Sponsored by Harris Corporation
14 Jul 18. Pentagon reaches handshake deal with Lockheed on newest batch of F-35s. The Pentagon and Lockheed Martin have reached a handshake deal for the eleventh batch of F-35 joint strike fighters, the Pentagon’s top acquisistion official confirmed July 15. The lot 11 order will be the largest so far for the F-35 program, purchasing 141 jets for U.S. and international customers.
“The JPO and Lockheed Martin have made progress and are in the final stages of negotiation on the Lot 11 production contract,” said Ellen Lord, the Pentagon’s undersecretary for acquisition and sustainment, in a statement. “We have a handshake agreement which symbolizes the Department of Defense’s commitment to not only equip our warfighters with the world’s greatest fifth generation aircraft, but it also represents great value to the U.S. taxpayers, our allies and international partners. With each production lot, the F-35 unit recurring flyaway costs continue to come down across the board.”
Neither the Defense Department nor Lockheed disclosed either the total contract value nor the unit costs of the latest order, but a Lockheed spokesperson said the company remains on track to decrease the unit cost of an F-35A conventional takeoff and landing model — the most widely used variant — to $80m by 2020. In a statement, the Lockheed spokesperson stated that the total contract value and price per copy would be released once the contract was finalized, but the “unit price for all three F-35 variants went down significantly in the latest negotiation, demonstrating the program’s continued progress, maturity and cost reduction.”
A contract for the tenth lot of low rate initial production (LRIP) F-35s, as announced in February 2017, lowered the price of an F-35A to $94.6m — the first time any version of the joint strike fighter had been sold for less than $100m. The F-35B jump-jet model used by the U.S. Marine Corps came in at $122.8m, while the F-35C carrier version sat at $121.8m. Lockheed and the Pentagon took longer to reach a final contract agreement than either party would have liked, as the department’s F-35 Joint Program Office had hoped to finalize an LRIP 11 contract last year. However, the deal could represent a sea change for the relationship, which soured considerably during the LRIP 9 and 10 negotiations. After months of LRIP 9 negotiations went nowhere, the JPO in 2016 forced Lockheed Martin to abide by a unilateral contract action, which allowed the Pentagon to set the price of an aircraft and Lockheed’s fee without input from the company. Then, F-35 costs came under fire from President Donald Trump, who publicly lambasted the program and positioned Boeing’s Super Hornet as an alternative. The pressure helped the Pentagon and Lockheed make a deal on LRIP 10 in February 2017, with unit costs reduced by about 7.5 percent when compared with the ninth batch of jets. The announcement of the today’s deal follows a $2bn contract award made to Pratt & Whitney in May for the eleventh batch of F-35 engines. Pratt manufactures the F135 engine used in every version of the jet. Going forward, Lockheed and the Pentagon will negotiate lots 12, 13 and 14 together as part of a block buy that will initially encompass international orders but could also accommodate the U.S. services as early as lot 13. The Lockheed spokesman stated that the LRIP 11 deal “along with the technical stability of the aircraft, puts us on a great path to negotiate Lots 12, 13 and 14 as a Block Buy, which will generate additional savings for our customers.” (Source: Defense News)
12 Jul 18. “Aerospace is one of the world’s most important industries, yet there is no consensus on its size and composition,” according to Richard Aboulafia, VP-Analysis of The Teal Group. “The best industry data is kept by national industry associations, yet their definition of ‘aerospace’ varies,” adds Kevin Michaels, Managing Director of AeroDynamic Advisory.
