Defense Market

Rolls-Royce has released a press release with forecast of the world demand for turbine helicopters for the period 2010 – 2019. We have organized Rolls Royce’s data into the following table (Engine deliveries in units – our estimate derived from Rolls Royce’s forecast):

Here is an excerpt from the Rolls-Royce’s press release:

“Rolls-Royce projects deliveries of more than 16,400 new turbine helicopters valued at $146 billion during the 2010-2019 forecast horizon. These helicopters will require approximately 26,000 new turbine engines valued at around $12 billion.

The civil market will experience modest unit growth, especially in new entry-level turbine helicopters. Rolls-Royce forecasts around 10,300 civil helicopters to be delivered during the ten year period with an overall airframe value estimated at $38 billion and associated engine value of $4.2 billion.

Military original equipment manufacturer (OEM) deliveries are predicted to total approximately 6,100 new military helicopters during the ten year period, with an airframe value of approximately $108 billion and an associated installed engine value of around $7.7 billion.”

The Directed Energy Weapons business line of Textron Defense Systems has successfully tested its Joint High-Power Solid State Laser (J-HPSSL) laboratory demonstration device at average power levels in excess of 100 kilowatts. The J-HPSSL program is funded by the Joint Technology Office under contract with the U.S. Army Space & Missile Defense Command.

L-3 Communications has announced acquisition of Insight Technology, manufacturer of mission critical night vision and electro-optical equipment including laser aiming and illumination devices, laser rangefinders, laser markers and designators, night vision goggles and monoculars, and thermal imaging systems. Insight’s products are used by the U.S. military, federal law enforcement agencies and allied nations. Insight is expected to generate approximately $290 million of sales for the twelve months ending December 31, 2010.

Proposed defense budget of $708 billion for fiscal 2011 has been sent to Congress today. The budget request for the Department of Defense (DoD) includes $549 billion in discretionary budget authority to fund base defense programs and $159 billion to support overseas contingency operations (OCO), primarily in Afghanistan and Iraq. This proposal continues the reform agenda established in last year’s DoD budget request and builds on the initiatives identified by the 2010 Quadrennial Defense Review (QDR) and 2010 Ballistic Missile Defense Review (BMDR).

The 2010 Quadrennial Defense Review examines DoD strategies and priorities. It assesses the threats and challenges that the nation faces and re-balances DoD’s strategies, capabilities, and forces to ensure the U.S. military has the flexibility to address today’s conflicts and tomorrow’s threats. The Ballistic Missile Defense Review evaluates the ballistic missile threat to the U.S. and its allies and articulates policy. It determines the appropriate role of ballistic missile defense in the country’s national security and military strategies.

The fiscal 2011 base budget request represents an increase of $18 billion over the $531 billion enacted for fiscal 2010. This is an increase of 3.4 percent, or 1.8 percent real growth after adjusting for inflation. The fiscal 2011 OCO request will provide additional resources needed to sustain U.S. forces in Operation Enduring Freedom – in Afghanistan and elsewhere – and Operation Iraqi Freedom. Included are funds for pay and benefits, logistics and other support, force protection, continuing efforts to counteract improvised explosive devices, as well as funding to fully support the buildup in Afghanistan and to carry out a responsible drawdown in Iraq.

Also accompanying the 2011 budget proposal is a fiscal 2010 supplemental request of $33 billion to support the added costs of the President’s new strategy in Afghanistan and strengthen U.S. force levels with approximately 30,000 additional troops.

Key highlights of the proposed DoD budget are outlined in the attached summary and charts. For more information download the FY 2011 Budget Request Overview Book and Program Acquisition Costs by Weapons System.

