We review how the large defense companies are working to protect their supply chain as the market works through the COVID-19 pandemic.
Disruptions to supply chains and cash flow for supply chain firms have been top concerns that the Defense Department and contractors have spoken of since the coronavirus pandemic froze society.
DOD has raised the progress payment rates contractors receive and worked to speed up many award decisions, while at least some of the large hardware firms we reached out to or heard in recent earnings calls specifically said they are passing those added funds down to their partners.
Here is a roundup of what that group of companies is doing and we will update this page as new information is announced.
BAE Systems Inc.
“From the outset, we’ve recognized that our supply chain would play a vital role in our ability to operate through this global pandemic. As we receive accelerated cash payments from our customers, we are directly flowing that cash to our suppliers,” a spokeswoman for the British defense giant’s U.S. subsidiary told us via email.
“Based on the actions we’ve taken so far, approximately $100 million of incremental cash is reaching our supply chain. We will continue engaging with our suppliers to understand their situation and how we can help to minimize any disruption."
“Boeing is continuing payments to its more than 12,000 suppliers during the COVID-19 crisis, including about $130 million in accelerated payments and support to suppliers to our defense and space business,” a company spokesman told us via email.
“Additionally, Boeing has adjusted certain supplier contracts to facilitate earlier deliveries and enable cash flow through the supply base; aligned subcontracts to prime contract progress payment adjustments resulting in expedited payment processing to support lower-tier suppliers; helping suppliers locate alternate sources of key materials; and providing Boeing-owned materials to help resolve any sub-tier shortages.
“Pentagon leadership deserves tremendous credit for the actions they have taken to keep liquidity flowing to the national security industrial base and we thank them for their support as we do our part to keep cash flowing to our suppliers.”
Chief Financial Officer Jason Aiken said in an April 29 earnings call that as of that week, GD “received approximately $65 million in accelerated payments from our customers and advanced almost $300 million to our suppliers on an accelerated basis.”
“We’ve seen accelerated payments coming from some of our customers starting in the month of April in the form of increased progress payment rates and other contract mechanisms, but we've passed those monies onto our suppliers to help sustain our supply base,” Aiken added.
Huntington Ingalls Industries
The shipbuilding and government services company has flowed more than $50 million to suppliers across all three of its segments, a Huntington Ingalls spokeswoman told us via email.
“Our ability to help our suppliers, especially those small businesses, will reap benefits as we come through this pandemic,” CEO Mike Petters said in a May 7 earnings call. “This not only helps them, but it also helps their communities, as our supply base resides in nearly every state in the union.”
L3Harris Technologies (This section was updated July 15)
In a May 5 earnings call, CEO Bill Brown said L3Harris had “advanced approximately $80 million and (expected) to exceed $100 million” as of that week. The company first announced that effort in April and said those payments will go to its small business partners are in 47 states.
As of July 15, L3Harris has since more than doubled its accelerated payments to more than $230 million far.
Lockheed Martin (This section was updated July 15)
Lockheed said May 8 that it “ahead of schedule… reached our pledged goal of delivering $450 million in accelerated progress payments from the Department of Defense to our supply chain, including small and distressed businesses.”
On May 15, Lockheed announced it sped up an additional $300 million to "small and vulnerable businesses as we remain focused on the essential national security work our industry supports."
Then for the week ending May 22, Lockheed accelerated $307 million to 1,900 supply chain partners.
Since June 26, Lockheed has sped up more than $600 million. The company touts its small business partners as covering 46 states.
In an April 29 earnings call, CEO Kathy Warden said the company is “advancing approximately $30 million of payments per week to critical small and midsized suppliers, and we expect these payment advances will exceed $200 million.”
Then there is what its main customer is doing to try and keep the cash flowing for companies of all sizes. A two-fold approach is how Northrop is going about it.
“In addition, with the actions taken by the Department of Defense to increase progress payments, we are flowing that full supplier benefit to our suppliers in a timely fashion,” Warden added.
“We spend about $6.8 billion annually with small business suppliers and have been in touch with many of them throughout this crisis to better understand how we can support them. We have already dispersed over $350 million in accelerated payments, which is the full amount that we’ve received to-date from the recent progress payment increase from our DOD customers,” an RTC spokesman told us via email.
“We have also partnered with the Small Business Administration to help suppliers to better understand how to access government stimulus programs, and we continue to evaluate on a case-by-case basis other support mechanisms to help our suppliers.”
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