Exelis CEO seeks middle ground in budget crunch

Retired Army Lt. Gen. David Melcher, now the CEO of mid-tier aerospace and military contractor Exelis Inc., said diversification is among the best strategies for riding out current U.S. budget and political uncertainty.

“Coherent and complementary portfolio positions have become increasingly important” as budget sequestration bites and an “industry realignment” continues, Melcher told the Atlantic Council, a Washington-based security think tank, on Oct. 2.

Best known as a satellite and communications provider for applications like remote sensing and geospatial intelligence, Exelis is increasingly diversifying beyond electronic warfare into networking, aircraft components and structures. As a supplier to military and aerospace prime contractors, Melcher said the current “fluid environment” is forcing mid-tier vendors to view companies like Lockheed Martin and Boeing as “competimates.”

Along with its continuing C4ISR focus, Exelis is increasingly emphasizing “critical networks” for the military, air traffic control and analytics. Melcher said the networking focus is driven by government spending trends that have shifted from “land centric” to “commons centric” investments. He defined “commons” as including air, sea, space and the cyber domain.

As for military acquisition, the head of the former ITT Corp. unit is betting that DOD will shift away from multiple acquisition “programs of record.” In the future, Melcher added, “you are seeing very selective programs of record, much reduced programs of record and more emphasis on affordable upgrades.”

A case in point is the Joint Information Environment, which DOD officials repeatedly stress is not a program of record or even a joint program office. Hence, the framework JIE program has many industry stakeholders scratching their heads about how the Defense Information Systems Agency, which oversees technical aspects of JIE, will meet its goals and timelines.

Still, many technology vendors are betting DOD will choose to invest more of its shrinking discretionary budget on new IT capabilities, many of them based on commercial products that service program managers simply can’t afford to reinvent. Indeed, senior DOD officials have acknowledged that the services must become more agile in order to keep pace with the commercial IT industry.

Melcher told the Atlantic Council that “declining budgets and expanding requirements are forcing shifts in the shared ecosystem of government and industry.”

“The thinking now is turning more to the future” as Pentagon planners pivot forces toward Asia, Melcher said. It currently costs as much as $140,000 to equip the modern soldier to cope with “a very unstable environment,” he added.

Before retiring from the Army in 2008, Lt. Gen. Melcher was the Army’s senior uniformed budget officer. Exelis has about $6 billion in annual global sales.

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