper, the contractor's former chief executive, will leave its board of directors at the end of his term.

His departure will bring to an end an 11-year tenure on the board. From 2012 to 2014, he was chairman and CEO and oversaw the split of Science Applications International Corp. into two companies, one of which was renamed Leidos.

Leidos said the board has launched a search to select a successor.

State Department OKs $1.2B Apache upgrades for the Netherlands
By Justin Doubleday
February 20, 2018 at 5:08 PM

The State Department has approved a potential $1.19 billion foreign military sales case for the Netherlands to upgrade its fleet of Apache attack helicopters, the Defense Security Cooperation Agency announced today.

The possible sale would provide for the upgrade and remanufacture of 28 AH-64D Apache helicopters to the AH-64E configuration, including engine upgrades, 17 AN/APG-78 fire control radars, 28 AN/ASQ-170 Modernized Target Acquisition and Designation Sights (MTADS)/AN/AAR-11 Modernized Pilot Night Vision Sensors, 28 AN/APR-48B Modernized Radar Frequency Interferometers and 70 Embedded Global Positioning System/Inertial Navigation Systems (EGI) plus Multi-Mode Receiver, according to the announcement.

"The Netherlands will use the enhanced capability to strengthen its homeland defense and deter regional threats, and provide direct support to coalition and security cooperation efforts," DSCA's announcement states.

Boeing Company and Lockheed Martin would be the principal contractors for the potential sale.

The INSIDER daily digest -- Feb. 20, 2018
By John Liang
February 20, 2018 at 2:04 PM

A look at Army procurement spending, the Navy's use of 3-D printing and more highlight this Tuesday INSIDER Daily Digest.

The Army won't be buying as many aircraft next fiscal year than last:

Army aircraft procurement spending dips to $4.1 billion in FY-19

While the Army's overall budget request and procurement account increased from fiscal year 2018 to FY-19, the service intends to spend less on aircraft procurement than in the prior fiscal year.

The Navy last year solicited the fleet through an administrative message for innovative ways to utilize 3-D printing:

Sailors show OPNAV 3-D printed solutions Pentagon 'would never see'

Senior leadership's Navy-wide push to integrate additive manufacturing has highlighted how prevalent the technology's use already is among enlisted sailors and junior officers.

Two key Army projects could see an acceleration: The Future Vertical Lift and Next Generation Combat Vehicle programs:

Army aims to fund CFT prototyping, accelerate FVL and NGCV

The Army's fiscal year 2019 budget request includes increased research, development, test and evaluation funding to support the efforts of the cross-functional teams pursuing senior leaders' six modernization priorities.

Keep an eye out at next month's Global Force Symposium hosted by the Association of the United States Army in Huntsville, AL, for an announcement about Army Futures Command:

McCarthy: Futures Command needs access to 'extraordinary people'

Army senior leaders are nearing key decisions about the composition of the new command tasked with force modernization.

The Navy's approach of issuing multiple conceptual design contracts for the Future Frigate program is meant to allow the government to provide feedback to industry on their designs:

Navy awards five conceptual design contracts for future frigate competition

The Navy has awarded conceptual design contracts to Austal USA, Fincantieri Marinette Marine, General Dynamics Bath Iron Works, Huntington Ingalls Industries and Lockheed Martin at $14.9 million apiece for the guided missile frigate replacement program, as it readies to later down select to one vendor.

Navy awards Ingalls $1.4 billion for LPD-29 detail design and construction
By Lee Hudson
February 20, 2018 at 11:24 AM

The Navy late last week awarded Ingalls Shipbuilding a $1.4 billion contract modification to begin the detail design and construction of LPD-29.

The service is using fiscal year 2017 shipbuilding and conversion funding for the effort and anticipates the work will be completed by July 2023, according to a Feb. 16 Pentagon announcement.

LPD-29, unlike the other amphibious ships in the San Antonio class, will have lithium-ion battery capacity. The other ships in the class will be backfitted with this new technology.

In May 2017, the Navy issued a presolicitation notice announcing it would initiate a contract action for LPD to Ingalls.

"As the designer and builder of every previous San Antonio (LPD-17) Class vessel, Ingalls is the only source with the requisite knowledge and experience to construct the 13th ship of the LPD-17 Class," the document said.

Industry and lawmakers in recent months have argued funding LPD-29 will keep the production line hot at Ingalls Shipbuilding as it competes for the Navy's dock landing ship replacement program. Ingalls submitted a design based on the San Antonio-class ship hull form. General Dynamics NASSCO is also competing for LX(R).

Ronald O'Rourke, the naval forces analyst at the Congressional Research Service, writes in a March 14, 2017 report that the Navy has not yet selected a vendor for LX(R), potentially making the Ingalls production line issue irrelevant.

Inside the Army highlights
By John Liang
February 20, 2018 at 9:58 AM

Some must-reads from this week's edition of Inside the Army:

1. The Trump administration's fiscal year 2019 budget request seeks $182.1 billion for the Army -- $148.4 billion in the base budget and $33.7 billion in the Overseas Contingency Operations account.

Full story: Army budget request rises to $182.1 billion in FY-19

2. In its fiscal year 2019 budget request, the Army seeks funding to help it revamp its communications and mission command infrastructure.

Full story: In FY-19 request, Army looks to transform tactical network

3. The Army's fiscal year 2019 budget request includes increased research, development, test and evaluation funding to support the efforts of the cross-functional teams pursuing senior leaders' six modernization priorities.

Full story: Army aims to fund CFT prototyping, accelerate FVL and NGCV

4. The Army's fiscal year 2019 budget request would bring a surge in funding for improvements to the Abrams, Bradley and Stryker programs, part of the service's move to modernize its brigade combat teams.

Full story: Army seeks to significantly boost vehicle upgrades in FY-19 budget