AeroDynamic Advisory and Teal Group recently addressed this anomaly by employing clearly-defined parameters to create an independent global aerospace size estimate. Their conclusion is that the global aerospace industry is worth a staggering $838bn in 2017.The independent global size estimate that AeroDynamic Advisory and the Teal Group have created is based on a clear definition: The aerospace industry includes all in-country activities pertaining to the development, production, maintenance and support of aircraft and spacecraft. Included in their definition of Aerospace are aircraft and space manufacturing, including engines, systems, aerostructures and sub-tier suppliers; missile & UAV manufacturing, airborne defense electronics, aircraft simulators, and maintenance, repair & overhaul, including spare parts and materials. Excluded are airline operations, satellite broadcasting services, ground & maritime vehicles, non-aero C4ISR defense electronics, training services and ground support equipment. The joint study also included rankings of countries by the size of their aerospace industry. The five largest are the USA, France, China, the United Kingdom, and Germany. “We were surprised by the size of the Chinese aerospace sector,” said Kevin Michaels. “We knew China is growing rapidly, but didn’t expect it to have the third-largest aerospace industry.”
Messrs. Aboulafia and Michaels will describe their team effort to create their independent global size estimate at a joint press conference on Monday, July 16, 2018 at 5:00pm. It will take place at Farnborough Airshow in Hall 1 Media Center’s Lloyd Room and will include complimentary drinks. During the press conference they will present the world aerospace rankings of the top 45 countries including breakdown by sector. AeroDynamic Advisory is a specialty consulting firm focused on the global aerospace and aviation industries. It is based in Ann Arbor, Michigan and specializes in aerospace strategy & growth, MRO, transaction support, customer satisfaction, and economic development. Teal Group is an aerospace and defense market analysis firm based in Fairfax, Virginia USA. It provides competitive intelligence to industry and governments worldwide. https://www.tealgroup.com
12 Jul 18. Digital Transformation Key to Survival in Aerospace & Defense. Despite solid profits in recent years and a decade of stock market outperformance, the global Aerospace and Defense (A&D) industry cannot afford to be complacent in the face of an increasingly dynamic business environment, according to a comprehensive new industry report from AlixPartners, the global consulting firm. The global A&D industry will need to successfully navigate a number of headwinds including, uncertainty in international trade relations, a rising oil price, significant stresses in a supply chain struggling with continued aggressive product ramp-ups, looming over-capacity in certain sectors of the industry, and wholesale changes in defense spending around the world. AlixPartners has identified three key themes that will shape the industry in the face of these challenges in the years ahead:
- A new era has arrived, centered on services, new business models and partnerships
- The leading aircraft OEMs have significant services-focused ambitions with the four leading players (Airbus, Boeing, Bombardier, Embraer) looking to increase services revenues by more than three times over the next 10 years from today’s $20bn per year to $66bn.
- A key driver to achieving this revenue goal will be a growing focus on insourcing and partnership initiatives which will reshape many existing customer and supplier relationships. Target areas will include continued investment in the growing Manufacturing, Repair & Operations (MRO) sector as well as new product development, training and data management.
- These ambitions will drive continued M&A across the industry
- 2017 was a record year for A&D industry M&A and this momentum will continue as companies throughout the industry look to cut costs and seek new avenues for growth
- The top 10 M&A deals in 2017 had a total enterprise value of some $63bn. almost three times 2016’s $24bn figure. Significant levels of M&A activity will continue driven by strong appetite from both corporates and private equity with continued access to capital
- Digital transformation will be a key driver of success
- The digital revolution offers significant potential for the industry. Companies that adopt comprehensive digital transformation across their businesses – from inbound logistics to product development and marketing – could see efficiency gains of up to 20% within three years, in addition to generating new revenue opportunities for those quickest to transform
- A&D companies are currently leaving cost savings of between 1% and 3% on the table by failing to appropriately leverage existing data. These quick-wins require no significant IT investment and yet are being lost as digital is still not a tier one priority for many.
David Wireman, Global Co-Leader of the Aerospace, Defense & Airlines practice at AlixPartners, said, “A new era is coming to this industry, one centered on new business models, on an industrial step-change in services, on partnerships and on digital transformation. Players in the industry are already moving at maximum velocity, but they can’t afford to be left behind in any of these areas. First-mover advantage will be critical to success. While the industry has certainly recovered in recent years, it faces big challenges ahead. Between big ramp-ups, new demand from end-user customers and big structural changes inside the industry, the entire sector is being stretched to capacity. OEMs and suppliers alike need to be extremely vigilant that nothing reaches breaking point—and that means anticipating problems before they arise and employing the latest in digital technologies to predict and combat them.”
