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Defense Industry Maintains Momentum as Q1 Ends
The Libyan crisis saw use of the RAF Nimrod aircraft triggering the inevitable criticism in many quarters questioning the logic behind UK Defense spending decisions undertaken as part of a UK Government Strategic Defence and Security Review. Other platforms affected by the last round of cuts include the Tornado fast-jet platform and Royal Navy frigates. Whether or not this will lead to a review of the situation remains to be seen though official statements (issued on April 8, 2011) suggest that this is unlikely.
The US Government was another great example of how bureaucracy can hinder rather than help industry. The recent inability of the US government to set a FY2011 budget six months into the year had industry closely monitoring every political twitch and spasm from Washington as the threat of a government shutdown loomed. Fortunately, the powers-that-be managed to come to a decision literally at the eleventh hour will allow programs and contracts to revert to some degree of normalcy.
Unfortunately, according to the US GAO (Government Accountability Office) the industry cannot claim to be an innocent bystander in a situation that now has Defense budgets stretched to the limit. An audit of Pentagon spending found $70 B in wastage. The US Government Accountability Office was particularly unimpressed with the F-35 which accounted for $28 B. The report indicated that the Pentagon also had to spend $9 B more on R&D to fix problems with satellites and other systems that had already entered production.
The accountability office said that the projected costs of the Pentagon’s largest programs had risen by $135 B, or 9 percent, to $1.68 trillion since 2008.
Some $65 B resulted from decisions to buy extra systems such as mine-resistant vehicles and Navy destroyers.
The other $70 B of increases appeared "to be indicative of production problems and inefficiencies or flawed initial cost estimates."
Despite the blundering, uncertainties and inefficiencies, Defense sector contract orders have again showed few signs of let up in the past month. In what was possibly the largest single contract of the month Lockheed Martin was given a production contract totalling $789.8 M to produce the THAAD Weapon System.
In contrast to the UK Nimrod platform, Boeing’s P-8A Poseidon aircraft is moving ahead as scheduled following a US Navy $1.6 B contract to Boeing for the first six production P-8A Poseidon aircraft in January, following up on contracts for two static-test P-8As and six flight-test aircraft. BAE Systems received a Low Rate Initial Production contract from Boeing to provide mission computer systems for six P-8A Poseidon aircraft.
The events in Libya also saw the combat debut of the Eurofighter Typhoon. However, the aircraft’s air to ground mission capabilities still remains a year away. Paveway IV testing is proceeding and in March, BAE systems was involved in the first ever release of a Paveway IV precision guided bomb from a Typhoon aircraft, using the avionics system to safely release the weapon in an hour long test flight over the Aberporth Range in Wales. The integration of Paveway IV demonstrates a commitment to enhance and upgrade Typhoon’s capabilities in its ground attack role and forms part of the Typhoon Future Capability Upgrade. Paveway IV is expected to be provided to the UK MoD early in 2012 when the RAF will start operational evaluation.
Other contract activity in March included:
DRS Defense Solutions was awarded an IDIQ contract and will supply the US Army Assault Breacher Vehicle (ABV) with 106 units of Integrated Vision Systems (IVS).
Saab received an order worth the Swedish Defence Material Administration for system maintenance of Gripen and also received additional orders from the UK Ministry of Defence to enhance their existing provision of live training capabilities to the British Army abroad and in the UK.
Saab will also be a beneficiary of the US Navy awards to Austal USA for the Littoral Combat Ship (LCS) program, supplying the Sea Giraffe radar. The other beneficiary of the LCS program will be EADS North America, supplying its TRS-3D radar to the Lockheed Martin LCS-1 Freedom class LCS.
Cobham PLC had several contracts in March including provision of chaff and flare defensive aids systems for the Typhoon Eurofighter platform.
Merger & Acquisition activity in the sector has also been sustained with eight defense-oriented mergers, acquisitions and partnerships in the past four weeks.
Plant Equipment Inc., dba, the mission critical communications company has become Cassidian Communications Inc., an EADS North America company. Cassidian also entered into an agreement with Saab AB to acquire the majority shareholding in South African EW specialist company, GrintekEwation
Continuing its advance into the Defense market, Embraer Defense and Security signed a contract to purchase 64.7 percent of the capital of the radar division of OrbiSat da Amazônia S.A.
Teledyne Technologies acquired a majority stake in camera electronics company Nova Research, while ON Semiconductor completed its acquisition of the CMOS Image Sensor Business Unit from Cypress Semiconductor.
Further analysis of the Defense industry including business news, contracts and new product launches during the month of March can be found in the Strategy Analytics report, Defense Electronics Industry Review: March 2011.
Despite the uncertain start to the year as Defense budgets were squeezed and/or finalized, Strategy Analytics expects the second quarter of the year to continue apace with the preceding one as the emphasis for electronics is maintained through the continued advancement of next generation radar, EW, communications and EO-IR technologies. Examples include the continued expansion in UAV use with export markets being opened up and their use application expanding to maritime surveillance (see Maritime Surveillance Expanding Electronic Systems Opportunity from UAVs) as well as upgrading more traditional platforms as exemplified by Raytheon delivering its 250th APG-79 active electronically scanned array (AESA) radar to Boeing for use on F/A-18E/F and EA-18G aircraft. Opportunities yet to be realized include the conclusion of the Indian M-MRCA (Medium Multi-Role Combat Aircraft) competition.