Rapid Fire: 2010-02-08

• NATO Ministerial: Gates pledges greater sharing of classified technology with allies; NATO chief calls for more resources to train Afghan army and police, while France agrees to send 80 more trainers.

• European defense ministers call for speedy conclusion to talks on troubled Airbus A400M military airlift program.

• The US Navy UCAS program receives $2 billion QDR push.

• US Army pays $253.3 million to service US Stryker vehicles around the world.

• Australia ready to OK final version of $547 million integrated HF communications system for armed forces.

• US Navy orders $122.5 million in spares and extra engine maintenance for V-22 Osprey.

• Obama administration beefs up missile defense budget. BMD report focuses on regional missile threats.

• Romania to allow US ballistic missile defense inceptor missiles to be deployed, following US cancellation of larger BMD deployments in Poland and the Czech Republic.

• Boeing gets $99.3 million order to supply 13 more AH-64D Block II helicopters to the US Army.

• Which defense firms will benefit from FY 2011 defense budget?

• Northrop Grumman feels Pentagon heat over KC-X aerial refueling tanker RFP.

• Taiwan’s order for Eurocopter EC225s could strain China-European Union relations – but hasn’t, so far.

• Asia-Pacific nations revamp their fighter inventories.

• DARPA has enlightened view on funding for ArcLight, a long-range strike weapon that could be launched using the MK 41 system onboard ships and subs.

• US military sends bomb-sniffing dogs to Iraq.

Rapid Fire 2010-02-05: QRD 2010

• US QDR 2010 (Quadrennial Defense Review) in bullet points. Plus, some questions to think about. And what about small business and innovation?

• US Army to spend $7 billion to develop replacement for cancelled FCS manned ground vehicles.

• Portuguese Institute of International Relations and Security (IPRIS) – Using BRIC to build at sea: The Brazil-China aircraft carrier agreement and shifting naval power [PDF].

Rapid Fire 2010-02-01: QDR 2010

• In the Quadrennial Defense Review 2010 the Pentagon seeks to rebalance the US military and to institutionalize DoD reforms.

• President Obama FY 2011 budget contains a record $708 billion in defense spending, including a 3.4% increase in the Pentagon’s base budget and $159 billion to fund US military missions in Iraq, Afghanistan and Pakistan, Reuters reports. At the same time, the Pentagon may be targeting at least 7 programs for cancellation.

Eurocopter Sees Civilian Slackening as Military Rises

EC725 SAR/SOF

Eurocopter recently reported its 2009 figures, and offered forecasts for 2010. While Robinson is far and away the leading global helicopter builder by numbers, Eurocopter is generally accepted as the #1 firm when measures include order value, competition across multiple major segments, etc. This makes their fate and forecasts an interesting bellwether for the sector.

In general, the global economic crisis has hammered the civil market for light helicopters, and the firm sees continuing weakness and further production scale-backs in 2010. On the other hand, the firm is seeing a significant uptick in military orders (48% of sales in 2009), thanks to the demands of counter-insurgency warfare, and the natural aging and replacement cycle drive new purchases around the world.

2009 civilian and military orders were placed for 344 production helicopters as follows:

Korea’s K21 KNIFV

Doosan K21 concept

South Korea is steadily becoming a force to be reckoned with in the global defense market. Its world-leading shipyards are successfully building and and delivering vessels that include KDX-III AEGIS destroyers and Dokdo Class LHD amphibious assault ships. Its aerospace firms are beginning to see orders from the ROKAF and beyond for trainer (KT-1, T-50) aircraft, are partnering with Eurocopter to create a new medium helicopter (KHP), and will soon offer a compelling lightweight fighter (F/A-50). On land, the indigenous K1A1 tank was followed by the XK-2 “Black Panther,” which was exported to Turkey as the Altay. The K9/K10 mobile howitzer offering is expected to grab a significant chunk of that global market over the next decade. Now, a modern Infantry Fighting Vehicle looks set to round out those offerings.

Doosan is a large Korean conglomerate, whose best known brand is probably Bobcat construction equipment. Other offerings range the gamut, including South Korea’s Kentucky Fried Chicken outlets, Doosan Feed agricultural supplies, franchised “Donga” private schools; and the new Doosan DST subsidiary, which manufactures the K21 KNIFV(Korea Next-generation Infantry Fighting Vehicle). October 2008 saw the first major order placed, and now the first deliveries have taken place…

• K21 KNIFV: Characteristics
  
• K21 KNIFV: Contracts and Key Events
  
• Additional Readings
  

Global Defense Technology & Systems Raises $36.3M in IPO

Global Defense Technology & Systems in McLean, VA raised net proceeds of $36.3 million in an initial public offering, which closed Nov 25/09.

A total of 4.6 million shares of common stock were sold at a price $13 per share. Of that amount, 3.0 million shares were sold by the company and 1.6 million shares were sold by unidentified stockholders. The company is listed on the Nasdaq under the ticker symbol GTEC.

