Finmeccanica Reworks To Strengthen US Presence

Interview with CEO of DRS Technologies And Head of Finmeccanica North America

WASHINGTON — William Lynn became CEO of DRS Technologies in January after serving as US deputy defense secretary under Robert Gates and Leon Panetta. Previous Pentagon tours include serviing as director of program analysis and evaluation for the defense secretary, and comptroller for the department. He was also senior vice president of government operations and strategy at Raytheon from 2002 to 2009.

In his new role, Lynn is dual-hatted as DRS CEO and head of Finmeccanica North America. He recently spoke with Defense News:

Q. What is changing with Finmeccanica North America?

A. Finmeccanica has a strategy going forward, which is to focus on being a global defense and aerospace company. The other approach would be to be an industrial conglomerate, which I think they have been. The focus is now a global defense and aerospace company.

If you are going to pursue that strategy, you need a strong presence in the world’s largest defense market here. That was the original rationale for acquiring DRS a few years ago. This year, what we have done is reorganize Finmeccanica North America into a single integrated headquarters that will represent all Finmeccanica defense interests in the US. I will lead that headquarters. I am leading that headquarters. It acts as an umbrella over the other Finmeccanica entities, AgustaWestland, Alenia and Selex, being the largest, as well as DRS. That allows us to act not as a collection of mid-sized defense companies, which is frankly how we have operated in the US, but as the eighth largest global defense company. I think we have understated our presence with our prior structure. This will let us step up into the league of major defense contractors.

Q. Obviously, Finmeccanica has some management challenges, including the investigation into alleged bribery in India. How has that hurt how the company is seen and how the company is seen in the United States?

A. Obviously, it has not helped. First, [former CEO Giuseppe Orsi] is innocent until proven guilty. Orsi is on trial. Nothing has been proven. The track record of these kinds of prosecutions in Italy is not great.

The second point is that Finmeccanica has taken substantial steps to separate itself from whatever may have gone on in the past, which is unproven at this point. They have put in a new chairman who comes from a law enforcement background. That was not an accident. They put in place new ethics processes and new processes for vetting international agents.

Q. Where do you guys see the strongest opportunities for the enterprise in this market, given some of the challenges, the financial challenges, that are bearing down on you?

A. At DRS, we are focused on things like the Ohio [ballistic-missile submarine] replacement program. We have a strong position in Army network computing. I think whatever happens with the Army ground vehicles, which I think is significantly up in the air, the Army is going to go the next step in terms of additional capability, which is to fuse the data from their sensors. The next step to improving capability is to link those in, network those in, to take that data and fuse it. That will improve your situational awareness.

We have recently won, in an adjacent market to DoD, the support for the C-130s the Coast Guard operates. That system, given the Coast Guard’s search-and-rescue missions, is going to continue to go forward almost no matter what the budget level is. We have been looking for those kinds of positions, where we have the capability and the budget is not going to lead to a loss of those programs.

Q. What has that changed in terms of Finmeccanica’s presence here?

A. The way Finmeccanica North America will operate is that it is an umbrella over the headquarters. They will lean out some in that we will do some of their back office operations, HR, finance and so on. They can reduce and get their size that way and focus more on the front end. They will continue to be the face to the customer on the AgustaWestland helicopter programs. We will be able to supply their back-office operations, as well as larger Washington support.

It is a two-hatted structure. Our congressional operation, which is larger and more capable than any individual Finmeccanica company could have here, gives us a stronger presence in Washington, at Pentagon level and at the congressional level.

Q. Where do you see the budget going, and how do you plan for this kind of uncertainty?

A. It is not so much the level of defense spending we are going to. It is the way we are going there. There may be a dumber budget process than sequester, but I am not aware of it. We are harming ourselves far more than we need to, given the budget levels. I think that the Defense Department, given a rational track to a defense budget level that Congress would choose, could plan well and could protect our most important capabilities as we transition to that new budget level.

The problem is that we have not been following that rational process. I think the hope for Dec. 15 and Jan. 15, is that somehow we will find a more rational process than sequester to do that.

Q. In terms of military readiness, what about when there is that big event? I have heard a lot of Air Force folks saying right now that they would not be nearly able to respond to the Philippines typhoon with manpower and airplanes a year or two from now, if the sequester continues. If this happens two years from now, they would say they were not helping. Do you see that?

A. I do not think they would say that. They would do the best they could with what they had. I think as you degrade further, the best is going to become less. What you have is going to become narrower. Are you going to do nothing? Almost surely not. If the president says to deploy in some fashion to help the Philippines or whatever the disaster event is, the US military will do its best. It will not go to zero. You do not have this cliff, this separation that people are somewhat looking for. In some ways, I think the defense community may have suggested that existed in the run-up to the sequester. It just does not.

Q. Let’s say the sequester spending levels are locked in through 2021, or however long it is, but the automatic, across-the-board mechanism is removed. Is that relief enough? As you guys are planning, does that give you enough certainty?

A. I cannot define enough any better than I could describe the cliff in a sequester world. I think it would be far better if you have a stable process for reductions.

Q. Where is Finmeccanica going in terms of investment in research and development (R&D)?

A. All defense companies are defense enterprises. You are going to have to invest on areas where you think you can get a return. It goes back to the predictability of the budget. I think companies will be willing to invest if they think that if they are successful in developing the products that are the result of that R&D, they will be able to sell those products at a profit. If they are able to do that, that equation will justify the original investment. If we have the kind of situation we have now, where DoD is not sure what they are going to buy because they do not know what the budget is, it is hard for a company to invest. You do not know whether you are going to get a return on that investment or not. I think it does circle back to needing that kind of stability, not just for DoD to plan but for companies to invest.

Q. With the strategic shift and pivot to Asia, how does a company like DRS position itself for providing the technology and capabilities that this strategic pivot may require?

A. I can probably give you two different answers. For a company like DRS, I am more interested in capability-based planning than in scenario-based planning. To quote my old boss Bob Gates, “Our ability to predict when, where and who we are going to fight has been perfect over the past few decades. We have never gotten it right.” As a company, I look at it the same way. Try to look at whether it is Asia, Europe or the Middle East, and it is very hard to know and then to translate, even if you could know, to translate that into a business strategy. It would be very hard.

Q. Now that the US C-27s are going to US Special Operations Command, what will happen to the rest of them?

A. On the C-27 [cargo plane], I think most of the direct conversation is between the receiving entities in the Pentagon, the Coast Guard, the Forest Service and the special operations community. Right now, two-thirds of them will go to the Coast Guard and the other third will go to the special operations community. The Forest Service will get some Coast Guard C-130s. That is the way I understand. That seems to fit everyone, in that the C-27 is a very well positioned airplane for the Coast Guard mission. It is less well for the Forest Service, which could use a bigger airplane, hence the C-130.

Q. Have you gotten any clarity on the US Air Force trainer jet program, and whether that is going to happen?

A. No, I do not think you are going to see clarity until you see a budget in February, frankly. There is certainly a strong impetus. The Air Force says this. As they bring a new fighter on, the F-35, they need a new trainer. That is pulling the trainer forward.