The Insider

April 26, 2018 at 5:34 PM | John Liang

Raytheon today reported quarterly net sales of $6.3 billion, up 4.5 percent compared to $6 billion in the same quarter the previous year.

Quarterly earnings per share from continuing operations were also up at $2.20 compared to $1.73 in the first quarter of 2017. The company attributed the increase in quarterly earnings to "operational improvements and lower taxes."

"We delivered strong operating performance in the first quarter with our sales, earnings per share and cash flow all ahead of our expectations," Raytheon chief executive Tom Kennedy said in an earnings call with Wall Street analysts. "We continue to position the company for the future by executing our strategy and investing in advanced capabilities that align with our global customers' evolving requirements."

Raytheon Chief Financial Officer Toby O'Brien said during the call that the company expects overall sales "to increase throughout the year with a strong second half driven by our bookings over the past several quarters." 

Raytheon's Integrated Defense Systems business unit reported quarterly net sales of nearly $1.5 billion, up 7 percent compared to nearly $1.4 billion in the previous year's quarter. The sales increase "was primarily driven by higher net sales from an international Patriot program awarded in the first quarter 2018," the company said.

The company's Intelligence, Information and Services unit reported quarterly net sales of $1.582 billion, up 5 percent compared to $1.507 billion the same quarter the previous year. "The increase in net sales for the quarter was primarily driven by higher net sales on classified and training programs," the company said.

Raytheon's Missile Systems unit had quarterly net sales of $1.8 billion, up 5 percent compared to $1.7 billion in the first quarter of last year, citing "higher net sales on classified programs" as the cause.

The Space and Airborne Systems unit saw net sales rise 1 percent to $1.568 billion, the company said.

Forcepoint, Raytheon's cybersecurity business, reported lower quarterly net sales of $141 million compared to $144 million the previous year.

April 26, 2018 at 4:54 PM | John Liang

Despite the absence of international Mine Resistant Ambush Protected-All Terrain Vehicle sales the previous quarter, Oshkosh's chief executive still has a positive outlook regarding international demand for the company's vehicles.

Defense segment net sales for the previous quarter decreased 4 percent to $428.2 million, Oshkosh said today. "The decrease in sales was due to the absence of international Mine Resistant Ambush Protected-All Terrain Vehicle (M-ATV) sales in the second quarter of fiscal 2018, largely offset by the continued ramp up of sales to the U.S. government under the Joint Light Tactical Vehicle (JLTV) program," according to a company earnings statement.

"In addition to multiple opportunities to sell JLTVs internationally, there are other opportunities we are pursuing that will be felt . . . throughout the quarter," Wilson Jones told Wall Street analysts during an April 26 earnings call. "The timing of awards from the Kingdom of Saudi Arabia may be delayed as the Saudi government executes on its 2030 Vision. As part of this initiative, we recently met . . .  to discuss partnering opportunities for our tactical wheeled vehicles with local Saudi industry."

Oshkosh's defense business "exhibited strong execution and solid results in the quarter, [with] the continued successful ramping up of production of the JLTV offsetting much of the volume decline of international M-ATVs. The focus on operational execution was evident in the strong operating income margin achieved without the benefit of M-ATV sales," Jones said.

Overall, Oshkosh reported company-wide quarterly sales of $1.89 billion, a 16.6 percent increase compared to the same quarter in 2017. "The company reported double-digit percentage sales growth in all non-defense segments," the Oshkosh statement reads.

Oshkosh said it now expects overall sales for 2018 to be $7.4 billion to $7.6 billion, an increase of $300 million from the company’s previous sales estimate range of $7.1 billion to $7.3 billion.

April 26, 2018 at 4:47 PM | John Liang

The Defense Leadership Forum will hold its annual "Navy Contracting Summit" in Norfolk, VA next month.

More than 400 prime contractors, subcontractors, military officials, contracting officers, and defense agencies will gather May 7-8 at the Norfolk Waterside Marriott.

