August 26, 2011 § Leave a comment
By W.J. Hennigan, Los Angeles Times
Published: 25 August 2011
In another blow to Southern California’s defense industry, aerospace giant Northrop Grumman Corp. said it is cutting 500 jobs in its aerospace division in anticipation of a slowdown in Pentagon spending.
The company began offering a voluntary buyout program Thursday but said layoffs would ensue if fewer than 500 people agree to leave before Oct. 28.
This is the second time in less than a year that Northrop’s operations in Southern California — home to the vast majority of the 23,000 employees in its aerospace division — has experienced job losses.
The news comes the same week Northrop moved its corporate headquarters from Century City to Falls Church, Va., sending 300 of its employees and high-ranking executives to the East Coast in the process.
“This action is being taken because of defense budget uncertainties and pressures on current and projected business,” Northrop spokesman Jim Hart said in a statement. “We must adjust our budgets by the end of this year to be prepared to meet the challenges of what shapes up as a demanding 2012. This is a necessary step to address the affordability that will allow us to effectively compete in a very cost-conscious marketplace.”
The broader aerospace industry has been downsizing to reflect new budget realities in Washington, where Congress has tightened purse strings on the Pentagon.
After growing by double digits every year since the Sept. 11, 2001, terrorist attacks, military spending is now expected to be reduced by hundreds of billions of dollars over the next decade.
The new budget realities have especially stung Southern California’s aerospace industry.
Last September, Northrop eliminated 500 jobs in its aerospace division. In January, Boeing Co. said it was cutting 900 of the 3,700 jobs at its sprawling Long Beach plant, where it builds C-17 cargo jets. In June, Lockheed Martin Corp. announced that it was cutting about 1,500 positions across its aeronautics business, including jobs in California.
“Those are very good, well-paying jobs being lost,” said Nancy Sidhu, chief economist for the Los Angeles County Economic Development Corp. “The workforce can expect these sort of nips and tucks around the edges until specific programs are singled out and canceled.”
Northrop has 23,000 employees in its aerospace division; about 18,000 of them work in California. The company’s engineers and technicians are located primarily in the Southland, where they design and produce center fuselages for F/A-18 fighter jets in El Segundo and satellites in Redondo Beach.
The company also has a large operation in Palmdale, where it built the B-2 stealth bomber. That’s where it now builds center fuselages for the upcoming radar-evading F-35 fighter jets, which will be used by the Navy, Marine Corps and Air Force.
The company has aerospace workers in Mojave, Rancho Bernardo and Goleta, Calif., as well.
Northrop has about 75,000 employees scattered across the globe, developing and building weapons and high-tech equipment that touch practically every aspect of U.S. military and intelligence operations.
August 24, 2011 § Leave a comment
By Marion Blakey
Published: 22 August 2011
When Secretary Panetta visited troops in Afghanistan and Iraq last month, press reports heralded his “rough and tumble” rhetoric and “salty” exchanges with the troops. But beneath these lighthearted personal moments lies a serious truth: short of the president, no one bears greater responsibility for the safety and well being of our military volunteers than the secretary of defense. In a time of expanding missions, shrinking budgets, and the prospect of hundreds of billions of “Super Committee” cuts waiting in the wings, those responsibilities must lie heavy on the secretary’s brow.
Fortunately, this is not Secretary Panetta’s first time in the budgetary rodeo. He has a well-earned reputation as a tough budgeteer, earned from his tenure as chairman of the House Budget Committee and as director of the Office of Management and Budget. So when he warns that Congress is looking at “doomsday” cuts, America would be wise to listen.
As Secretary Panetta has dug into the numbers at the Pentagon he has undoubtedly seen disturbing news about our military readiness. After more than a decade of war upon war, our forces are showing signs of wear. The Navy has fewer ships than at any time since 1916, and the Air Force inventory is smaller and older than ever. The mission capable rate for our bomber fleet is a startling 60 percent.
While troops abroad have been doing their best with aging equipment – much of which was designed in the 1970s and 80s – factories at home have grown quieter and quieter. Since the end of the Cold War, the Pentagon has reduced the number of weapons systems it has bought and program starts have become fewer and further apart. In 2010, for the first time in 100 years, the United States had no manned military aircraft in design. Forty-nine military aircraft programs were underway in the 1950s, seven in the 1980s and three in the 1990s. Today, looking beyond the F-35, there are none – with the possible exception of a long-range bomber that is not yet approved for development.