Part of British firm Global Strategies Group, Global Defense Technology & Systems provides IT and C4ISR systems and services for the US Department of Defense and other US national security agencies…

MiG to Fold into UAC With Sukhoi?

MiG-35D

As Sukhoi’s SU-30 family of large, multi-role fighters has come to dominate Russian aircraft exports over the past decade, the positions of Sukhoi and MiG have reversed. Now MiG is the deeply secondary design bureau, and Sukhoi is the firm designing Russia’s flagship fighters. Russian weapons exports have risen sharply over the past 5 years, but the overall volume of orders for Russian manufacturers has plunged without the Soviet empire’s vast arms budget, network of dependent clients, and the global military tensions and warfare that accompanied its drive for expansion.

That has created serious trouble for RAC MiG. Their MiG 1.44 design lost to Sukhoi’s PAK-FA in the competition to become Russia’s future fighter, their MiG-AT lost the future trainer market to the Yakolev/Aermacchi Yak-130, and their flagship MiG-29 now struggles to find buyers on the international market, despite multi-role upgrades. India is buying about 45 MiG-29K aircraft for its aircraft carriers, and the omnidirectional thrust-vectoring MiG-29OVT/MiG-35 variant is a candidate in India’s 126-plane MMRCA competition, but sales elsewhere have been slow. Algeria’s cancellation of its $1.3 – 1.5 billion, 34 plane MiG-29 buy has hit the company hard on multiple fronts. Even Russia’s recent $615 million purchase of the 28 MiG-29SMT multi-role fighters from that deal will not solve the firm’s $1.5 billion in reported debts…

Rolls Royce to Shrink Workforce by 2,300

BR710 engine

At the end of November 2007, engine maker Rolls-Royce employed around 39,500 people in 50 countries: around 23,300 are employed in the UK, 8,300 in North America, 2,300 in Germany, 3,400 in the Nordic countries, 680 in Asia with an additional 2,000 working in joint ventures, and about 1,500 in the rest of the world. One of their managerial foci is the metric of sales per employee, and this has underpinned their approach in a number of areas, including investments in process controls and IT systems.

The firm is now negotiating with its employees and their unions with the aim of reducing 2,300 staff and management positions (about 5.8% of their workforce), focusing on overhead and support functions. The Independent is reporting that most of the job losses are expected to be in Britain, where executives hope to use voluntary buyouts. The firm says that it does not intend to lay off manufacturing employees, though a separate union/political battle is being fought over the proposed closure of the Merseyside, UK plant and relocation of its production to Mount Vernon, OH, USA. Rolls-Royce’s release said that the firm “will continue to recruit graduates, apprentices and those required directly to deliver growth.”

While the firm cites “external headwinds” like increasing raw material costs and the weak US dollar, the reductions are expected to have no net impact on the Group’s 2007 or 2008 performance, once all costs are factored in. The most likely explanation, therefore, appears to be the straightforward one of a corporation creating a leaner support structure and managing to its key metrics like productivity and sales per employee. Rolls Royce release | Reuters report | UPI report.

QinetiQ: The Men With the Golden IPO (updated)

By 2005, QinetiQ (pron. “kinetic”) was a vital UK defense research firm whose owners included the British government and The Carlyle Group. This was a transformation from its previous role as part of Britain’s DERA government research agency, but relations remain close and the firm is involved with a wide variety of UK defense projects. DID has covered a number of projects in which QinetiQ has been involved.

As a second step in line with the UK’s 1998 Strategic Review that pressed for the movement of defense research to the private sector, QinetiQ announced on January 12, 2006 that it was headed for an IPO. Each of the current owners would sell a part of their holding in connection with the Global Offer, which was originally expected to raise gross primary proceeds of about GBP 150 million for the MoD, plus significant secondary proceeds from the sales by the MOD and the Carlyle shareholders.

The IPO ended up raising over GBP 600 million from a partial sale of shares, but now a recent NAO report concerning has ignited sharp political controversy…

Another $7 billion in Share Buybacks for Boeing

The Boeing Company board of directors has just approved a new repurchase plan for up to $7 billion of common stock, above and beyond the $8 billion invested in this area since resuming repurchases during 2004. This includes the $3 billion buy back that the board approved in August 2006, which is nearing completion.

Boeing Chairman, President, and Chief Executive Jim McNerney said that “We are executing a balanced cash deployment strategy that’s serving Boeing and its shareholders well.” The next wave of share repurchases will be made on the open market or in privately negotiated transactions.

Share buybacks seem to be popular in the industry, and it can be useful for our readers to understand them better. Investopedia has a very solid, very readable explanation of share buybacks and the accompanying shareholder positives and negatives. Once you’ve read that, the McKinsey Quaerterly’s September 2005 article “The Value of Share Buybacks” is an excellent next step for the larger corporate perspective. The money paragraph?

“Companies shouldn’t confuse the value created by returning cash to shareholders with the value created by actual operational improvements. After all, the market doesn’t.”