AlixPartners A&D Market Segment Overview
Airlines: profitability declining in the face of increased competition and capacity growth While global airline revenue for 2018 is predicted to reach a record $834bn, up from $754bn in 2017, profits have declined from the peak of 2015/16 and are expected to remain flat at $57bn this year. North America remains the world’s most profitable region, albeit margins are likely to decline here in 2018. Fuel prices are expected to rise by 26% in 2018, following the record lows in 2016. While fuel cost’s share of global commercial airlines’ total operating costs has decreased by 25% between 2006 and 2017, 2018 is likely to be the third consecutive year of growth in this metric, to 28%. Middle-East carriers are expected to face over-capacity, driven by an expected fleet increase (including no new orders) of at least 80% by 2025. This will require significant action, for instance through operational improvements and partnerships with other carriers.
Commercial aircraft: Narrowbody record backlog, Widebody production stabilising
The global passenger jet fleet is expected to almost double in the next 20 years, driven by growing air traffic. While the Airbus/Boeing duopoly will remain, ‘newcomers’ are representing an increasing challenge. The Narrowbody sector is seeing a record backlog of 9.9 years on average, with production expected to ramp up but engine availability remaining the key roadblock. In contrast, the Widebody backlog is at its lowest level since 2010, at an average of 5.9 years, as production rates are expected to stabilise following a doubling between 2010 and 2017. Nevertheless, there are serious tensions in deliveries ramp-up, with selected suppliers facing strong difficulties.
Business jets: size matters
While deliveries hit a record low in 2017, with only 654 jets delivered globally, this is likely to pick up to an average of 854 between 2018 and 2026 – with almost 7,700 new jets delivered during the next eight years. Large jets are likely to drive this growth, having seen a resurgence in deliveries in 2017. However, political uncertainty (e.g. around the Iranian nuclear treaty) remains a threat to the whole sector. The medium and light categories continue to see declining deliveries, signalling a shift in aircraft preference.
Aviation services: ripe for consolidation
The aviation services market is large (worth $257bn in 2017) and growing globally in line with manufacturing output. The world’s four leading aircraft OEMs are looking to increase their services revenue by more than three times in the next 10 years, with a growing focus on digital capabilities. 2017 saw 30 deals in MRO and aviation services alone. On top of this, several mega-deals involving system/equipment suppliers added up to more than $10bn. This will continue as major OEMs increase their focus in this area and diversify their revenues.
Defense: panic buying
Global defense spend is accelerating, driven by increasing ‘threat perceptions’ and ongoing conflicts in the Middle East, South China Sea and Ukraine. The US market, the world’s largest, is growing at 7.5% per year and the top 10 contractors are growing both profits and R&D investments in response to Department of Defense ‘offset strategy’ policies. Spend is likely to continue as the US responds to the growing stature of China and Russia, with hypersonics the government’s number one priority. Research into hypersonics is expected to grow by 136% between 2018 and 2019. European spending is growing at around 1.5% per year on average, although most European countries remain far below the NATO growth target of 2% of GDP. After falling sales in 2013 and 2014, European defense players have returned to growth – albeit with flat margins. The PESCO agreement, signed in December 2017, will see a dramatic reduction in major weapons systems in the EU (from 180 to about 30). The industry is likely to see increasing collaboration, although driven primarily by political – rather than business – rationale. The combined impact of Trump and Brexit will see a concurrent ‘emancipation’ from US dependence and renewed motivation to reinforce the region’s defence ambitions.
Helicopters: eroding profitability to drive consolidation?
Despite growing revenues and deliveries increasing, albeit still 27% lower in 2017 than in 2013, EBIT margins continue to lag: 15% lower than in 2014. A combination of market pressures and a requirement for significant investment suggests the helicopter market is on the cusp of consolidation.