UAV spending will more than double over the next decade from current worldwide UAV expenditures of $4.9 billion annually to $11.5 billion, totaling just over $80 billion in the next ten years – these are findings of Teal Group’s 2010 market study. The study suggests that the U.S. will account for 76% of the worldwide RDT&E spending on UAV technology over the next decade, and about 58% of the procurement. The 2010 study also provides 10-year funding and production forecasts for a wide range of UAV payloads, including Electro-Optic/Infrared Sensors, Synthetic Aperture Radars (SARs), SIGINT and EW Systems, C4I Systems, and CBRN Sensors, worth almost $3 billion in Fiscal Year 2010 and forecast to increase to nearly $6 billion in Fiscal Year 2019.

“Our dominance in conventional warfare has led adversaries to seek new avenues to challenge us,” William J. Lynn, Deputy Defense Secretary, told military and civilian attendees at the Institute for Foreign Policy Analysis-Fletcher Conference on National Security Strategy and Policy. The nature of armed conflict, Lynn said, has changed since the Cold War era, when military doctrine was developed to deal with an envisioned clash of massed conventional air and land forces on European battlefields. Today, insurgents in Afghanistan and Iraq employ low-tech improvised explosive devices “that penetrate even the most heavily defended armor,” Lynn said, while terrorists and rogue nations seek to acquire weapons of mass destruction. However, the U.S. military is employing new methods and technology to meet asymmetrical challenges, he said, pointing to the increased use of unmanned aerial vehicles in those theaters of operation.

For example, UAVs fitted with cameras can identify and track insurgent activities, such as the placing of roadside bombs. And, unmanned aerial platforms also can employ missiles to attack the enemy, while space-based satellites provide added intelligence information.

“Because of a significant investment in intelligence surveillance, surveillance and reconnaissance [capabilities], commanders receive actionable intelligence in minutes rather than in hours,” Lynn said. “Unmanned aircraft now combine surveillance with attack abilities.”

The rapid development and fielding of unmanned aerial systems to combat zones, he said, exemplifies “one of many shifts we have taken across the department to focus our resources on the wars we are fighting and the new threats that we face.”

AAI Corporation, an operating unit of Textron Systems, is expanding its fee-for-service unmanned aircraft systems (UAS) capabilities for U.S. Department of Defense (DoD) customers, as well as civil and scientific organizations. Fee-for-Service model covers everything from systems to total life cycle support, training and in-field services. Contractor-owned, contractor-operated UAS services allow customers to secure just the data they require, even under a wide variety of operational conditions, without incurring the personnel cost or equipment, training and maintenance investment demanded by a UAS fleet.

Customers, including NASA, the U.S. National Oceanic and Atmospheric Administration, the University of Colorado and Australia’s Defense Science and Technology Organisation, have benefited from thousands of fee-for-service flight hours using AAI’s fleet of Aerosonde small unmanned aircraft systems. Most recently, the University of Colorado outfitted the Aerosonde Mark 4 aircraft with specialized instruments to capture extensive data on coastal winds in Antarctica. Despite heavy winds and temperatures as low as -38 degrees Celsius, four Aerosonde aircraft logged more than 130 flight hours and flew nearly 7,000 miles during their 16 flights. These aircraft also have proved their robust design amid desert sands, Arctic chill and dangerous, hurricane-force winds.

General Dynamics Electric Boat has been awarded a $118 million contract modification by the U.S. Navy to continue concept studies, engineering and design of a Common Missile Compartment for the United Kingdom’s Successor ballistic-missile submarine and the U.S. Ohio replacement submarine. Electric Boat is a wholly owned subsidiary of General Dynamics (GD).

The award modifies a $76 million contract announced in December 2008 for engineering, technical services, concept studies and design of a Common Missile Compartment for the next-generation ballistic missile submarines under development for the Royal Navy and the U.S. Navy.If all options are exercised and funded, the overall contract would have a value of more than $600 million.

