Business in electronic warfare grows

Moves by Russia and China to extend their military sway are prompting defense companies to spend more on electronic warfare, spurring an acquisition spree in an industry eager to secure the latest technology.

Lockheed Martin Corp.'s F-35 fighter jet, which is driving the move to electronic warfare, will double its production rate by 2018, the company said at the Paris Air Show last week. Among manufacturers making acquisitions in the past year to tap into such demand are Finmecannica SpA, Cohort PLC and Ultra Electronic Holdings PLC, which paid $265 million this month for a Kratos Defense & Security Inc. unit making parts for weapons that use electromagnetic pulses to cripple planes and ships.

Russia's more belligerent foreign policy and Beijing's efforts to secure dominance in the South China Sea have become a focus of concern for the U.S., which is emboldening its advanced electronic technologies to match. Defense supplier Cobham PLC, which built its electronic-warfare division from two acquisitions in 2006 and 2007, said it was open to further purchases to extend its share of revenue from existing platforms that are becoming increasingly populated.

"Are we happy with our F-35 content? Yes. Would we like more of it? Absolutely," Robert Mullins, Cobham's vice president of corporate strategy, said in an interview in Paris. "Would we prioritize acquisition concepts that had F-35 exposure, that was strategic and financially attractive? Sure."

In its annual report, the company said it had boosted the revenue it garners from each F-35 by $100,000 through the supply of microwave emitters. Mullins said the availability of platforms bidding for new electronic-warfare suppliers is thinning and prompting companies to buy onto existing platforms.

"Those opportunities are becoming few and far between," Mullins said.

The United States' readiness to respond to China and Russia is especially challenging after following in Iraq and Afghanistan that involved little aerial threat and favored traditional ground operations over advanced electronics.

"The Americans have really let their capability in electronic warfare diminish over the last 10 years," Ultra Chief Executive Officer Rakesh Sharma said in an interview. "They want to get back to the superiority they had over the airwaves during the Cold War."

The Pentagon established an oversight committee last year to respond to the perceived shortfall in electronic-warfare capacity as Russian fighters and bombers breach NATO airspace over the Baltic states with increasing regularity and Chinese President Xi Jinping asserts territorial claims to 80 percent of the resource-rich South China Sea.

Spending on electronic warfare in the Philippines, Malaysia, Vietnam and Indonesia will rise to $174 million in 2016, a more than threefold increase since 2012, according to analysts at defense consultants IHS. Global investment in the procurement, modification and servicing of such equipment is expected to gain 36 percent to $12 billion over the same period.

Ultra's June 1 deal for Kratos' Massachusetts-based electronic-products arm comes after its $70 million purchase in February last year of 3 Phoenix Inc., a supplier of electronic-warfare equipment including sonars, radars and intelligence, surveillance and reconnaissance gear located in Virginia.

The deal follows the all-British acquisition by Cohort of Marlborough Communications Ltd., a specialist in advanced electronic communications and surveillance technology, and the purchase of Canada's Tactical Technologies Inc., a provider of electronic-warfare analysis software, by the Selex ES arm of Italy's Finmeccanica.

At Ultra, existing platforms should enable the Kratos unit, renamed Ultra Electronics Herley Industries, to bid as a supplier on Lockheed's F-35 Lightning II as the world's biggest defense contractor looks to upgrade the fighter jet's electronic-warfare capabilities in a new round of bidding.

BAE Systems PLC, which designed the F-35's system, said in February that a 2 percent gain in 2014 defense sales was attributable largely to its work on the plane.

"The F-35 is going to be the big driver," he said. "It's such a big program, so many countries are buying it and such a high percentage of it is the electronic warfare system."

SundayMonday Business on 06/22/2015

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