Just In: L3 realigns business segments; Pairing pilots with drones; Lockheed CEO’s big gift, and more.

Two weeks ago at the Farnborough Air Show outside London, L3 Technologies’ corporate chalet — a semi-permanent building a few hundred feet from the airfield — was bustling, its lobby packed with visitors checking in for meetings.

Further inside — and outside on a terrace — people huddled around tables talking business. A lively, fresh energy filled the place, a feeling typically not associated with a corporate event held by a defense company. But this is the new L3, a company planning to grow and not shy to talk about it. It’s a dramatic shift for America’s sixth-largest defense company — one that has largely operated in the shadows for most of its existence. No more.

Chris Kubasik, who took the reigns as CEO in January, described Farnborough as “our most productive show ever.” All told, more than 1,000 guests passed through the chalet, and executives held over 200 meetings, he said on the firm’s quarterly earnings call last week.

Outside on the flightline, there were planes with the L3 logo on their tails. Company officials also chose the show to announce that Steve O'Bryan — who spent years at Lockheed Martin, where Kubasik was previously an executive — had been named L3’s senior vice president and chief global business development officer.

Now, two days into his eighth month at the top, Kubasik today announced a realignment of business segments, the latest change as he positions the company for more growth and a slot in defense’s top tier.

The firm’s Aerospace Systems and Sensor Systems segments have been combined to form Intelligence, Surveillance & Reconnaissance Systems. The move “will heighten L3’s focus on developing and delivering best-in-class global ISR and signals intelligence solutions,” the company said in a statement.

Jeffrey Miller — who ran Sensor Systems — has been named corporate senior vice president and president of sensor systems. Aerospace Systems President Mark Von Schwarz will retire from the company.

“We are rapidly transforming L3 for integration and growth by strengthening our technological alignments, which enables us to more effectively build upon our competitive advantages,” Kubasik said in a statement.

In his earning call, Kubasik hinted about yet more organizational changes to come.

“Consistent with our strategy of becoming a non-traditional sixth prime, we've been evaluating the alignment of our capabilities and core competencies across the reporting segments,” he said. “In order to move up the food chain and deliver more integrated solutions, we need to be better coordinated in developing technology and agile in addressing customer needs.”

He continued: “Change is never easy with a large company, and there are many steps in a sequence to coordinate the gearing so the engine of the corporation runs better. Many customers are underserved relative to their needs for fast, innovative, low-cost solutions, and we intend to fill that need as a nontraditional sixth prime. I'm encouraged by discussions with the Department of Defense and many international customers. Our teams are starting to think more creatively about harnessing the power of L3 Technologies to move up the value chain. This shift in how we go to market will take time, but I want you, as shareholders, to know what we're working towards as the company and what I'm expecting of my team.”

Welcome

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Congress Passes NDAA in Record Time

Well, how about that. Congress passed the 2019 National Defense Authorization Act on Wednesday night. The Pentagon says it’s the earliest NDAA in 20 years. Next up: the defense appropriations bill — but President Trump has been threatening to shut down the government when the fiscal year end on Sept. 30 if he does not get funding for his long-promised border wall between the U.S. and Mexico.

The Unmanned Wingman

Fair to say, autonomy – including human/machine teaming and AI — is a large part of the future for defense firms, and you hear about it all the time from their executives. No different at BAE Systems. “Autonomy really is a very large focus for the company, “ Skip Stolz, the director of Strategic Development for the Autonomy, Control, and Estimation group at the firm, said in an interview this week.

In an era of great-power competition, BAE is touting how its autonomy technology could be used to resurrect retired fighter jets and turning them into drones that fly alongside manned aircraft. The technology could be used on different types of jets.

“There’s well over 600 fourth-generation aircraft out there [in the boneyard] that have been bought and paid for and could be turned into an unmanned wingman in a fairly cost effective way,” Stolz said. “Just think of what that that dies to the planning of potential adversaries. Now, all of a sudden, there’s a significant increase in the force projection capabilities.

“If you put a few of these on an airfield here and there throughout the world, these are capabilities that the potential foreign adversaries would have to account for,” he said. “It also … takes advantage of the strengths of both the manned and unmanned teammate.”

There are at least two bridges to cross before unmanned wingmen hit the unfriendly skies. Tactics must be developed for manned and unmanned aircraft flying together as a team, and human pilots must learn to trust their robotic partners aloft.

The Mitchell Institute recently published a report on this concept of pairing drones with real pilots. You can read that here.

