ExecutiveReportA Quarterly Digest from the Aerospace Industries Association 2nd Quarter 2016

Inside this Issue

Q&A with CAE’s Andy Jazwick

Technology Innovation Focus

Farnborough Air Show Preview

Next Quarter: New Look Executive Report

2016 TARC Competitorsat Rockets on the Hill

2016 OFFICERS

Marillyn Hewson, ChairmanDennis A. Muilenburg, Vice ChairmanDavid F. Melcher, President & Chief Executive OfficerGinette C. Colot, Secretary & Treasurer

2016 EXECUTIVE COMMITTEEWilliam M. Brown Chairman, President & Chief Executive Officer Harris Corporation

Wes Bush Chairman, Chief Executive Officer & President Northrop Grumman Corporation

Gerard J. DeMuro President & Chief Executive Officer BAE Systems, Inc.

Scott C. Donnelly Chairman & Chief Executive Officer Textron Inc.

David P. Hess Executive Vice President & Chief Customer Officer, Aerospace United Technologies Corporation

Marillyn Hewson Chief Executive Officer, President & Chairman of the Board Lockheed Martin Corporation

David L. Joyce President & Chief Executive Officer GE Aviation

Thomas A. Kennedy Chairman and Chief Executive Officer Raytheon Company

Roger Krone Chief Executive Officer Leidos Corporation

Tim O. Mahoney President & Chief Executive Officer Honeywell Aerospace

Dennis A. Muilenburg Chairman, President & Chief Executive Officer The Boeing Company

Phebe Novakovic Chairman & Chief Executive Officer General Dynamics Corporation

Kelly Ortberg Chief Executive Officer & President Rockwell Collins

Mike Petters President & Chief Executive Officer Huntington Ingalls Industries

Anne D. Shybunko-Moore President GSE Dynamics, Inc.

Robert D. Strain President Ball Aerospace & Technologies Corp.

Michael T. Strianese Chairman, President & Chief Executive Officer L-3 Communications

President’sMessageThe upcoming November 8th election promises to be one of the most consequential in American history. True to our organizational structure and tradition, AIA doesn’t take positions on individual candidates or parties. But we do seek to inform the candidates for elective office about the key issues that will determine our nation’s future course.

Unfortunately, up this this point the level of this year’s hyperbole-dominated policy discourse lacks the substance citizens deserve. And to the extent the candidates for President and Congress have addressed questions of concern to the aerospace and defense community and the broader citizenry, a more thorough and elevated discussion would be most welcome.

Yes, we’ve heard support for a strong military, but have the candidates really alerted the public to the fact that defense spending has gone down from an average of 4.4 percent of U.S. Gross Domestic Product from 1980-2014, to 3.2 percent of GDP last year and is projected to fall to 2.6 percent of GDP in 2020 despite the growing international threat environment? And what have we heard about the specific investments in procurement and Research and Development that are needed to maintain our technological superiority or about the defense acquisition reforms that are required to enable industry to more rapidly produce new systems for our warfighters?

True, the candidates have discussed educational achievement and jobs creation. Yet we’ve seen a lack of urgency about American students’ trailing performance in STEM fields—the U.S. ranks at the bottom third of all countries for graduating students with science degrees—and about our industry’s looming skills gap due to the graying of the workforce, with 18 percent of all U.S. aerospace engineers and 24 percent of all aerospace manufacturing employees eligible for retirement.

And if any of you hear a candidate mention the need to support civil aviation infrastructure modernization and maintain U.S. leadership in space, please tell me. I’d be pleasantly surprised.

As the voice of the American aerospace and defense community, AIA would be remiss if we didn’t propose in detail what needs to be done to make our country stronger, safer and more technologically robust. With the help of our policy councils, we’ve developed white papers for presidential and congressional candidates on the following subjects: Defense; Security Cooperation; U.S. Leadership in Space; the National Aerospace System & Next Gen; and the Aerospace Workforce and STEM.

The white papers have the overarching recommendation that our leaders must commit to predictable budgets, fund robust investments in the technologies that make America stronger, promote innovative partnerships, and repeal the damaging Budget Control

AIA’s Agenda for America

Cover: AIA’s Bob Durbin and David Melcher (far left front) with Team America Rocketry Challenge competitors showcasing their handiwork in the Rotunda of the Russell Senate Office Building. Photo Credit: Dan Stohr/AIA.