Speakers and attendees will have the opportunity to discuss the Navy's mission and contracting priorities, address contracting procedures for small businesses, identify federal contracting resources, and connect prime contractors with new subcontractors, according to a Defense Leadership Forum statement. Multiple Navy commands and other services will be participating.

"The Navy Contracting Summit is the place to be this May to learn how the Navy will be spending the additional $3.3 billion Congress issued for additional ships, the industrial base to support that growth, training and infrastructure. Learning about future opportunities to assist the Navy grow will be a focal point of this event," said Howard Snow, summit moderator and former deputy assistant secretary of the Navy for installations, facilities and energy.

April 26, 2018 at 4:00 PM | John Liang

United Launch Alliance today named aerospace industry executive John Elbon as its next chief operating officer.

Elbon succeeds Dan Collins, who had served as COO since ULA's founding in 2006 and retired earlier this year, according to a company statement.

Elbon joins ULA from Boeing where he served as vice president and general manager of space exploration, a division of Boeing's defense, space and security business unit. He was responsible for the strategic direction of Boeing's civil space programs and support of NASA programs such as the International Space Station, Commercial Crew Development program and the Space Launch System.

During his nearly 35-year career at Boeing, Elbon worked as vice president and program manager for that company's commercial programs, VP of systems integration for the Army's Future Combat Systems, and was also Boeing's program manager for several NASA programs including Constellation, ISS and the Checkout, Assembly & Payload Processing Services (CAPPS) contract at Kennedy Space Center.

Elbon holds a bachelor's degree in aerospace engineering from the Georgia Institute of Technology.

April 26, 2018 at 1:54 PM | John Liang

Coverage of the House Armed Services Committee's subcommittee marks of the FY-19 defense policy bill dominates this Thursday INSIDER Daily Digest.

Before we get to the subcommittee marks, though, some news from DOD's acquisition policy chief, the Army and the Government Accountability Office:

DOD acquisition policy chief pushes to cut procurement time lines

The official charged with setting defense acquisition policies is pushing Congress to streamline requirements that result in lengthy haggling over cost and pricing data so the Defense Department can drastically reduce the time it takes to buy equipment.

Horlander: Army launches 'stewardship program' to ensure responsible use of FY-18 funds

Army senior leaders have initiated a new process designed to assess and optimize the service's execution of its fiscal year 2018 funds, which were appropriated months into the fiscal year and include additional flexibility provided by Congress.

GAO: Pentagon must develop mechanism to share F-35 lessons learned across enterprise

The Pentagon must develop a good way to share Joint Strike Fighter lessons learned across the military services as the program rapidly expands in the coming years instead of keeping information within each faction, according to a government watchdog agency.

Document: GAO report on F-35 lessons learned


Coverage of the emerging threats and capabilities subcommittee mark:

Lawmakers consider eliminating Strategic Capabilities Office

New legislation being considered by the House Armed Services Committee could result in the elimination or restructuring of the Strategic Capabilities Office by Oct. 1, 2020.

House subcommittee seeks to mainstream DOD labs

A group of House authorizers is seeking to elevate the importance of the Defense Department's laboratories by involving them in the weapon system requirements process and aligning them more closely with the commercial sector.

Lawmakers tell Air Force to accelerate Compass Call cross-deck, warning of 'mission failure'

The Air Force's Compass Call recapitalization program isn't moving fast enough for House lawmakers, who floated language this week urging the service to speed up the move from legacy EC-130Hs to the new EC-37B.

House lawmakers press ACC, AFSOC on Reaper aircrew management

Lawmakers are questioning Air Force Air Combat Command's ability to manage MQ-9 Reapers on behalf of their special-operations counterparts and want a report on how Reaper aircrews are assigned, managed and developed, according to the House Armed Services emerging threats subcommittee's mark of the fiscal year 2019 defense policy bill released this week.

Lawmakers direct Army to provide urban warfare training brief

A provision in the House Armed Services emerging threats and capabilities subcommittee's mark of the fiscal year 2019 defense authorization bill directs the Army secretary to provide the full committee with a briefing on the service's plan for urban warfare training no later than Feb. 1, 2019.

