Defense budget details; F-35 negotiations resume; What Mike Trout’s contract could buy

It’s the second week of Budget Week, which makes me feel like I’m in the alternate 1985 in Back to the Future Part II. Following last week’s release of toplines and highlights in the Pentagon’s $750 billion budget request for fiscal 2020, this week we received the justification books that hold the details.

Now industry analysts, lobbyists, think-tankers, and journalists are poring through the J-books looking for subtle changes and other nuances that illuminate how the Pentagon views the future security environment.

Congress, of course, will have its say. Rep. Jim Cooper, D-Tenn., predicts that the defense topline will ultimately come down to $733 billion. That’s a “very good number,” the chairman of the House Armed Services strategic forces subcommittee said Wednesday. That may or may not include the $7 billion requested for the wall on the southern border with Mexico, something neither Republicans nor Democrats are happy about.

Citi’s Jon Raviv said in a March 18 note to investors that he expects Congress to reject the proposed 15-plane cut to the F-35 purchase plan. Raviv notes that lawmakers have routinely boosted funding for the program.

Cowen’s Roman Schweizer's take: “The FY20 outlook for defense spending looks decent for operations and maintenance (+5% Y/Y) and investment (+2% Y/Y) but the rest of Future Years Defense Program (the five-year forecast to FY24) reflects a mixed outcome, although it would appear that DoD did fill-in big declines in FY20 in major accounts.”

Byron Callan gave his top-four takeaways in a March 19 note to investors.

• “Based on the programs shown, General Dynamics appears to do relatively well at least based on the Stryker and M1 adds and its share of an additional submarine.
• “There may not be that much change to Oshkosh’s JLTV outlook. We suppose international sales could make up some of the difference between Army plan changes.
• “BAE Systems’ armor programs also were reduced, as expected. However, the Bradley Mod cut doesn’t happen until 2022 and it could backfill legacy program cuts if it wins Mobile Protected Firepower.
• “Huntington Ingalls also saw program cuts, but we expect Congress could restore a plan to overhaul an aircraft carrier and Ingalls is a competitor of FFG(X).”

Somehow, the 12 Hours of Sebring race has popped up on my television (replacing a West Coast hockey game, which should give you a good idea of the time). Defense nerds may recall that the racetrack is just down the road from Florida’s Avon Park Air Force Range, a military training facility. I’ve been there, twice, to observe training for ground controllers who call in airstrikes. One of the few hotels is at the Sebring racetrack. OK, I’m going to bed.

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F-35 Negotiations, Going Better?

It appears there in a better place than they were a few years ago, when government officials and Lockheed executives traded barbs. The Pentagon and Lockheed are negotiating an order for the 12th batch of Joint Strike Fighters. “We feel good about the negotiations ... with our Joint Program Office customer from a cost standpoint and from a profitability standpoint,” Lockheed CFO Ken Possenriede said March 7 at a JP Morgan investors conference in New York. “We do think there is some margin potential increases on production in the out years.”

Boeing’s Tough Week

We’ve come a long way since President Trump’s “God bless Boeing” comment in February 2017 while visiting a 787 Dreamliner factory in South Carolina. The company’s Twitter accounts, @Boeing and @BoeingDefense, have been largely dark since March 8, the last weekday before the crash of Ethiopian Airlines Flight 302. Now as the Transportation Department probes the FAA certification of Boeing’s 737 Max 8 airliner, there’s been heavy criticism levied on the company’s KC-46 production line by the top U.S. Air Force weapons buyer. Now comes word that DOD’s Inspector General is looking into whether Acting Defense Secretary Patrick Shanahan favored Boeing, his long-time employer before arriving at the Pentagon. Shanahan told lawmakers last week that he supported the investigation. There have been rumbling for several weeks now that Shanahan would be getting the formal nomination for SecDef. Perhaps this is what’s holding it up.