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Act of 2011, along with working toward meaningful tax and entitlement reforms that will allow for adequate investments in long term national needs. The white papers can be found on our web site at: http://www.aia-aerospace.org/blog/view_our_campaign_position_papers.Some specifics include: • For defense, the next President must set a goal for spending

of four percent of U.S. GDP or risk having forces that are under-equipped, lacking vital technology, and stretched dangerously thin. We also need a better balance between current readiness and investments in the future force and to advance significant acquisition policy reforms that encourage innovation to support the warfighter.

• On security cooperation, we need a National Security Cooperation Strategy that – among other priorities – aligns U.S. industry programs and technology development with strategic security cooperation priorities and streamlines the technology review and approval process for priority security cooperation transactions.

• In space, we must restore American access to space by fully funding the Space Launch System and Orion Multipurpose Crew Vehicle and NASA’s Commercial Crew and Cargo programs, while developing new missions to expand the frontiers of science.

• With regard to civil aviation, we should give FAA long-term capital planning and budgetary flexibility to effectively implement complex infrastructure programs like NextGen, and accelerate reasonable rules to safely integrate

Unmanned Aircraft Systems and commercial spacecraft into our National Airspace.

• For STEM and workforce, we need legislation and regulatory actions to create and expand access to STEM careers and the promotion of education and immigration policies that help build and retain a strong STEM-skilled work force. Our white papers have already drawn the attention of the

presumptive presidential nominees of the Republican and Democratic Party. They led directly to a meeting with Donald Trump in New York City on June 9th. I represented the aerospace and defense industry at this meeting alongside senior executives from a number of aerospace and defense companies. We have also reached out to Secretary Hillary Clinton’s campaign and received a positive response about the opportunity to brief her.

Please take the time to read through these position papers. We need your help to drive continued interest in these issues in the presidential and congressional campaigns. The only way to demonstrate widespread support for these positions is for our industry’s leaders, managers and workers make the effort to contact candidates for office. I urge you to do so. Talk to them about what matters most to our industry and the future of our country. We’re counting on you to take our message to the candidates at this time when our voices need to be heard.

David F. MelcherPresident & Chief Executive Officer

“The white papers have the overarching recommendation that our leaders must commit to predictable budgets, fund robust investments in the technologies that make America stronger, promote innovative partnerships, and repeal the damaging Budget Control Act of 2011, along with working toward meaningful tax and entitlement reforms that will allow for adequate investments in long term national needs.”

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AIA’s White Papers call for a goal of spending four percent of U.S. GDP on defense and for fully funding NASA’s Space Launch System and Orion Multipurpose Crew Vehicle.

DEPARTMENT OF DEFENSE DISCRETIONARYBUDGET AUTHORITY AS A FUNCTION OF GDP

Fiscal Years 2001-2021(In Billions of Dollars)

4 A E R O S P A C E I N D U S T R I E S A S S O C I A T I O N

AIA: How important is it for a company like yours, which is headquartered in Canada but has a major American subsidiary company, to be involved with AIA?

Jazwick: Even with our Canadian affiliation, we view the U.S. as a critical market for our simulation products and training services. In fact, 58 percent of the global defense training market comes out of the U.S. As it relates to AIA, the association is renowned for its services, advocacy and support for association members, not just here in Washington, but globally. It’s important for us as a company to be able to access key decision makers, whether it’s on Capitol Hill or in the government agencies, and we’ve been very pleased to have joined AIA earlier this year for this purpose.

AIA: What policy issues that AIA addresses are most important to your company?Jazwick: We, like many companies, are concerned about budget issues. As a business we do our best to plan and reduce

risk, so it would be nice to have regular budgets submitted and passed through the Congress in a timely fashion. This also enables the Defense Department to better plan requirements and acquisition priorities. Our military’s ultimate objective is readiness to perform whatever mission they may be asked to do. Simulation-based training offers a very compelling value proposition for cost-effectively maintaining readiness, so as budgets become tighter we are continually looking for ways to communicate that simulation is part of the solution to lowering costs without sacrificing readiness or capability. We want to make sure that readiness and training continues to receive the necessary funding in future budgets, and organizations like AIA help do that.