Investment in procurement and research and development drive U.S. technological superiority and give our troops an unparalleled advantage on the battlefield. They help ensure our national security and employ approximately 800,000 workers and support 2 million indirect jobs, as well as one of the only dependable U.S. trade surpluses. They’re the reason an American fighter jet can destroy an adversary before it even appears on the horizon; why our troops can use unmanned drone aircraft to spot Taliban insurgents in the act of planting roadside bombs; and why medics in cargo aircraft equipped as flying hospitals can save lives on the way from the Middle East combat zone to hospitals in Germany. And they are also a big part of why the U.S. aerospace industry has consistently been first to roll out next-generation technologies from the U-2 to stealth to unmanned aircraft.
Right now the Pentagon’s investment budget makes up less than a third of total defense outlays, but as the congressional debt committee begins its work, these R&D and procurement accounts will likely end up in the crosshairs, as other savings like troop drawdowns and entitlement reform will be politically sensitive and will take longer to implement.
The strident calls for defense budget cuts from many quarters of the political spectrum give a false credence to the idea that our Defense Department budget can easily bear another rounds of cuts. But despite preconceptions of a bloated Pentagon, the defense budget is historically low as a percentage of overall federal spending, amounting to only 16 percent of the budget compared to roughly 40 percent three decades ago. Former Secretary Gates already cut most of the fat (and possibly some muscle) out of the department, canceling $300 billion in modernization programs and wringing almost $200 billion more in efficiencies and other savings out of the Pentagon bureaucracy. These cuts, he warned, already mean “we will be able to go fewer places and do fewer things;” another round of overly deep reductions he cautioned would be “catastrophic.”
Further savings may be possible by reforming our troop structure and rationalizing military health care and similar programs; however, such changes will require careful management and deliberation, not indiscriminate cuts based on budget numbers that seem drawn from a hat. Defense Secretary Panetta warned against the automatic cuts in the second phase of the debt ceiling deal, saying, “If they do the sequester, this kind of massive cut across the board which would literally double the number of cuts that we’re confronting, that would have devastating effects on our national defense.”
No one disputes that debt reduction is critical to our long-term security. However, it’s hard to see how another major round of national security cuts can be made without putting critical capabilities and missions at risk. The president seems to share Panetta’s doubts. At his July 15 press briefing President Obama acknowledged that as commander-in-chief he has huge responsibilities that can’t be ignored, apparently rejecting earlier proposals to cut another trillion dollars from defense.
AIA released a report recently that examined the historical ebb and flow of defense investment. Defense Investment: Finding the Right Balance makes the case that 35 percent of the base defense budget (excluding the war costs) should be devoted to forward-looking investment to defend future American generations. This includes spending approximately $90,000 to $100,000 per service member – an accepted standard – with the addition of the necessary R&D funding.
And while today’s current investment funding approaches that level, past experience shows that, as conflicts wind down, investment funding does too. We saw this after World War II, Korea and Viet Nam. A repeat of that scenario would leave our troops vulnerable to rising threats and make it impossible to replace equipment worn down from a decade of combat in brutal desert conditions.
In fact, the risks are even greater today because of the precarious state of our overall aerospace and defense industrial base. The fact that there are fewer new program starts and there are no new manned military aircraft – including rotorcraft – in design is very frankly alarming. Dozens of modernization programs have been shut down in recent years, putting expertise and industrial capabilities built up through generations of investment at risk. This comes on top of devastating layoffs in our space sectors with the retirement of the shuttle program and the lack of funding and consensus to move forward quickly with the next steps in space. This combined loss of unique aerospace engineering will-if not addressed- lead to the withering of capability and an atrophied workforce that’s no longer able to remain the global leader in technological innovation. Other countries are already challenging the United States as the world leader in aerospace and defense, which raises grave risks for the technological edge that our military enjoys today.
DoD is aware of this issue and is conducting a detailed review of the industrial base. The Pentagon, however, hasn’t asked for input from all of industry on the review. We believe that including detailed information about plant equipment, technology investment, workforce size and capabilities and other issues could help the Pentagon plan its investments to save money and critical high-tech jobs.
While Washington has revolved around the issues of spending and debt in recent months, one word has been strikingly absent from the debate: strategy. What is our national security strategy and what capabilities does that strategy require? If we answer those questions and then drive the budget to meet those answers, everything else will follow, but right now we’ve strayed far from that approach and Congress seems to approach the defense budget as if it were a grocery list to pick and choose from, with no consequences beyond whether or not the country has chocolate or vanilla ice cream for dessert. And we know that’s just not the case.