Coverage of the tactical air and land forces subcommittee mark:

Lawmakers include four physiological episode provisions in FY-19 mark

House Armed Services tactical air and land forces subcommittee members have included four physiological episode-related provisions in their mark of the fiscal year 2019 defense policy bill to keep a spotlight on the issue, according to a committee staffer.

Lawmakers tell Air Force to continue JSTARS recap in order to pursue ABMS, retire legacy aircraft

Members of the House Armed Services tactical air and land forces subcommittee will push the Air Force to continue the E-8C Joint Surveillance Target Attack Radar System recapitalization program by restricting funds for a next-generation battle management network and blocking the service from retiring the legacy aircraft until it awards an engineering and manufacturing development contract.

Coverage of the strategic forces subcommittee mark:

Lawmakers want more details on SBIRS Follow-On architecture

As the Air Force looks to speed up its plans to field the follow-on to its Space Based Infrared System constellation, lawmakers want more details about the new architectures the service may pursue.

House strategic forces mark would create new numbered Air Force for space

The House Armed Services strategic forces subcommittee is recommending the creation of a new numbered Air Force that would be responsible for the service's warfighting operations and could lay the groundwork for a future Space Corps.

House subcommittee tells Army to submit Patriot reports

Lawmakers are calling on the Army to address two issues concerning its Patriot missile defense system.

Coverage of the seapower and projection forces subcommittee mark:

House seapower subcommittee wants to pressure Navy to speed up sealift recap plan

The House Armed Services seapower and projection forces subcommittee is authorizing the defense secretary to pursue 20 ships for the surge sealift fleet and Ready Reserve Force, according to the subcommittee's mark of the fiscal year 2019 defense policy bill.

House authorizers direct Navy to build three LCS ships in FY-19

House Armed Services seapower and projection forces subcommittee members -- in their mark of the fiscal year 2019 defense policy bill -- are directing the Navy to build three Littoral Combat Ships in fiscal year 2019 instead of the one vessel that was in the service's budget request.

April 26, 2018 at 1:06 PM | Tony Bertuca

Defense Secretary Jim Mattis has told Congress that Lockheed Martin, the prime contractor for the  F-35 Joint Strike Fighter program, is failing to live up to the Pentagon's expectations.

"The F-35 aircraft is performing well, but the contractor is not delivering the affordability that keeps solvency and security as our guideposts," he said in written comments submitted to the House Appropriations defense subcommittee and the Senate Armed Services Committee.

"We are working with the contractor to reduce the costs associated with purchasing and sustaining the F-35," Mattis continued, adding that DOD will "evaluate the performance of both F-35s and F/A-18s to determine the most appropriate mix of aircraft as we move forward."

Deputy Defense Secretary Patrick Shanahan recently told reporters the Defense Department expects Lockheed to work to drive down the cost of the F-35 as it negotiates the price of its 11th lot of aircraft.

"It's not that we'll turn the screws to them, but we're going to drive affordability on the program," he said. "Because when you're producing at the volumes that we're producing now, this is the opportunity that you take cost out. When you get up on rate, then the job goes to take cost out, take cost out, take cost out. That's the law. It's like physics."

Meanwhile, the Pentagon has paused F-35 production over a dispute with Lockheed on a known manufacturing issue involving corrosion on some of the aircraft's fasteners. Though the problem is mostly resolved, DOD and Lockheed have not reached an agreement over should pay for it.

Ellen Lord, the Pentagon's acquisition chief, recently said the program's shortfalls are indicative of "sloppiness."

"What we are in the process of doing is talking with a greater level of fidelity about our expectations for performance in each of the upcoming lots," she said.

April 26, 2018 at 10:42 AM | John Liang

Government services contractor KBR said this week it has completed the acquisition of Stinger Ghaffarian Technologies.