Aerostructures: dynamic, fragmented, consolidating
Demand is expected to rise only moderately through 2026, to $76bn, vs. $62bn in 2017. This is a fragmented segment where consolidation and M&A are already underway. This will accelerate, driven by technology portfolio broadening, outsourcing of non-strategic assemblies from OEMs, vertical integration from suppliers, and the acquisition of low cost countries’ capabilities.
Space: disruption and pressure in a growing industry
The $259bn space market is growing by more than 5% per year, led by the ground equipment (+18.3%) satellite manufacturing (+7.7%) segments. The satellite industry is undergoing a paradigm shift, from larger and more expensive geosynchronous orbit (GEO) constellations, to smaller, lower cost and shorter-life cycle non-geosynchronous orbit (NGSO) units targeting the consumer market. Pricing competition is putting margins under increasing pressure, however. An increasing number of space launchers are coming to market, playing catch up with SpaceX.
About the Study
The AlixPartners Global Aerospace & Defense Industry Outlook was conducted by AlixPartners’ industry leading Aerospace & Defense team and is based on in-depth analysis of data from both public and proprietary sources. (Source: BUSINESS WIRE)
12 Jul 18. The US Army’s next machine gun could fire caseless ammo — and one of these companies might build it. Textron Systems has created a new kind of cartridge and weapons to lighten the load and reduce recoil on machine guns and rifles. Military Times ground combat reporter Todd South breaks it down. The replacement for the Army’s 5.56mm Squad Automatic Weapon could be an entirely new type of light machine gun that fires not only a different caliber round, but caseless ammunition. That’s because one of the five companies recently awarded contracts to produce a weapon prototype by this time next year has been building weapons to fire that type of ammo for the past 14 years.
A notice posted Thursday included the identities of the five companies:
- AAI Corporation Textron Systems in Hunt Valley, Maryland.
- FN America LLC.in Columbia, South Carolina.
- General Dynamics-OTS Inc.
- PCP Tactical, LLC. in Vero Beach, Florida.
- Sig Sauer Inc. in Newington, New Hampshire.
The companies were awarded a contract to provide a prototype for the Army’s Next Generation Squad Automatic Rifle, or NGSAR. The light machine gun is the first planned major overhaul of small arms in decades. Based on the notice, it appears that FN America has been granted an award to provide two prototypes, while the other four companies will provide a single prototype. Those prototypes will help the Army decide what’s possible given their extensive requirements for the new weapon. There will then be an open competition following those submissions, where more companies can try to get in on the weapon that will utlimately replace the M249 SAW and influence the M4 replacement, as well. It is also the first weapon of its type that could mean a dramatic shift in all small arms, with follow-on changes planned for an individual carbine that will likely incorporate the machine gun changes, officials have said. Current efforts include work on a lighter machine gun that fires a government-designed 6.8mm round, which falls between the lighter 5.56mm and heavier 7.62mm used in heavy machine guns. But submissions can include other calibers, so long as they meet accuracy and lethality requirements for the new weapon, officials have said. In the Textron release, the company says the prototype will be based on their cased-telescoped weapons and ammunition portfolio. The company has designed both a carbine and light machine gun variant, which have been displayed publicly in recent years. The NGSAR will be an “intermediate caliber, high-velocity, magazine-fed system,” according to the release. It will weigh less than 12 pounds with ammunition that weighs 20 percent less than the traditional brass case ammo. The weapon will be at most 35 inches long and be able to fire 60 rounds per minute for 15 minutes without a barrel change. Accuracy matters too. A shooter must be able to hit standard targets at 50 meters while standing, with three- to five-round bursts at least 70 percent of the time. The companies also received awards for advanced weapons and fire control technologies, for the Next Generation Squad Weapons Technologies, the umbrella program for advancing small arms, and for the fire control capability.
Wayne Prender, vice president of Applied Technologies & Advanced Programs at Textron Systems, told Army Times Thursday that he couldn’t discuss details of their fire control submissions configuration. But he did talk about some of the capabilites they plan to provide. “We’re offering up a solution set, day/night system optics with a laser range finder, integrated ballistic computer for computation of the target,” Prender said.
