Defense Business Brief: Biden’s defense request gets first OK; F-35 in Finland; Former SecArmy’s new job; and more.

Marcus Weisgerber

July 2, 2021

By Marcus Weisgerber

Global Business Editor

July 2, 2021

The House Appropriations defense subcommittee advanced a nearly $706 billion fiscal 2022 defense spending bill to the full committee this week. Add a roughly $10 billion military construction bill and you have the Biden administration’s full $715 billion request.

The Democrat-led panel advancing the full amount increases the chance of an even higher defense budget, according to Cowen and Company analyst Roman Schweizer.

“Democrat appropriators shunned calls from Progressives to cut defense and supported Biden's request, a positive,” Schweizer wrote in a June 29 note to investors. “We believe a bipartisan deal will be necessary, and it will add more money to the $715B request ($20B-$30B).”

Switzerland said it would buy the F-35 Joint Strike Fighter to replace its aging F/A-18 Hornets and F-5 Tiger fighters. The decision by the neutral nation to buy a stealth jet was immediately questioned by opponents who called the F-35 the “Ferrari option” and pledged to overturn the deal by referendum. The Dassault Rafale, built in neighboring France, was considered the favorite in the contest, which also included the Boeing F/A-18 Super Hornet and Eurofighter Typhoon.

Back stateside, the Pentagon has been pushing F-35-maker Lockheed Martin to lower the long-term costs of maintaining and operating the jet. Noteworthy is that the Swiss Federal Council said its evaluation determined “procurement and operation costs are the lowest for this aircraft.”

How can a fifth-generation stealth jet cost less than older-generation non-stealth planes? “We don’t know if some of the F-35’s stealth characteristics were de-tuned, which also would support lower sustainment cost,” Capital Alpha Partners’ Byron Callen wrote in a note to clients this week. “The F-35 is a single engine aircraft and the ones it competed against are twin-engine jets (Eurofighter, Rafale, F/A-18E/F). We doubt that Switzerland had a requirement to penetrate complex air defense systems in offensive combat operations and we expect that the U.S. was sensitive to exports of F-35 technology to a neutral country.”

The Swiss decision could bode well for Lockheed, which is also trying to sell F-35s in Finland. The same four jets, plus the Saab Gripen, are competing in Finland. “The decision may be a positive for Lockheed Martin as it suggests better positioning in the Finnish fighter competition,” Callan wrote. Lockheed is also pitching the F-35 in Canada.

The U.S. Marine Corps inked a deal for nine Sikorsky CH-53K heavy lift helicopters. The helicopters currently cost $97.6 million (or $20 million more than an F-35). The deal includes an option for nine more King Stallions at $94.7 million each, the Navy said in a statement. The Marines plan to buy 200 CH-53Ks, which are supposed to carry 36,000 pounds, more than any other helicopter. It has ordered 33. The project has experienced numerous problems and setbacks since its launch 16 years ago.

The Biden administration seems to be moving full steam ahead to develop a new nuclear cruise missile. The Air Force awarded Raytheon a $2 billion contract for the engineering and manufacturing development phase of the Long Range Standoff, or LRSO, Weapon System. Under the deal, Raytheon will “continue to mature and the manufacturing environment will be demonstrated and transitioned to a pilot line readiness state. The objective at the end of EMD is to demonstrate full production readiness.” Work is expected to complete in 2027.

M&A: Canada’s CAE says it has received regulatory approval to close its $1 billion acquisition of L3Harris Technologies’ military training business today. Aquiline Drones has purchased 50 percent of Aerialtronics for $9 million. Aerialtronics is “an end-to-end solutions developer in the Netherlands that uses drones, artificial intelligence (AI) and IoT data to provide real-time insights for a variety of business operations.”

Former Army Secretary Ryan McCarthy is joining Pallas Ventures as a managing director. McCarthy joins former Trump administration Navy Secretary Richard Spencer who last year was tapped to lead the private investment fund of Pallas Advisors, the consulting firm founded by Sally Donnelly and Tony DeMartino, aides to former Defense Secretary Jim Mattis.

"Joining the Pallas Ventures team provides me the opportunity to work with talented entrepreneurs and help them navigate the challenges with small businesses and competing in the defense industry,” McCarthy said in a statement to Defense One. “It will take disruptive technologies to enable the ambition to modernize the U.S. military to maintain its technological edge.”

As Army undersecretary, McCarthy helped create Futures Command, which aims to bring new technologies to the Army. Pallas Ventures invests in “start-ups looking to deploy cutting-edge, dual-use technology across the defense and intelligence communities.” Among its investments, a German startup that makes electric thrusters to enable tiny satellites to maneuver.

Making Moves

The long-planned succession at L3Harris Technologies took place this week: former COO Chris Kubasik became CEO and former CEO Bill Brown remained as executive chairman.

Boeing named Brian West its CFO, effective Aug. 27. West, who has held a number of financial positions, most recently as CFO of Refinitiv, replaces Greg Smith, who is scheduled to retire next week. Boeing also named Stayce Harris, a retired Air Force lieutenant general, to its board.