The acquisition "represents a significant step forward in KBR's strategy to expand its high-tech professional services across the Government Services sector," particularly in space exploration "and opens up significant new opportunities in both commercial and military space," a company statement reads.

SGT will be integrated into KBRwyle, KBR's government services segment, and SGT will maintain much of its current structure to ensure business continuity.

"We are excited to bring SGT into the KBRwyle family," KBR President and CEO Stuart Bradie said. "As a combined team we have substantial opportunities for new growth and we are well positioned to capitalize on revenue synergies in a market with strong fundamentals."

Bradie called the purchase "a very deliberate move to enact our long term strategy within the government services market, NASA and the broader space industry."

April 26, 2018 at 9:59 AM | Tony Bertuca

Here are some must-reads from this week's edition of Inside the Pentagon:

1. The Pentagon is not planning for another significant funding boost in fiscal year 2020 and is exploring ways to make budgetary "headroom" to support a host of new modernization investments being drawn up by a new innovation team, according to Deputy Defense Secretary Patrick Shanahan.

Full story: Shanahan: Pentagon seeking 'headroom' for FY-20 modernization strategy

2. The official charged with setting defense acquisition policies is pushing Congress to streamline requirements that result in lengthy haggling over cost and pricing data so the Defense Department can drastically reduce the time it takes to buy equipment.

Full story: DOD acquisition policy chief pushes to cut procurement time lines

3. New legislation being considered by the House Armed Services Committee could result in the elimination or restructuring of the Strategic Capabilities Office by Oct. 1, 2020.

Full story: Lawmakers consider eliminating Strategic Capabilities Office

April 25, 2018 at 5:49 PM | John Liang

Three of the top five defense contractors each reported higher revenues in the first quarter of 2018, and were bullish over their prospects for the rest of the year.

Boeing reported first-quarter revenue of $23.4 billion "reflecting higher commercial deliveries and mix, defense contract volume and services growth," the company said in an earnings statement.

Boeing CEO Dennis Muilenburg said in the statement: "Our team's strong first-quarter performance, combined with the positive market outlook across our businesses and our confidence in executing on our production and development programs, gives us a solid foundation to raise our guidance for the year. Going forward, we remain focused on our disciplined growth strategy, improved profitability and cash flow to ensure we meet our commitments to our customers and our shareholders."

Northrop Grumman reported first-quarter 2018 sales had increased by 5 percent to $6.7 billion from $6.4 billion in the first quarter of the previous year.

"Based on our first-quarter results, we are raising our guidance for earnings per share," Northrop CEO Wes Bush told Wall Street analysts in a conference call.

General Dynamics reported first-quarter 2018 net earnings of $799 million, a 4.7 percent increase over the first quarter of 2017, on revenue of $7.5 billion.

"General Dynamics delivered solid first-quarter results, with growth in revenue, net earnings and [earnings per share]," General Dynamics chief executive Phebe Novakovic told Wall Street analysts. "This is a strong start to 2018 and we remain confident in our outlook."

April 25, 2018 at 4:21 PM | Ashley Tressel

Members of the House Armed Services strategic forces subcommittee are calling on the Army secretary and Missile Defense Agency director to provide a briefing on the feasibility of permanently stationing the Terminal High Altitude Air Defense system in Hawaii.

The briefing, due by Sept. 15, would also address the technical capability, costs, benefits and risks of testing a THAAD interceptor against an intercontinental ballistic missile, according to the subcommittee's mark of the fiscal year 2019 defense authorization bill.

The mark notes the "high demand" for THAAD batteries and the "untested capability of the THAAD weapon system against long-range threats."

The subcommittee intends for the permanent battery to supplement Hawaii's missile defense, currently provided by Ground-based Interceptors at Ft. Greeley, AK, and Vandenberg Air Force Base, CA, against threats from North Korea.

A demonstration of THAAD improvements at White Sands Missile Range, NM, this month cleared the Army to field a new software upgrade.