Last year Textron unveiled a 6.5mm carbine using their ammunition. The NSGW program aims to use an intermediate caliber, likely in the 6mm range, such as their 6.8mm ammunition development. But Prender said he couldn’t discuss details of the caliber submission for the weapon prototype. Army leaders have said that advancements will come in stages and initial fire controls will be a part of the first fielded system, but that improved fire controls with additional upgrades will be incorporated into the system. (Source: Defense News Early Bird/Army Times)
13 Jul 18. Lockheed Martin dispels F-35 corrosion fears. Lockheed Martin soothes customer concerns over recent corrosion and depressurisation issues. As a fifth generation aircraft, the F-35 is the perfect blend of all-aspect stealth even when armed, low-probability-of-intercept radar, high-performance air frames, advanced avionics and highly integrated computer systems bringing an unrivalled, gods-eye view of the battlespace. However, as with any new and highly complex technology, the aircraft have suffered some delays and experienced lessons learned with some of the technological innovations that will make the aircraft the dominant fighter aircraft of the 21st century. As identified recently, a small number of earlier batch aircraft were discovered to have a small amount of corrosion when cycling through a maintenance and sustainment depot in the US. A lengthy investigation and root cause analysis determined that the surprising defect was the result of primer not being applied to the fastner holes in the aircraft’s fuselage. When speaking with Defence Connect, director of F-35 international business development Steve Over was quick to highlight Lockheed’s rapid response to the issues identified in late 2017.
“We have developed a remediation plan in close collaboration with our customers. It was decided that the issues presented weren’t urgent, so they would be rectified as the aircraft cycled back through maintenance depots,” he said. “Occasionally things like this happen and we have worked closely with our customers to design and enact a resolution action plan.”
In response to the recently identified issues, Over said, “We would like to do better, our customers deserve it and we will deliver it.”
Meanwhile, recent publicity surrounding apparent depressurisation and oxygen supply issues, allegedly similar to those experienced in the Lockheed Martin F-22 Raptor, were also identified when a number of pilots stationed at Luke Air Force Base presented with physiological symptoms similar to hypoxia, including oxygen deprivation, ear pain and sinus issues. In response to the claims of depressurisation concerns around the F-35 cockpit, Over was clear when he said that it was not a depressurisation issue and that slow progress had been made regarding the root cause analysis, with a number opportunities to improve the robustness of the design identified. Meanwhile, the complex physiological issues experienced by the small number of pilots could not be directly attributed to hypoxia (oxygen deprivation) and it would be prudent to await the final findings of the thorough investigation for a likely cause.
Australia will officially take delivery of two F-35As which will arrive at RAAF Williamtown in December of this year, which will serve as the regional maintenance and modification facility for the Asia-Pacific region, highlighting the truly global and integrated nature of the immense F-35 project, while RAAF Amberley will eventually serve as the Asia-Pacific engine maintenance and repair facility with secondary facilities located in Japan. The RAAF has been putting it’s pilots through their paces with their American and wider global counterparts, with six instructor pilots currently based at Luke AFB and a new cadre of four beginning their training last week. Over was, as with Lockheed Martin general manager for training and logistics systems Amy Gowder, quick to highlight that 2018 would be a landmark year for Australia’s transition to the F-35, as an additional four Australian F-35s will be based at Luke AFB by the end of the calendar year for training and development. Australian pilots have gone on to complete 1,500 flight hours in the F-35A and lay the groundwork for what will become Australia’s contribution to the broader program’s Continuous Capability Development Delivery scheme, which will see the aircraft evolve throughout the operational life of the weapons system. Over was pleased to highlight that following a long, sometimes tumultuous program Lockheed was delivering the F-35, which Chief of Air Force, Air Marshal Leo Davies is quoted as saying will “replace nothing, because they change everything”.
“After almost a 17-year journey together to deliver this transformational capability to Australia, [Lockheed Martin] are in line to meet the obligations of the original contract we signed in 2001,” said Over.
