Pentagon policymakers were smart to wait two weeks before disclosing the program changes that will accompany the administration’s new national security strategy. The political system needs some time to assimilate the emerging strategic framework before it hears what revised military priorities mean for programs like the F-35 Joint Strike Fighter (likely outcome: slower production ramp but secure future). At first blush, a pivot to the Western Pacific seems like good news for makers of warships and aircraft, bad news for makers of armored vehicles and helicopters. But even with the little that was said in the rollout ceremony at the Pentagon, it is possible to be a bit more nuanced about how demand for military technology may shift.
First, the new security strategy is a positive development for companies that construct warships. However, General Dynamics looks better positioned than Huntington Ingalls Industries, the spun-off Northrop Grumman shipbuilding unit. Warships are the main way of sustaining “agile, flexible” presence in the Western Pacific, but that presence needs to be survivable — or at least defendable — in the face of rising Chinese military might. Virginia-class submarines and surface combatants are better suited to this environment than aircraft carriers and amphibious vessels. The carriers are heavily manned and costly, meaning the Navy will be increasingly reluctant to deploy them anywhere near the Chinese mainland; losing even one would be a huge military setback. Amphibious vessels are tied to the expeditionary operations of the Marine Corps, which the administration has already indicated will be scaled back and in any event are unlikely to be carried out in any Northeast Asia scenario. So GD’s warship mix is a better fit with the demands of emerging strategy.
Second, policymakers repeatedly cited the importance of cyber-security capabilities in their rollout, so contractors who are well positioned in network defense, network attack, or network exploitation (cyber spying) should benefit from the new strategy. But the key phrase here is “well-positioned,” because the federal cyber space is overcrowded and due for a shakeout. Companies that haven’t found their way into the National Security Agency in a substantial way at this late date probably will never be first-tier players in cyber-security, since they lack essential relationships and market knowledge. A handful of big players are likely to dominate over the long run, most notably Lockheed Martin (the biggest federal IT services provider), General Dynamics (an aggressive player rapidly growing market share), Raytheon (noted for its innovative cyber concepts), and Northrop Grumman (another IT behemoth with long ties to NSA). Other early entrants like SAIC seem to be faltering, and latecomers probably have no chance of rising to the top tier of providers. Some analysts say the cyber space is so fluid that companies can make a mark if they have timely solutions to pressing problems, but in the federal marketplace it’s usually large mass and durable relationships that matter over the long haul.
Third, space systems seem to figure prominently in the administration’s assessment of what military tools it will need going forward. Aside from geosynchronous communications satellites, the space systems that are likely to be of greatest interest fall under the catchall heading of “ISR” — intelligence, surveillance and reconnaissance. That includes missile warning, imaging reconnaissance, electronic eavesdropping (“signals intelligence”) and weather satellites. Lockheed Martin and Northrop Grumman are the leading integrators of such spacecraft, and are already generating billions of dollars in revenues annually from space reconnaissance programs (some of which is not disclosed due to security concerns). Although Boeing does not play as big a role in overhead reconnaissance, its satellite operations are experiencing a renaissance under the leadership of former Air Force General Craig Cooning, so all three of the big spacecraft integrators are likely to benefit from the shift to a Pacific-centric strategy. Companies making crucial contributions to satellite payloads and ground segments include Exelis and Raytheon.
A final area where demand is likely to be stimulated by the new strategy is long-range air power. Airplanes with long range are essential to the rapid projection of power and collection of reconnaissance in the vast distances of the Western Pacific, which is the main reason why policymakers highlighted the need for a new bomber in their rollout. All of the nation’s big military aircraft integrators are likely to bid on that program, but past experience indicates Boeing is likely to be the winner. If Northrop or Lockheed team with Boeing, the resulting combination would be unbeatable in any competition stressing past performance. Boeing’s next-generation tanker is also a crucial contributor to any Pacific strategy, since it will give every plane in the joint fleet the endurance required for long-range missions. Northrop Grumman’s Global Hawk high-end surveillance drone would seem to be another vital part of the Pacific mix, given its unique combination of payload and range.
However, when it comes to air power, success in East Asia isn’t just about long range. It’s also about surviving the challenge posed by an increasingly sophisticated Chinese military. That means if America’s own military is to operate effectively, then all three variants of Lockheed Martin’s F-35 Joint Strike Fighter must go forward. The Navy and Marine Corps variants are essential to giving sea-based aviation the legs it needs to prevent attacks on host vessels, while the Air Force variant is needed to equip Asian allies with survivable, interoperable air fleets. Lockheed’s key partners on the F-35 are Northrop Grumman, BAE Systems and Pratt & Whitney.
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