April 25, 2018 at 2:37 PM | Tony Bertuca

The Aerospace Industries Association says Congress should repeal statutory budget caps and the Pentagon should embrace a streamlined acquisition system if they are to maintain a healthy defense industrial base.

In a new report, AIA, which represents the largest defense companies in the world, recommends Congress repeal the 2011 Budget Control Act spending caps for defense because they prohibit the requisite growth needed to execute the National Defense Strategy.

"DOD needs at least 5 percent annual growth above inflation to fulfill the NDS," AIA states.

Defense Secretary Jim Mattis said last year the department would need between 3 percent and 5 percent growth between fiscal year 2019 and FY-23, but Deputy Defense Secretary Patrick Shanahan recently said DOD is not planning for such an increase.

Congress is poised to adhere to a bipartisan agreement to grant the federal government an FY-19 topline of $716 billion in defense spending, or $80 billion above statutory spending caps. In FY-20, however, the caps are set to return and will limit total defense spending to $576 billion. The caps do not expire until FY-21.

Along with repealing the BCA for defense, AIA recommends DOD increase its use of lot buys and multiyear procurements to "yield significant savings for the government and enable greater predictability and efficiency for contractors and their supply chains."

AIA also calls for long-term research and development infrastructure investments.

"Current DOD test ranges and facilities have insufficient capability and capacity to meet DOD's desires for increased prototyping and experimentation activity, nor testing and evaluation of new technologies," AIA states. "For instance, the director of the Defense Advanced Research Projects Agency recently called for increased funding to support test infrastructure for hypersonic missiles, noting such tests are only performed at one facility."

Additionally, making such infrastructure investments could further encourage industry to commit "significant independent research and development (IR&D) funds" in pursuit of new defense technologies.

The White House is currently mulling a comprehensive defense industrial base study completed by the Pentagon and the office of trade and manufacturing policy. A portion of the report is set to be made public in mid-May.

April 25, 2018 at 1:47 PM | John Liang

The House Armed Services Committee's subcommittee marks of the FY-19 defense policy bill, GAO's annual audit of DOD's major weapons portfolio and much more highlight this Wednesday INSIDER Daily Digest.

The House Armed Services Committee has begun releasing subcommittee marks of the fiscal year 2019 defense authorization bill:

Lawmakers consider eliminating Strategic Capabilities Office

New legislation being considered by the House Armed Services Committee could result in the elimination or restructuring of the Strategic Capabilities Office by Oct. 1, 2020.

Document: House authorizers' FY-19 policy bill marks

The Government Accountability Office today released its annual audit of major DOD weapon systems:

GAO's annual audit of DOD's major weapons portfolio finds acquisition reforms bearing fruit

A congressional audit of the Pentagon's major weapon systems portfolio reveals that two major acquisition reform initiatives -- statutory changes Congress spearheaded in 2009 and executive stratagems led by Defense Department procurement executives beginning in 2010 -- have yielded some success reigning in cost growth and improving buying power.

Document: GAO's annual audit of DOD's major weapons portfolio

Unmanned systems news:

House lawmakers press ACC, AFSOC on Reaper aircrew management

Lawmakers are questioning Air Force Air Combat Command's ability to manage MQ-9 Reapers on behalf of their special-operations counterparts and want a report on how Reaper aircrews are assigned, managed and developed, according to the House Armed Services emerging threats subcommittee's mark of the fiscal year 2019 defense policy bill released this week.

Army seeking solution for UAS location device

The Army intends to award a contract for a "unique solution" for an unmanned aerial system device that would provide real-time location of its UAS platforms while reducing size and weight. The service would use the capability to enhance UAS and counter-UAS training at two combat training centers.

Army Futures Command's headquarters will be concerned with "flexibility, agility, collaboration and speed":

Army Futures Command task force develops 'process model' for change

The Army Futures Command task force is looking to measure the service's business processes for the first time, and the official command will have a large focus on analysis, according to a service official.