AIA: Does AIA’s work on expanding opportunities for companies to sell abroad help you out? Jazwick: With respect to international marketing, we’ve had great meetings and interactions that have been hosted

by AIA with our U.S. government officials overseeing cooperative security activities. As a truly global company with operations and training centers in 35 countries, we bring value to AIA’s work on expanding international opportunities while also leveraging AIA contacts and relationships where we might need assistance. Also, AIA has been front and center at all the key international airshows like Paris, Farnborough, Singapore and Dubai. What your team does to facilitate interactions, exchanges, and activities not only with foreign government officials, but also with the U.S. delegations that attend those events, and importantly, our industry “competimates,” is most useful. AIA serves as a sort of Embassy when you go to these foreign venues. It’s very beneficial having the AIA team there to support you in a variety of ways as our “industry ambassadors”. I’ve been with CAE for just a little over a year, and it was great to be at the Dubai Air Show last year and see friendly faces such as Bridge Littleton (Vice President for Membership) and the other members of the AIA team. I also want to emphasize the importance of AIA in helping companies like ours navigate the waters of Washington. We’re a medium sized training business and we’re just now opening up a Washington office. I’ve been in Washington over 30 years and I know how critical it is to have access to individual subject matter experts. On Foreign Military Sales it has been great to have Remy Nathan (Vice President, International Affairs) helping us work with the State and Commerce Departments and the hard-working people at the Defense Security Cooperation

Q&A with Andy JazwickVice President, Strategic Development & Washington, DC OperationsCAE

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Agency and the Pentagon. Having that network of subject matter experts enables me to make a phone call and say I need help on something and then get the support needed on finding answers and solutions. That, frankly, doesn’t exist in anything else in the aerospace and defense business that I’ve seen before.

AIA: How much does innovation feed into what your company does? Jazwick: In the training and simulation business, you can imagine innovation, R&D and technology are all foundational

elements to our business. Particularly as live training becomes more and more costly, governments are looking to cost effective solutions to make sure their fighting force is at its most ready state possible. From a training and simulation perspective, virtual training is becoming a larger component of readiness issues. There will always be live training, but the virtual component becomes more and more important. When a government buys the F-35 aircraft, those aircraft are really for operational purposes. You want to minimize the amount of flying that is done on an incredibly expensive aircraft for training purposes. So the virtual training capability, not just for the F-35, but other platforms in the land, naval and air domains becomes more and more critical. From an innovation and technology perspective, we’re always looking at ways in which you can create a more realistic and immersive virtual environment for training. You want the synthetic environment to look and feel as much like the real world as you can. In the military market, the networking and interoperability of training systems is required to perform realistic mission training, so as a company we are focusing a significant amount of R&D into making integrated live-virtual-constructive training a reality.

“We want to make sure that readiness and training continues to receive the necessary funding in future budgets, and organizations like AIA help do that.”

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Simulator training for C-130J Hercules aircraft. U.S. Navy’s P-8A flight simulators.

U.S. Air Force MQ-1 Predator and MQ-9 Reaper aircrews receive classroom, simulator and live-flying training.

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AIA’s Remy Nathan Testifies on Need to Improve FMS Process

Remy Nathan, AIA’s Vice President for International Affairs, in May 11th testimony before the House Armed Services

Subcommittee on Oversight and Investigations, urged Congress to improve the way the U.S. government manages the Foreign Military Sales (FMS) process.

“Industry is not calling for reforms that are simply going to change ‘No’ to ‘Yes’ answers during reviews of potential defense exports,” said Nathan. “If the answer is ‘no’, we’re ok

with that. However, let it be a quick and early ‘no’ with industry-government consultation to develop alternative proposals to meet our partners’ needs and advance U.S. national security objectives.” Nathan added, “Let’s also have a sense of urgency for the yes calls so a potential partner turns to the U.S. first, and not to countries like Russia and China, which increasingly use defense exports to advance their strategic geopolitical objectives. If we do this, industry will be better positioned to make timely and correct investments and business development decisions to best support our warfighters and our allies and partners.”

Nathan called for three specific reforms and improvements to the FMS system: First, the government should honor

our partners’ preferences for Firm Fixed Price contracts as opposed to Fixed Price Incentive Fee contracts that require a commitment of up to 10 percent in additional “excess funds.” Second, contracting officers should definitize FMS contracts

within 180 days of a qualifying proposal submission in order to eliminate lengthy delays that “place an unnecessary and burdensome level of risk on the U.S. foreign contractor and foreign customer.” And third, the Defense Department should continue efforts to make determinations about whether a technology is releasable to a foreign partner “more predictable, efficient, and transparent.”

During the hearing, subcommittee chairwoman Rep. Vicky Hartzler (R-Mo.) said, “It is vital to provide the opportunity for our allies to acquire military equipment and services to bolster their security needs. It’s also important to note the benefits the United States realizes from our allies’ collective safety, especially as threats to democracy and freedom expand.”

“Let’s also have a sense of urgency for the yes calls so a potential partner turns to the U.S. first, and not to countries like Russia and China, which increasingly use defense exports to advance their strategic geopolitical objectives.”

