Defense giants are keeping close watch on the rapidly progressing conflict between Israel and Hamas, with expectations that it and other wars around the world will boost business.
In third-quarter earnings calls this week, investors asked about “opportunities” that could result from increased spending on national security as the Pentagon tries to arm Israel, Ukraine, and Taiwan all at the same time. RTX CEO Greg Hayes said, “The elevated threat environment is continuing to drive increased defense spending globally.”
While execs touted a positive outlook for defense spending, it remains to be seen if the industrial base can keep up with the high demand for weapons while replenishing stockpiles. For example, the Pentagon has reportedly decided to give Israel thousands of 155mm artillery shells once slated for Ukraine.
Company leaders sounded confident that Congress would pass the White House’s $105 billion supplemental budget request, which asks for more funding for Ukraine and Israel, along with purchases from U.S. companies.
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Here are some highlights from third-quarter earnings calls:
Submarine supply chain still weak
The supply chain for submarine parts remains “very fragile” and industry has “a lot of work” to do to get back up to producing two subs a year, said General Dynamics CFO Jason Aiken. The sub-builder said they’re still trying to get on track post-COVID, and face a tough road ahead to reach the Navy’s goal of building two Virginia-class submarines per year while simultaneously working on Columbia-class.
What will help GD reach a two-boat-per-year cadence? Aiken said it comes down to maturing new members of the workforce, getting industrial base investments from the Navy, and “strategic sourcing,” aka moving subsystem construction into other facilities to take the pressure off of the two main production yards. “I’d be remiss to try and give you a timeline on when it’s going to be to get there. This is long-term challenging stuff. But I think with us and our partner and the Navy all working in the same direction and in a very strong partnership, I feel optimistic about our path to get there,” Aiken said.
Boeing losses top $2.4B on Air Force One program
Fixed-price contracts continue to drag down Boeing, which announced a fresh loss on the VC-25B program. The new presidential jets were the largest contributor to the company’s losses in its defense sector, which totaled $924 million this quarter. Boeing said these are “disappointing results” but that the company has a plan to get its defense programs back on track. “As you know, part of the challenge we’re dealing with are legacy contracts that we need to get out from under. Rest assured, we haven’t signed any fixed-price development contracts, nor intend to. These moves are all fundamental to accelerating the recovery by the ’25-26 timeframe,” said CFO Brian West.
The airplane giant is also looking into hacking claims by cybercrime group Lockbit, which posted a countdown clock on its website alleging that it stole sensitive information from Boeing. The company has until Nov. 2 to pay a ransom, Fox Business reported.
Lockheed’s “campaign-like” hunt for a rocket motor builder of its own
Lockheed Martin is in “negotiations and discussions” with a new potential supplier of rocket motors, CEO Jim Taiclet said recently. Lockheed has not yet said who they’re in discussions with, but that they have a long-term plan to build another source for solid rocket motors. “This is not a one-time objective. This is a broad, in a way campaign-like, approach to strengthening our own supply chain and enabling multiple sources really for even beyond our company, for our industry, which I think is important,” Taiclet said. There are currently two main rocket motor manufacturers in the U.S.: Northrop Grumman and Aerojet Rocketdyne, which was bought by L3Harris.
More news:
New RTX-Rafael facility
Raytheon and Rafael say they will build a facility in East Camden, Arkansas, to produce the Tamir missile for the Iron Dome defense system and its U.S. variant, SkyHunter. Israel has been using the system to down incoming rockets since 2011; the U.S. Marine Corps is buying it for its Medium Range Intercept Capability, or MRIC, program. The companies plan to start construction on the facility before the end of the year and begin missile production in 2025.
US orders 38 Northrop satellites
Northrop Grumman nabbed a $732 million contract to build 38 satellites for the Proliferated Warfighter Space Architecture, the Pentagon’s vision for a next-gen data network in low Earth orbit. Northrop said the satellites are scheduled to start launching in December 2026. Between Northrop and York Space Systems, the Space Development Agency has awarded $1.3 billion in contracts for satellites in its Tranche 2 Transport Layer’s “Alpha variant.”
Air Force’s spectrum wing has begun standing up electronic warfare units
The 350th Spectrum Warfare Wing, based at Eglin Air Force Base, Fla., stood up two groups at Robins Air Force Base on Oct. 25—both of which will soon become a part of a new group. Lt. Col. Ryan Cox will lead both detachments, which are to harden the Air Force’s EW systems and processes for conflict; they are to become part of the planned 950th Spectrum Warfare Group when it stands up in 2027.
Making Moves
- HII named Paul Tennant, retired British Army brigadier, its corporate vice president of engagement and international government relations. Tennant will also work on international initiatives, such as AUKUS. He previously worked as the defense adviser for the U.K. to Canada, “where he was responsible for oversight of the defense relationship between the two countries.”
- Anduril hired Keith Flynn to oversee manufacturing operations for the company. Flynn’s two decades in manufacturing and engineering include leadership roles at Tesla and autonomous trucking startup Starsky Robotics.
- Geospatial intelligence company Maxar has named Dan Smoot to be its new CEO. Smoot was previously the CEO Riverbed Technology, an IT company. His first day leading Maxar is Nov. 6. Interim CEO Daniel Jablonsky will move to the board of directors.