Military Intel Budget Request Appears Flat

We won’t find out just how much the Pentagon is spending on military intelligence projects in fiscal 2019 until after Sept. 30, but it appears spending will remain flat or rise slightly increase in fiscal 2020, according to budget data released this week. The Defense Department has requested $22.95 billion for military intelligence projects, the Pentagon said in a statement. It requested $21.2 billion for fiscal 2019. Due to the sensitive nature of the projects funded through this account, the amount of money approved by Congress is not disclosed until after the fiscal year for that funding ends.

M&A Watch

Cubic to acquire RF Firm: Cubic announced on March 14 that it acquired North Carolina-based Nuvotronics, “a disruptive technology provider of microfabricated radio frequency products” for $64 million in cash, Nuvotronics’ “secret weapon” its PolyStrata technology. The tech, “enables the company to design and produce uniquely packaged RF devices, such as antennas, filters and combiners, all of which are components in Cubic’s advanced technology product offerings.

Gryphon acquires Schafer: The deal, announced in an emailed statement this week allows Gryphon to expand “capabilities to bid on larger classified contracts providing engineering, technical, training and cyber services.” Schafer Intermediate Holding “designed, integrated, maintained, and upgraded state-of-the-art systems and programs for the military, intelligence community, Department of Homeland Security, and others.”

Oshkosh to Unveil JLTV Ambulance

The company will show off the vehicle, based on its Joint Light Tactical Vehicle, will be on display at next week’s AUSA Global Force conference in Huntsville, Alabama. “Oshkosh sees a capability gap that right now there is not a protected ambulance with the mobility of our L-ATV to be able to go where our JLTVs are going, George Mansfield, vice president and general manager of joint programs for Oshkosh Defense, said in an interview this week. The company is planning to talk to soldiers and get feedback as they finalize the ambulance’s design.

Speed Read

• Here’s a good backgrounder about the Air Force’s planned F-15EX buy from J.J. Gertler of the Congressional Research Service.
• GAO has a new report about problems with developing software for military space systems.
• Three decades ago this week, the V-22 Osprey flew for the first time.

Making Moves

Jennifer Whitlow, Lockheed Martin’s senior vice president for communications, is leaving the company on March 29, she tells us. Andrea Greenan, the company’s vice president of internal communications, will serve as the acting top communications official at the company after Whitlow’s departure. In an email to employees, Whitlow said it was a “very hard decision” to leave Lockheed, where she has led the communications team for six years. She did not disclose where she is going next, but hinted that it was outside of the defense industry.

Roderick McLean has been named vice president and general manager for the Lockheed’s Air Mobility & Maritime Missions organization, succeeding George Shultz, who will retire later this year, the company announced on March 14. Bridget Lauderdale will become vice president and general manager for the Integrated Fighter Group organization, succeeding McLean. Both appointments are effective April 15.

Marc Allen has been named senior vice president of Boeing and president of Embraer Partnership and group operations, the company said on March 20. Michael Arthur has been named president of Boeing International. John Slattery will become president and CEO of the commercial aviation and services joint venture between Boeing and Embraer.

A $430M Contract...For an Outfielder

“When baseball contracts start to sound like defense contracts,” quipped my colleague Paulina Glass, upon hearing the news of Mike Trout’s record 12-year, $430 million deal with the Los Angeles Angels. The Defense One team quickly assembled a short list of other things the money could buy:

• 29 Sikorsky Black Hawk Helicopters at $14.8 million each.
• Four F-35 Joint Strike Fighters, which are recently running roughly $89 million apiece. That’s a “better investment of the $430mil...just sayin,’” opined retired Air Force Lt. Gen. Dave Deptula via Twitter.
• 43 A-29 Super Tucano light-attack planes, like the ones being purchased by the Afghan Air Force, for about $10 million each.
• More than 1,700 Army Joint Light Tactical Vehicles, for about $250,000 each.
• Six F/A-18 Super Hornet strike fighters, about $70 million each.

Or, of course, funding the entire defense budgets of, say, Liberia, Bhutan, or Sierra Leone.