Adjacent Markets Help Aerospace and Defense Companies Hedge Against Defense Uncertainties

Paris Air Show » 2013
This chart explains Finmeccanica’s strategy to offer its expertise for earth monitoring and climate change; natural resources management; energy management, sustainable mobility; and healthcare and education.
This chart explains Finmeccanica’s strategy to offer its expertise for earth monitoring and climate change; natural resources management; energy management, sustainable mobility; and healthcare and education.
June 17, 2013, 2:55 AM

If you look closely at the exhibits of the major aerospace and defense companies here this week, you will likely notice some unexpected capabilities on display. With their traditional defense businesses threatened by declining budgets, many of these companies are exploring “adjacent markets.”

This trend started with offers in the security and IT realms. But now they are extending to other areas, such as energy, environment and climate; food and water security; and natural disaster protection and response.

EADS, Finmeccanica, Lockheed Martin, Northrop Grumman, Raytheon and Saab were all sponsors of a conference in London last November that explored this trend. The event was the third in a series organized by British consultancy Dynamixx, in association with IHS.

“There’s a huge amount of knowledge embedded in the aerospace, defense and security (ADS) sector,” said Nick Cook, founder and chief executive officer of Dynamixx. “They have ‘the right stuff’ to deliver scaleable solutions to many global challenges, including their sensor and network centric skills.” But, he added, ADS companies must learn to think and act commercially, moving away from the rigid “response-to-request” model that they enjoy in their traditional, government-driven business.

Raytheon (Chalet A294, Static D166): Raytheon, which is involved in $1.4 billion SIVAM project to monitor the Amazon rainforest in Brazil, brought its expertise in space, airborne and ground sensors, air traffic control and communications to bear in a “top-down, systems approach,” to this environmental problem, said Bill Kiczuk, the company’s chief technology officer.

Now Raytheon is providing critical program and engineering support to a 20-year, $385 million U.S. National Science Foundation (NSF) project to better understand and monitor the ocean environment. A new observing infrastructure of buoys, cables, moorings, sensors (32 types) and satellites will be created to study climate, circulation patterns, plate tectonics, the sub-sea floor and many other ocean processes.

In another NSF-sponsored venture, Raytheon has teamed with various universities to work on the Collaborative Adaptive Sensing of the Atmosphere (CASA) project, to improve the forecasting of weather hazards. Meanwhile, Raytheon’s Visible Infrared Imaging Radiometer Suite (VIRRS) provides much higher quality environmental data from a low-earth orbit satellite, Kiczuk said.

Finmeccanica (Chalet A232, Static C65): Lorenzo Fiori, Finmeccanica senior vice president of strategy, described how the Italian-led group has already developed a five-stream, “Planet Inspired” strategy to develop new solutions that exploit its defense technology. One example is the company’s Smart City Operations Center. Another is its Smart Mobility proposals to the Italian government to develop a new national critical infrastructure.

Finmeccanica is also applying its expertise to road-transport logistics; the monitoring of urban travel and public transport fleets; vehicle registration and taxing; and e-ticketing.

“Many of these new challenges involve integrating with legacy infrastructure, and we do that routinely in the defense sector,” Fiori said. “Our system engineers become the enablers.”

Thales (Chalet B253, Static U62, Hall Concorde 51): Thales has also been working on “solutions for smart cities,” according to Jacques Bourgeois, director of strategy and marketing. The company’s Mobility Data Platform captures information from urban transport and road-traffic centers to provide better operational management, thus saving energy and reducing carbon-dioxide pollution. He added that Thales was discussing security and transport management with officials in Mexico City, one of the world’s largest urban conglomerations.

Saab (Chalet A278, Static D146): Last year, Saab formally expanded its business concept to include climate and environmental threats, according to Carl-Johan Koivisto, head of new business initiatives. But since 2008, the Swedish company has been working with partners in the “GreenTech” project to develop “technologies for the attractive city.” These include web-based systems for land-traffic management; energy management in buildings; and the so-called “City Co-Operation Center,” a decision-support and co-operation layer that “fuses” data from a variety of sources.

Saab has also adapted its unmanned-systems technology to produce a remotely operated vehicle to clean the hulls of large vessels. This is currently being tried by container-line Maersk, which predicts an annual fuel saving of $400 million.

Lockheed Martin (Chalet A316, Static E180): “Adjacent markets are becoming core business in Lockheed Martin,” said Dr. Ray Johnson, company chief technology officer. LM has been supplying data and modeling products and services to the healthcare industry in the U.S. for more than 20 years. Since 2005, it has spent $750 million to acquire three companies in this business sector.

LM has also moved into energy management and storage, alternative and renewable energy and nanotechnology applications. Johnson said that the corporation’s new generation of engineers are more attuned to people and planet issues than their predecessors.

“I’m becoming more confident in our ability to work in non-government markets,” Johnson added.

UK COUNTS THE COST OF FAILED IT PROJECTS

As they seek alternative revenue streams, aerospace and defense companies have been tainted by some high-profile failures of IT projects in the UK public sector.

Mutual recriminations followed, with the British government accusing the companies of profiteering and over-promising and the companies accusing the government of misunderstanding the scope and challenges, as well as changing specifications mid-contract.

In 2007, EADS Defence and Security Systems (now Cassidian) won a £200 million contract to supply the IT infrastructure for nine new regional control centers (RCCs) for the Fire Service. Four years later, the RCC plan was scrapped.

Also in 2007, a consortium led by Raytheon UK won the £750 million ($1.125 billion) “e-Borders” contract to modernize the UK’s immigration IT systems. Two and a half years later, the government terminated the deal, claiming “no confidence” in Raytheon. The company sued for breach of contract.

An even-bigger project to provide electronic recordkeeping for the UK’s National Health Service (NHS) was scrapped in 2011, after £12 billion had been spent over 10 years.

The British government spends more per head on IT than any government, according to Cabinet Office minister Francis Maude. He told The Times (of London) newspaper recently that government IT “has been in the grip of an oligopoly of multinational suppliers” who charge extortionate rates. The newspaper reported that one hosting contract was recently re-tendered and went to a small company that charged £60,000 instead of £4 million ($6 million) demanded by the previous large supplier.

The former chief executive of a major aerospace and defense company in the UK told AIN that he pulled out of the bidding for the NHS contract when he realized that the requirement was flawed and that key parts of the NHS organization did not support the concept.

“We must have an intelligent customer to do business with,” the CEO said, adding that British government has been slow to learn the lessons from failed IT projects.

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