Textron Systems Pursues Overseas Business as Domestic Defense Market Wanes (UPDATED)
Currently, foreign sales make up about 35 percent of the company's sales. “I absolutely anticipate that growing. We have a target by 2016 to be at approximately 50 percent international sales,” Ellen Lord told reporters at the company’s new office near the Navy Yard in Washington, D.C.
“We are using those sales to build capabilities in our systems and keep our production lines open. As we get through this downturn domestically, we will have that capability to bring back home,” Lord said.
Textron Systems is the defense subsidiary of Textron Corp. One of its best known, and most profitable products, is the Army’s Shadow unmanned aerial vehicle.
“We talk about a downturn, but the $500 billion Defense Department budget is still significant," she noted. One example is the company winning a contract worth up to $1 billion to build the Navy’s ship-to-shore connector, which is designed to transport Marines and supplies.
The award calls for Textron to build 79 of the watercraft. It will undergo a production readiness review in the early fall, and will then start building the first connector, which is scheduled to be delivered in 2017. “We are making large investments in … our boatyard in New Orleans for this program,” Lord said.
“We have had enormous international interest in this craft as well,” she said. There is “a significant international opportunity there,” she said.
As far as international markets, the Gulf states in the Middle East have the most opportunities, followed by the Asia-Pacific region. Europe is growing more “interesting” as issues have unfolded over the past few weeks, she said. Oil, gas and mineral markets in Africa will drive business there as well, she added. The company has set up business development offices in Abu Dhabi in the United Arab Emirates; Riyadh, Saudi Arabia and Stuttgart, Germany.
“We continue to invest even in down cycles. And the way we do this is to really target the gaps in capability,” she said. The company is upgrading the Shadow unmanned aerial vehicle with an improved fuselage, which gives it longer endurance and a higher payload capacity. It is also working with the Army to improve manned-unmanned teaming with Apache helicopters. The ability to control and communicate with the aircraft through satellite links is another recent improvement.
Lord also pointed to a robust military vehicle market, with some 634 up-armored trucks sold to the Afghan national army, and the promise of more after that country’s election. Colombia and Canada are also customers for its line of vehicles.
Another emerging opportunity overseas is assisting nations to protect their exclusive economic zones, which extend 200 nautical miles from shore. Many countries, especially in the Pacific, are seeing their fisheries raided by foreign vessels.
A business development unit in Australia had heard that “they were having a hard time dealing with that efficiently,” Lord said.
Textron funded a demonstration with some of its unmanned aerial vehicles, teamed with manned boats, and gathered and date-stamped imagery, with geo-location data, that showed illegal activity. The data was strong enough to stand up in court.
Pacific Command is showing interest in how it can help allied nations defend their EEZs. Unmanned aircraft and surface vessels, along with video and satellite imagery, and unattended sensors can be put toward the problem in scalable and tailored products, she said.
“That’s indicative of how we’re working now. Going out to the market with not just a product, but a solution,” she said.
There are business opportunities in the non-defense sectors as well, she said.
Textron has “a modest amount of activity” using its unmanned aircraft to monitor oil and gas infrastructure. That market should grow, she said. “What I think we see the most interest from is the multinational corporations with high value assets around the world, where security is a primary concern.”
The company is waiting for the Federal Aviation Administration to move forward with rules that would allow unmanned aircraft weighing 55 pounds or less to fly in low air traffic areas.
“There is a huge opportunity if we deploy these aircraft ... I think in remote areas we are seeing more progress where we can get permission to fly,” she said.
The U.S. export control regime continues to make it difficult for U.S companies to compete overseas, she said. The Obama administration has been rolling out a revamped system, sector by sector over the past two years. When asked if the reforms have had any positive effect on her business, Lord said: “I will say, not significantly.”
Textron would like to see more licenses granted for items such as sensors and communications. Plus, the process is too slow, she added.
“It just takes too long right now … We are losing to our competition because our customers say they just can’t wait,” she said. They want U.S. technology, but they go out and buy inferior products from foreign competitors because it is easier.
She is particularly concerned about tight restrictions on unmanned aerial vehicles. Currently, U.S. companies have superior products, but tight export controls drive customers to buy them from nations with emerging capabilities.
“We see many nations around the world developing significant capabilities and if we don’t continue to evolve and allow exports, we could be threatened,” she said.
Gen. Dennis Via, Army Material Command commander, recently met with industry leaders in an off-the-record briefing to hear their concerns about selling to overseas buyers.
“I think there is a healthy dialogue going,” she said.
Clarification: The target year for Textron Systems' 50 percent foreign sales was misstated. Additionally, story is clarified to state that the ship-to-shore connector contract is worth up to $1 billion.