As the debt talks resume this fall, it will be Secretary Panetta’s challenge to insist on clear answers to these fundamental strategy questions before further national security cuts are made. Considering the stakes – for our foreign policy, national security, U.S. jobs and the fragile economy – the troops fighting overseas and their families back home will train the keenest eyes on the debate. After all, they are the ones taking the risks; they are the ones that must live with the consequences.
Marion Blakey, the newest member of the AOL Defense Board of Contributors, leads the Aerospace Industries Association. The first woman to head the FAA, Blakey held four senior government posts before joining AIA.
August 23, 2011 § Leave a comment
By Dag Potter
Published: 21 August 2011
Most of the large and mid-sized defense contractors reported their most recent quarterly results in the last few weeks. While for the quarter the results were mixed with some seeing decent increases in earnings and revenue while others saw a drop overall they all felt that they would meet or exceed their estimates for the full year. The 2011 defense budget still remained high due to the extra spending for Afghanistan and Iraq as well as investment in some major weapon systems. The 2012 budget is working its way through Congress and will see some reductions based on proposals by the Services as well as Congress’ directed cuts but overall will be about the same as 2011. Spending beyond that could be considerably reduced based on the new debt reduction “super committee” as well as the pressure to decrease overall Federal deficits.
As the focus of the defense budget changes from paying for the troops in Afghanistan and Iraq and the equipment and supplies they need to invest in new systems to replace older one or achieve new technologies some defense contractors will prosper over others. If the discussed defense cuts are followed through and amounts vary from $35 billion to $70 billion a year from a $700 billion budget then some major programs will be canceled, the size of the military will decrease greatly and parts of the defense industry in the U.S. will disappear. This will either be through M&A activity or just loss of contracts causing companies to fold up.
There have already been moves by the larger defense contractors to adjust to the potential changes in how the U.S. Defense Department spends its money. ITT Corporation (ITT) has decided to split yet again into three different companies basically separating their flat performing defense business from more successful water and chip manufacturing areas. (http://technorati.com/business/finance/article/itt-continues-to-make-money-off1/) L-3 Communications Holding (L3) while it had a good quarter announced that it too was spinning off part of itself to adjust to what it sees as the future in the U.S. It is setting up its Scientific, Engineering, Technical and Analytical (SETA) business as a new company. SETA contractors support government offices most often in acquisition and research and development. Many of these positions were converted to government positions and new Organizational Conflict of Interest (OCI) rules prevent companies that provide SETA services to also bid on large hardware programs. L-3 is adjusting by getting out of the business.
Perhaps the biggest adjustment was by Northrop Grumman (NOC) who moved to separate their entire shipbuilding segment earlier this year. Rather then sell it to one of their competitors they set up a new company entirely, Huntington Ingalls Industries (HII). This was in realization that future U.S. Navy shipbuilding plans were so limited it could not necessarily support the current number of shipyards in the U.S. HII has already moved to close its yard in Louisiana with significant effect on the local economy.
Other companies have moved out to use M&A to position themselves. Many of the larger companies such as Boeing (BA) and Lockheed Martin (LMT) have been buying intelligence and cyber security companies to expand their opportunities. General Dynamics (GD) earlier this week made a big move by spending almost $1 billion on a health IT company. With the focus on health care reform including improvements in record keeping and storage IT may become a big source of business for government contractors. The company, Vangent, which was privately held also just completed a large contract with the Census Bureau that should be offered again in a few years.
The U.S. military is pursuing some large programs over the next decade. These if they are canceled or cut back will have the largest effect on revenues and earnings. For Lockheed Martin it is the F-35 Joint Strike Fighter that is finally moving towards large scale production. A reduction in planned quantities will severely affect that company. For Boeing it is the KC-46A new aerial tanker as the Air Force plans to buy at least 179 initially at a cost of over $30 billion. General Dynamics has major ship and submarine construction programs and the Navy if it cuts these will limit GD’s future performance.
Right now the next several months should see major defense contractors maintain their revenues and earnings except in odd cases where contracts are restructured or ending. Once the 2012 budget is decided upon that will give an indication of how next year will be. Then 2013 and out should start to see some cuts in defense spending with similar effect on the companies. It can be expected that there will be a decrease in performance accelerating if severe cuts are made by the United States. The ability of the contractors to move to different business areas in response to these cuts will dictate how badly they are affected. All indications are right now that this sector will struggle in the next few years to maintain what they have let alone growing it even more. There may be more moves coming similar to those by Northrop, ITT and L-3.