Israel Considers F-15 Buy

Still talking about fighter jets, because who doesn’t like go-fast planes? (Tank and ship enthusiasts, file your complaints to @MarcusReports.) Israel is reportedly considering buying F-15s (and aerial refueling tankers and Chinooks and Ospreys), per the Israel Hayom. Flashback to 2013 when then-Defense Secretary Chuck Hagel offered Israel Ospreys and KC-135 tankers, but that deal never materialized.  The F-15 seems a lot like the F/A-18 Super Hornet these days in that it’s production days were numbered, but now all of a sudden with possible interest from the U.S. Air Force and potential for more overseas sales to Germany, the Eagle might soar awhile longer.

Predicting Geopolitical Events

Raytheon is developing “a system that improves the accuracy” of predictions about elections, conflicts, and disease outbreaks. The work is being done under a $14.5 million contract with the Intelligence Advanced Research Projects Activity. “While human analysts are flexible and can apply context to their event forecasting models, machines can more quickly process massive amounts of data to make unbiased forecasts,” the company said in a statement.

Protecting Nukes with Helicopters

The bids are in to replace U.S. Air Force UH-1N Huey helicopters that guard intercontinental ballistic missiles fields in the northern U.S., but the head of American nuclear weapons arsenal wants the deal sealed. "We are going to get a new helicopter if I have to die trying or if I have to kill somebody to do it," Gen. John Hyten, head of U.S. Strategic Command, said this week (per our friends at Military.com). The Air Force has been trying to replace the Huey for about 15 years as the project’s priority fluctuated within the Air Force.  

Recess Reading

Now that Congress has left town (the Senate for just a week while the House is in recess until September), here are two important summer reads from the Government Accountability Office. Up first, one that looks at foreign military sales, a hot topic of late, particularly since there have been more than $62 billion in deals approved by the U.S. government this year, according to Cowen & Company analyst Roman Schweizer. GAO says the Pentagon needs to strengthen its “financial oversight of its use of overhead funds collected from partners for the Foreign Military Sales program.” Read the entire report here.

Report two is on the F-22 Raptor. GAO warns: “Unless the Air Force takes steps to assess and make necessary adjustments to the current organization and use of its F-22s, F-22 units are likely to continue to experience aircraft availability and pilot training rates that are below what they could be. As a result, the Air Force may be incurring increased risks in future operations in high threat areas.” Read that report here.

Boeing to Stand Up Autonomy Center

The 100,000-square-foot research-and-development center will be at the Massachusetts Institute of Technology. Its employees will include people from Aurora Flight Sciences, which Boeing acquired last year, as well as from elsewhere in Boeing. Those workers will “focus on designing, building and flying autonomous aircraft and developing enabling technologies,” according to a company statement.

CAE Buys Aircrew Training Firm

CAE, a firm that specializes in training pilots and aircrews, has acquired Virginia-based Alpha-Omega Change Engineering for $29 million. “The acquisition will enhance CAE USA’s core capabilities as a training systems integrator, grow CAE’s position on enduring platforms such as fighter aircraft, and expand the ability for CAE USA to pursue higher-level security programs in the United States,” the company said in a statement.

Lockheed CEO Gives Large Gift to Alma Mater

Marillyn Hewson and her husband Jim have given $15 million to the University of Alabama Culverhouse College of Business. The gift is the largest in the school’s history. Hewson gave $5 million to “support the Marillyn Hewson Faculty Fellows Program in Data Analytics and Cyber Security, a high-tech Data Analytics and Cyber Security lab, and an endowed undergraduate scholarship and graduate assistantship.”

Making Moves

• Raytheon has named Sally Sullivan as vice president of U.S. business development and Ed Fortunato as vice president of government relations. Sullivan was most recently the executive vice president for the Homeland Security Group at CSRA, which was acquired earlier this year by General Dynamics. Fortunato was previously senior vice president of government relations for Orbital ATK, which was acquired this year by Northrop Grumman.
• David Powner has been appointed director of strategic engagement and partnerships at Mitre. “In this new role, Powner will enhance strategic engagement and partnership relationships with stakeholders in government, the private sector, and academia,” Mitre said in a statement.
• President Trump has nominated Air Force Maj. Gen. Richard Scobee to be chief of the Air Force Reserve and commander of Air Force Reserve Command. An F-16 fighter pilot for much of his career, Scobee is currently the deputy commander at Air Force Reserve Command.