Now that the six major defense companies have reported quarterly earnings, there is uniform consensus that labor shortages and supply chain disruptions will continue at least through the remainder of the year.
As we’ve noted before, welders and pipefitters are among the most in-demand positions throughout the defense sector. The shortage of skilled workers has been a particular problem for shipbuilders such as Huntington Ingalls Industries and General Dynamics. The two companies jointly built the US Navy’s Virginia- and Columbia-class submarines, both of which were ramping up production just as the pandemic hit in early 2020. The two companies had been working to build the workforce and supply chain. supply that could build two Virginia-class submarines each year.
“When you think about shipbuilding and the nature of that business, a shock like that to the system can hit it quickly, but it just takes time for it to recover,” said General Dynamics CFO Jason W. Aiken. “That’s what we’re seeing in the Virginia program as the supply chain is trying to catch up again and get back to where it needs to be.”
Late last year, the Biden administration used the Defense Production Act to help scale up production of the Virginia class. But more can and should be done. Raytheon Technologies CEO Greg Hayes last week called on the administration to do more to support vocational schools that train skilled workers.
During a Wednesday roundtable with reporters, I asked Army Acquisition Executive Douglas Bush if the service is doing anything to help companies facing the challenges of a tough job market right now.
“I think we’re watching and supporting them indirectly, but we really count on private industry to manage their workforce and overcome the problem when they see it,” he said. (You can read his entire response here, as the Army posted a transcript of the discussion — and yes my name is misspelled).
Here’s an interesting takeaway from each earnings call:
- Northrop Grumman has an $11.3 billion backlog of classified work in space, CEO Kathy Warden said on the company’s call Tuesday. “We continue to see the national security space as one of the strongest growth drivers for our company,” she said.
- Lockheed Martin pulled 50 employees from “an international operation” to help speed up the F-16 production line in Greenville, South Carolina. “Our development in that program is taking longer than we originally anticipated, primarily due to slower growth in employee hiring,” CFO Jay Malave said on the company’s July 19 call. Lockheed has an HR team dedicated to hiring in Greenville, where it now builds F-16s for US allies.
- Boeing’s defense and space business took a $400 million charge. The company had to eat money into the MQ-25 refueling drone it is developing for the Navy, NASA’s commercial crew program, the T-7A pilot training aircraft, the KC-46 tanker and the VC-25B Air Force One.
- Congress passed the CHIPS Act this week, but that won’t immediately solve the semiconductor shortage, said Aiken, CFO of General Dynamics. The company’s IT hardware business is facing an “ongoing battle with chip shortages, which continues to hurt their ability to deliver certain products,” he said.
- Raytheon Technologies CEO Greg Hayes said labor shortages (see above), especially at suppliers, are becoming more problematic than the sick worker issues that were prevalent at the start of the pandemic. “The labor challenges that we continue to see have not eased and … I think that’s the challenge and that’s why we continue to struggle in the supply chain.”
- L3Harris CEO Chris Kubasik said the company’s newly announced Agile Development Group is pursuing “numerous classified opportunities.” L3Harris, Lockheed and Northrop awarded Air Force contracts in June to develop the Stand-In Attack Weapon, a new air-to-ground weapon. L3Harris’ Agile Development Group is leading the pursuit of this contract.
About 2,500 Boeing workers in St. Louis plan to strike on Monday. Workers there, which build F-15 and F/A-18 fighter jets, the MQ-25 refueling drone and the T-7 pilot training aircraft, rejected a contract offer on Sunday.
Senate Appropriators on Thursday unveiled an $850.4 billion fiscal 2023 defense budget, which is 8.7 percent higher than the current year’s budget and about 4.5 percent higher than the budget proposed by House Democrats, Roll Call reports.
And finally, the German defense firm Rheinmetall announced that it would open a 46,669-square-foot facility in Sterling Heights, Michigan, to do engineering and prototype work. The company, which is competing to build the Army’s combat vehicle with optional personnel, also received a $1.5 million grant that will help it create between 125 and 150 jobs over the next three years. “The new location is a demonstration of the business’ continued investment in the US, bringing new technologies and highly skilled jobs to the region in support of a number of US Army modernization programs,” the company said in a statement. “The new facility includes an extensive, state-of-the-art digital engineering, prototyping and system integration laboratory to enable deep customer engagement at every stage of vehicle development.”
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