August 22, 2011 § Leave a comment
By The Associated Press
Published: 22 August 2011
LONDON — Britain’s Royal Air Force is ordering 14 new Chinook helicopters from Boeing Co., at a total cost of 1 billion pounds ($1.6 billion).
The Ministry of Defense says the deal will bring Britain’s fleet of the heavy-lifting helicopters to 60, the largest in Europe.
The contract includes development, building and five years of support.
The helicopters have played a major role transporting troops and equipment in Afghanistan, where Britain has some 9,000 troops.
Military chiefs are worried about cuts to the defense budget as 80 billion pounds ($130 billion) is trimmed over the next four years.
But Defense Secretary Liam, Fox said Monday that the government “is committed to delivering a top class equipment program that is properly funded.”
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
August 16, 2011 § Leave a comment
By Philip Ewing Monday, August 15th, 2011 8:48 am
American officials may have decided once and for all not to sell a batch of new F-16Cs and Ds to Taiwan, although they could go forward with an upgrade program for the Vipers that it already has, Wendell Minnick reports in Defense News. The prospect of the F-16 sale has come up and been kicked down the road several times, as there never seems to be an opportune moment at which the U.S. is willing to absorb the blowback from Beijing that would accompany this sale.
Writing from Taipei, here’s how Minnick broke it down:
A U.S. Department of Defense delegation arrived here last week to deliver the news and offer instead a retrofit package for older F-16A/Bs that includes an active electronically scanned array (AESA) radar. The visit coincided with the biennial Taipei Aerospace and Defense Technology Exhibition (TADTE), held here Aug. 11–14.
“The U.S. Pentagon is here explaining what is in the upgrade package,” a U.S. defense industry source said at TADTE. “They are going to split the baby: no C/Ds, but the A/B upgrade is going forward.” Sources said an official announcement of the decision is expected by month’s end.
But an official at the American Institute in Taiwan (AIT), the de facto U.S. Embassy, said “no decisions have been made,” while DoD officials declined to comment on their delegation’s mission. The proposed upgrade package would make the 146 Taiwanese F-16A/Bs among the most capable variants of the aircraft, perhaps second only to the APG-80 AESA-equipped F-16E/Fs flown by the United Arab Emirates.
Originally requested by Taipei in 2009, the package would cost $4.2 billion, sources at TADTE said. The new gear would include an AESA radar, likely either Northrop Grumman’s Scalable Agile Beam Radar or the Raytheon Advanced Combat Radar, to replace the planes’ current APG-66(V)3 radar.
Either one would be an improvement on the Northrop APG-68(V)9 mechanical radar once contemplated for Taiwan’s upgrade package. The switch is meant to soften the blow of denying new planes to Taipei, a Lockheed Martin source said.
American military support for Taiwan makes mainland Chinese leaders flip out. We’ve seen before how the commander of the Peoples’ Liberation Army kept up an official fantasy about how Taiwan is just another Chinese province and so it “confuses” him as to why it would need to buy arms from the United States or elsewhere. But China is America’s biggest creditor, and given Washington’s inability to do … anything … about the woeful state of its finances, someone somewhere decided it was wise not to give Beijing anything else to be upset about. So this F-16 sale is going away.
This hasn’t just disappointed Taiwan. There’s a little mom and pop company called Lockheed Martin involved here, too, and as Minnick writes, no new-build F-16s for Taiwan could bring Lockheed closer to shuttering its Viper production line for good:
[Lockheed spokeswoman Laura] Siebert said the failure to release F-16C/Ds will weaken Lockheed Martin’s plans to extend the production line for the fighter.
“While Congress has been notified of Oman and Iraq’s desire for F-16s, the Taiwan order for 66 aircraft is very important to the long-term viability of the F-16 production to include the U.S. Air Force, Lockheed Martin and the thousands of suppliers throughout the U.S.,” she said.
More than a few TADTE attendees said the Obama administration might reverse the decision as the 2012 presidential election approaches and political pressure for new jobs builds.
A June report by the Perryman Group, a Texas-based economic and financial analysis firm, estimated that Taiwan’s F-16C/D program would create more than 16,000 jobs and almost $768 million in U.S. federal tax revenue. Much of that tax revenue and new jobs would go to election battleground states: California, Connecticut, Florida, Maryland, Ohio, Texas and Utah.
But China holds about 8 percent of U.S. debt, the largest block in foreign hands. As one TADTE attendee said, “Beijing’s Kung Fu is better than Washington’s.”