Australia is spending about $17bn to buy 72 fighters of the F-35A variant, with the aircraft due to reach initial operating capability by December 2020. Four aircraft have been delivered to Australian pilots training in the US, according to the Defence Department’s official website. (Source: Defence Connect)
11 Jul 18. Which US aerospace and defense sectors excelled in 2017? Last year was a strong one for the U.S. aerospace and defense industry, generating $865bn in economic output and accounting for nearly 2 percent of the country’s gross domestic product. But which sectors of industry were behind 2017’s stellar numbers after two years of relatively flat growth? According to a new report from the Aerospace Industries Association, higher shipments of commercial aircraft, general aircraft and civil space systems contributed the most to the sector’s output increase in 2017. AIA reported a 6 percent increase in U.S. civil aircraft production, evidenced by higher shipments of helicopters, transport aircraft and general aircraft systems. In total, 2,808 units were delivered to commercial and government customers, including 763 transport aircraft, 449 helicopters and 1,596 general aviation aircraft, the report says.
Conversely, U.S. military aircraft deliveries decreased from 561 in 2016 to 538 in 2017 due to lower volumes of military helicopters and trainer aircraft. In total, 538 aircraft were delivered to U.S. and foreign customers, the report noted. Despite a 2.2 percent decrease from 2016’s record-high aerospace and defense export numbers, U.S. industry maintained its title as the world’s largest exporter. The industry exported $143bn worth of products and imported $56.9bn worth of products, generating a trade surplus of approximately $85.9bn, according to the report. That trade surplus is the second largest on record and the largest of any U.S. industry. The vast majority of the industry’s commercial exports, worth $122.8bn, was sent to China ($16.3bn), France ($13bn) and the United Kingdom ($10.1bn), the report reads. (Source: Defense News)
10 Jul 18. Details on an Air Force drone? $200 on the dark web. The goods included sensitive U.S. Air Force documents of an unmanned aerial vehicle, tank platoon tactics and manuals to defeat roadside bombs. These are among the delicate American military details that have been put up for sale on the dark web, according to a research firm. For the Department of Defense, the report lays raises questions about basic cyber-hygiene in the U.S. military apparatus as the material came from hacks through known vulnerabilities. Recorded Future, a private research firm based in Massachusetts, said in a July 11 report that it found the swath of documents while monitoring criminal activities on the dark web. The saga began June 1 while researchers came across schematics of the MQ-9 Reaper unmanned aerial vehicle. “It is incredibly rare for criminal hackers to steal and then attempt to sell military documents on the web,” Recorded Future wrote in a report. According to a screenshot from the firm, the hackers’ price for the sensitive documents was laughably small: “about $150 or $200.”
After further investigation, Recorded Future learned that the hacker gained access to the information “through a previously disclosed FTP vulnerability in Netgear routers,” referring to a method of sharing files over the internet. The hacker “infiltrated the computer of a captain” stationed at Creech Air Force Base in Nevada, who just months earlier completed a Cyber Awareness Challenge training program meant to guard against such attacks. “Despite it being two years since the (Netgear) vulnerability was first acknowledged, the problem remains widespread,” the firm wrote, adding their recent research found that more than 4,000 routers are still vulnerable to attack
But the hacker was not finished. They posted even more military documents for sale, including more than a dozen manuals on how to defeat roadside bombs, information on tank platoon tactics and an M1 Abrams tank manual, according to the report. It was unclear how this information was stolen, although none of it was classified. The hacker claimed disturbing access to sensitive military intelligence, according to Recorded Future.
“On days he was not hunting for his next victim, he entertained himself by watching sensitive live footage from border surveillance cameras and airplanes.”
A spokesman for the Air Force did not immediately respond to a request for comment. (Source: Fifth Domain)
About Harris Corporation
Harris Corporation is a leading technology innovator, solving customers’ toughest mission-critical challenges by providing solutions that connect, inform and protect. Harris supports government and commercial customers in more than 100 countries and has approximately $6 bn in annual revenue. The company is organized into three business segments: Communication Systems, Space and Intelligence Systems and Electronic Systems. Learn more at harris.com.