CACI International Inc signed an agreement to acquire SystemWare, Inc. SystemWare designs, manufactures, and provides state-of-the-art signals acquisition and analysis systems that enable users to monitor and detect cybersecurity and physical security vulnerabilities and enhance operational security. Founded in 1988, SystemWare is headquartered in Camarillo, California, near CACI’s Oxnard facility, with East Coast operations directed from Elkridge, Maryland, where CACI also has a strong presence. More than half of the company’s employees hold Secret-level security clearances and above, and its clientele includes the Department of Defense (DoD), the Intelligence Community, federal civilian agencies, and U.S. allies. SystemWare solutions include proprietary technologies that combine advanced software and analytical toolsets with cutting-edge, customizable hardware configurations to deliver industry-leading counterintelligence systems. Its quality management system has been awarded ISO 90002:2000 certification, assuring clients of high-quality software development. SystemWare’s revenue in calendar year 2009 was $16 million. The acquisition is expected to be accretive to CACI’s earnings per share during its first 12 months.

In late 2009, BAE Systems partnered with the National Oceanic and Atmospheric Administration to complete the first test flight of the Coyote unmanned aircraft system. The Coyote deployed, as designed, from a 3-foot-long sonobuoy dropped from a P-3 aircraft. The test marked a significant milestone in the development of the system for military uses and scientific research. NOAA says the Coyote demonstrated potential to provide researchers with valuable observations during high-wind environments, such as hurricanes and tropical storms.

The Coyote is a small, electric-powered unmanned aircraft system. Initially designed with funding from the U.S. Navy, it weighs only 13 pounds and has a 58-inch wingspan. Once deployed, it can cruise faster than 60 knots for more than an hour, conducting research or performing intelligence, surveillance, and reconnaissance missions.

Deloitte’s latest Aerospace and Defense (A&D) industry outlook report finds that, by comparison to 2008, 2009 was both uneven and not nearly as good a year.

According to the Deloitte report, merger and acquisition activity in the A&D sector in 2010 will likely accelerate. Consolidation among suppliers will result in benefits as they gain scale economies and increase industry asset utilization. The large prime contractors will be unlikely to merge with one another due to anti-competition laws, concentration of technology and other anti-trust matters. However, it is likely that large original equipment manufacturers (OEMs) may continue to acquire smaller companies to fill capability gaps in homeland security, defense electronics, intelligence, IT services, command and control, alternative energy and cybersecurity.

“This past year was certainly a challenging year for many companies. For 2010, we have muted optimism for the A&D industry. We are mindful that the innovations this industry has produced have enabled widespread and affordable air travel, produced technologies that contribute to global security and enabled some of the most iconic moments in human history from the Wright brothers first flight to efforts in responding to natural disasters around the world. We are upbeat about the A&D industry in the long term, despite the challenges that we are all well acquainted with,” said Tom Captain, vice chairman and Deloitte’s A&D sector leader.

In assessing 2010, Deloitte sees continued moderation in the financial performance of the domestic A&D industry, with this year representing the trough of the commercial airplane order cycle, the beginnings of improvement in business jet orders and production and increased earnings pressure for defense programs.

Write-offs on large programs due to cost over runs, declining supplier revenues due to program delays, reductions in orders for large military platforms, program cancellations and falling Maintenance Repair Overhaul (MRO) revenues due to reduced passenger and freight travel all contributed to the uneven year.

The recently announced decision to send an additional 30,000 U.S. troops to Afghanistan will also have an impact on the Aerospace&Defense industry, according to the Deloitte report, and provides opportunities for non-active duty personnel from companies that specialize in logistics, transportation, civilian police training, camp building, translation services, border surveillance and other non-military capabilities.

“The A&D industry is likely to see opportunities based on troop increases, from supplying vehicles, generators, transport aircraft and helicopters to providing innovative new solutions to key problems, such as improvised explosive devices (IEDs) and energy use. Companies that can rapidly develop, test and deploy new technologies will likely be winners in 2010,” said General Charles Wald (USAF Ret), director and senior advisor in Deloitte’s A&D sector.