Welcome to another week in Austerity America.
August 15, 2011 § Leave a comment
By Peter Gardett, August 15, 2011
The next generation of smart grid may be deployed first by the military.
The Department of Defense is the largest energy consumer in the US, and is facing many of the same challenges as the rest of the country with aging infrastructure and an increasing need to use renewable fuels. As the forces become more serious about meeting those challenges, their contractors are rushing to help them.
Most major industrial and technology firms have some contractual history with the US government, but few have the depth and breadth of experience and contacts within the Defense Department that Boeing does. But Boeing is not an energy company by specialization, especially when it comes to smart grid deployment, so the firm has turned to German-based, but increasingly US-invested, Siemens to partner with it on meeting the Department of Defense’s ambitious energy goals.
To read more about Siemens’ extensive investment in the US energy business, read CEO Peter Loescher’s editorial for AOL Energy on the company’s increased US manufacturing presence. For more on Siemens’ predominant position in its home market, see our article on Germany’s lead in wind energy.
The two firms have already partnered on various projects, but their focus in the coming months will be on jointly bidding for micro-grid installations at Defense Department installations. The firms will be replacing 25-30 year-old energy infrastructure without communications functionality, and in the next few months will already begin delivering “architectures and standards” on the proposed small-scale smart grids, Siemens US federal business head Judi Marks said on a call announcing the partnership today.
The defense projects are potentially central to wider commercial application of smart grid across the US, Boeing Energy VP Tim Noonan said on the same call. Defense is “a potential test bed” to commercialize products and processes, he said.
The two companies have been working together toward the partnership for roughly a year now, the executives said, and initial resources from each firm include dedicated personnel and technology.
While the initial contracts the partnership will serve are on the small side, experience in the overlap of defense and energy could pay off with access to much larger contracts, both executives said. Marks cited $20 billion in energy spending by the Department of Defense each year, with $4 billion at their own facilities alone.
August 15, 2011 § Leave a comment
By Gloria Towolawi, August 15, 2011
Houston, TX: The U.S. Department of Labor’s Office of Federal Contract Compliance Programs is considering the development of a new data tool to collect information on salaries, wages and other benefits paid to employees of federal contractors and subcontractors. The tool would improve OFCCP’s ability to gather data that could be analyzed for indicators of discrimination, such as disparities faced by female and minority workers.
To provide an opportunity for the public to submit feedback, the proposal will be open to public response for 60 days, and the deadline for receiving comments is Oct. 11. To read the proposal or submit a comment, visit the federal e-rulemaking portal at http://www.regulations.gov.
OFCCP enforces Executive Order 11246, which prohibits companies that do business with the federal government from discriminating in employment practices — including compensation — on the basis of sex, race, color, national origin or religion. Last year, the agency announced plans to create a compensation data tool in the department’s fall 2010 regulatory agenda. In addition to providing OFCCP investigators with insight into potential pay discrimination warranting further review, the proposed tool would provide a self-assessment element to help employers evaluate the effects of their compensation practices.
Secretary of Labor Hilda L. Solis said, “Almost 50 years after the Equal Pay Act became law, the wage gap has narrowed, but not nearly enough. The president and I are committed to ending pay discrimination once and for all.”
The Labor Department’s Bureau of Labor Statistics reports that in 2010 women were paid an average of 77 cents for every dollar paid to men. In addition to the gender gap, research has shown that race- and ethnicity-based pay gaps put workers of color, including men, at a disadvantage. Eliminating compensation-based discrimination is a top priority for OFCCP.
According to OFCCP Director Patricia A. Shiu, who is also a member of the president’s National Equal Pay Enforcement Task Force, “Pay discrimination continues to plague women and people of color in the workforce. This proposal is about gathering better data, which will allow us to focus our enforcement resources where they are most needed. We can’t truly solve this problem until we can see it, measure it and put dollar figures on it.”
The notice poses 15 questions for public response on the types of data that should be requested, the scope of information OFCCP should seek, how the data should be collected, how the data should be used, what the tool should look like, which contractors should be required to submit compensation data and how the tool might create potential burdens for small businesses.
In addition to Executive Order 11246, OFCCP’s legal authority exists under Section 503 of the Rehabilitation Act of 1973 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974. As amended, these three laws hold those who do business with the federal government, both contractors and subcontractors, to the fair and reasonable standard that they not discriminate in employment on the basis of sex, race, color, religion, national origin, disability or status as a protected veteran. For general information, call OFCCP’s toll-free helpline at 800-397-6251.