Ellen Lord spoke to reporters yesterday following an event at the U.S. Chamber of Commerce in Washington:

DOD acquisition chief says companies should design systems with 'exportability' in mind

The Pentagon's acquisition and sustainment chief says the U.S. government is going to step up its advocacy of defense exports under a new conventional arms transfer policy, but she believes companies can do more by designing their systems with "exportability" up front.

The Army's acquisition chief spoke at an AUSA event this week:

Jette calls for shift in contracting practices, discretion with OTAs, reduction in UCAs

Congress has provided the services greater flexibility in contracting, but it is incumbent upon the Army to utilize that flexibility responsibly, according to the assistant secretary of the Army for acquisition, logistics and technology.

News from our colleagues at Inside U.S. Trade:

Navarro touts new arms transfer policy as a way to reduce trade reliance on China

Peter Navarro, director of the White House Office of Trade and Manufacturing Policy, said on Tuesday that the administration’s new conventional arms policy is a way for the U.S. boost exports to markets dominated by countries like China and Russia.

Just because the Small Diameter Bomb Increment II program finished developmental testing doesn't mean it doesn't still have challenges:

SDB II clears developmental testing but still faces challenges

Raytheon recently announced its Small Diameter Bomb Increment II program finished developmental testing, helping clear the way for operational test to start even as the weapon still faces six performance and schedule risks.

Keep an eye out next week for a request for proposals for a billion-dollar Hawaii missile defense radar contract:

Competition for new $1 billion Hawaii radar set to launch, potential for three winners

The Defense Department plans to launch a competition next week for a $1 billion radar project to develop and field a new radar site in Hawaii as part of a strategy to increase the effectiveness of the Ground Based Midcourse defense segment of the Ballistic Missile Defense System against long-range North Korean rockets.

April 25, 2018 at 12:01 PM | John Liang

The Aerospace Industries Association announced today it has hired Edelman executive Caitlin Hayden as its vice president of communications.

Prior to joining AIA, Hayden was an executive vice president and director of the Media Group in Edelman's Washington, DC office. Before that, she was the National Security Council's spokeswoman in the Obama administration. Hayden came to the NSC following a career as a civil servant in the State Department.

April 25, 2018 at 11:58 AM | Lee Hudson

The Navy is still awaiting a response from a prime contractor that is responsible for digital modeling software for Military Sealift Command ships after the government discovered the division was part of Chinese telecommunications firm Huawei.

Navy Secretary Richard Spencer told the Senate Appropriations defense subcommittee April 24 the digital modeling software is used to predict preventive maintenance for MSC vessels.

"What we're finding when we drill down -- if you go two and three layers [down] of holding companies -- all of a sudden China Inc. is the owner and we have to start paying attention to this, and we are," he said.

Inside Defense reported last week that Spencer wanted the Pentagon to develop an institutional algorithm for scrubbing contracts so that U.S. adversaries do not have access to sensitive information.

He described how the Navy was about to award a contract to the digital modeling prime contractor but discovered the vendor's Huawei ties.

"We turned around and said, 'Whoa, stop the horses, we'd like to know what this means,'" he said. The prime contractor reassured the Navy the company would not use any of the assets from Huawei. However, when Spencer requested governance documents of the joint venture the conversation became "frosty," he said.

Spencer told reporters April 19 the Navy inserted "prophylactic language" in the contract that outlined what the service's limits were for Huawei.

"There was not too much wiggle room at all -- we'll see how the company reacts," he said.

The next step for the Navy will be to begin working with the Office of Commercial Economic Analysis, which is funded by both the Air Force and Navy. Delegating work to OCEA will not add another administrative burden to the service's contracting office, Spencer said.

"I bring this up as an example: It's not just the South China Sea; it's across the full spectrum that China is coming at us," Spencer said.

April 25, 2018 at 10:03 AM | Tony Bertuca

The House Armed Services Committee has begun releasing subcommittee marks of the fiscal year 2019 defense authorization bill.

The subcommittee marks can be found here.

The committee intends to release all marks 24 hours prior to their individual subcommittee mark-ups on Thursday.

Watch Inside Defense for further coverage.