By Cal Biesecker, Defense Daily
Following some major contract wins the past two years and stellar growth during that period, Leonardo DRS has been shifting some of its attention to executing on the relatively new work as it begins to transition to production, William “Bill” Lynn, the company’s CEO, said last week.
The company was focused on growth two years ago and sales will continue to grow but there is now a “shared focus on execution,” Lynn said in a virtual interview with Defense Daily on Oct. 14. “We really have to deliver on these programs.”
Some of those programs include the Army’s Interim Maneuver Short-Range Air Defense (IM-SHORAD), which is entering production, the TROPHY Active Protection System, which will soon complete initial deliveries for the service’s M1 Abrams tanks, and various infrared countermeasures for the Army and Navy, weapons sights, and the Army’s Mounted Family of Computer Systems, which is in the midst of production, he said.
General Dynamics [GD] in September received a $1.2 billion production contract for IM-SHORAD, for which Leonardo DRS is supplying the mission equipment package.
Over the past three years, Leonardo DRS, which is a U.S. based operating business of Italy’s Leonardo, has been averaging 15 to 16 percent annual increase in organic sales, inline with Lynn’s expectations two years ago of above market growth.
In the first half of 2020, the growth has cooled somewhat to 8 percent with sales through June of $1.2 billion and orders essentially level with a year ago at $1.6 billion, representing a strong book-to-bill ratio. Operating income of $70 million is 11 percent higher in the first six months of 2020 versus the same period in 2019.
Lynn cites two main reason for the slowdown in growth so far in 2020, one being that the Defense Department’s budgets are beginning to flatten. The second reason is due to the COVID-19 pandemic, which has delayed some programs, he said.
Flat budgets will stick around for a while, he said. Regardless of who wins the upcoming presidential election, Lynn believes that politics will likely have the lead impact on defense spending.
While threats are the most important driver and are “the same or growing,” which argues for higher defense spending, the budget deficit situation has “obviously gotten worse,” he said. So, “Those deficit pressures make it hard to increase any federal budget, including defense. Any money you add is just adding to the deficit so you have these countervailing pressures.” He added that “I think that’s kind of netting out to a flat budget at this point and that’s going to net out flattish regardless of the politics, regardless of who wins” the election.
As the U.S. rebalances its defense strategy toward near-peer threats and China, Lynn said Leonardo DRS is well positioned. The company supplies power propulsion systems for the Navy’s new Columbia-class nuclear missile submarine, the “heart” of the nation’s strategic nuclear deterrent and a program that will move forward, he said.
Leonardo DRS is also well positioned with the Army for supplying sensors, network computing and communications systems no matter what the service decides to do in terms of procuring new vehicles or upgrading legacy platforms, Lynn said.
It’s been several years since Leonardo DRS has done an acquisition but Lynn said “we’re constantly looking” for potential deals. He said any future acquisitions would likely be to fill gaps or add technologies in the company’s three main business areas: advanced sensors, network computing and communications, and integrated defense systems.
Last week, Leonardo DRS said it has invested in tethered unmanned aircraft systems (UAS) developer Hoverfly Technologies. The arrangement provides Hoverfly with a partner that can scale production and Leonardo DRS can extend its sensor technologies to the tethered UAS platforms.
Lynn said that the partnership is a good example of how a deal can enhance his company’s sensor capabilities.