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AIA in partnership with business information group IHS Inc., has released a study that quantifies the economic contribution the aerospace and defense industry makes to the U.S. economy and provides an enhanced understanding of the industry’s

extensive supply chain, by economic sector at the national and state level.The study, which is part of AIA’s effort to expand its data and analytical offerings, found that despite a complex mix of economic

headwinds, the U.S. A&D industry in 2015:• Supported 1.7 million workers in the industrial base, or 13 percent of the nation’s manufacturing base, with about

531,000 jobs in the industry’s commercial aerospace segment (e.g. civil and general aviation aircraft, helicopters and space systems) and 511,000 jobs in the defense and national security segment of the industry (e.g. military aircraft, ground and sea systems, armaments and space systems).

• Produced an average labor income approximately 44 percent above the national average – $93,000 average labor income per job – reflecting the highly skilled nature of the workforce.

• Generated $307 billion in economic value, representing 1.8 percent of total nominal Gross Domestic Product in the U.S., and 10 percent of total U.S. manufacturing output.

• Generated $605 billion in sales revenue in 2015 – a one percent increase since 2013.

Study Shows Robust Impact of A&D Industry

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T E C H N O L O G Y I N N O V A T I O N F O C U S

Submarine Launched UAS’s New to U.S. Arsenal

The U.S. Navy is deploying small Unmanned Aircraft Systems (UAS) from submarines and undersea robotic vehicles.

After a decade of experimentation, the Navy has selected the “Blackwing” miniature tube-launched UAS, manufactured by AeroVironment, for use as “eyes and ears” for the Navy surface fleet over highly defended waters and coastal areas as part of its “anti-access area denial” strategy. The Navy has requested funds in its fiscal year 2017 budget to buy 150 Blackwings, which have the advanced electronics typically found in much larger UASs: electro-optical and infrared sensors, selected availability anti-spoofing module GPS and a secure digital data link.

“In addition to operating from undersea vehicles, Blackwing can also be integrated with and deployed from a wide variety of surface vessels and mobile ground vehicles to provide rapid response reconnaissance capabilities,” said Kirk Flittle, AeroVironment vice president and general manager of unmanned aircraft systems.

The Blackwing UAS builds upon AeroVironment’s 30 years of experience adapting small UAS such as the Raven, Wasp, Puma and Switchblade for use by U.S. infantry units in finding and striking targets.

The Blackwing tube-launched UAS.

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Commercial Network Tracks Space Debris Threats

Efforts to track satellite orbits and potentially harmful debris in space are being aided by the commercial

space industry. AIA member Analytical Graphics, Inc. (AGI) established two years ago a Commercial Space Operations Center, which was subsequently incorporated as its affiliate ComSpOC Corp. ComSpOC fuses satellite-tracking measurements from a geographically diverse set of optical, passive RF, radars and other sensors to generate Space Situational Awareness (SSA) data products.

ComSpOC customers include multiple commercial and US government entities, including the U.S. Air Force, which is receiving orbital data to complement their space surveillance data sets, and The Boeing Company, which used the data services to support early operations of the ABS-3A and Eutelsat 115 West B communications satellites.

ComSpOC has a growing ground based sensor network of more than 70 optical sensors, long and short baseline RF interferometric sensor networks on three continents, and two phased array radars. Aided by a 46-meter radio astronomy antenna in Canada, ComSpOC will be able to track geostationary resident space objects down to 10 centimeters in size. AGI is confident ComSpOC will grow to track the same number of objects in space as can be found in the public space catalog by the end of this year.

“The burgeoning space environment requires commercial services to develop informed and responsible behavior for all space actors,” said Paul Graziani, AGI chief executive officer. “The services ComSpOC provides are foundational to the resurgence of commercial activity in space, and fill an important role in the overall fabric of SSA.”

ComSpOC-determined orbits of active GEO satellites over the Americas.

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AEROSPACE INDUSTRIES ASSOCIAT ION1000 Wilson Blvd. #1700 Arlington, VA 22209-3928 Phone 703.358.1000 www.aia-aerospace.org

The AIA Executive Report is printed on FSC® certified paper, which contains recovered, post consumer waste fibers. Additionally, it was printed at a carbon neutral facility, utilizing 100% renewable electricity in the form of wind and solar REC’s with non-petroleum, vegetable based inks.

FSC_Logoprinter to place

AIA Gearing Up for Farnborough Airshow

At this summer’s Farnborough International Airshow (July 11-17) AIA is sponsoring a number of events

highlighting the robust global partnerships taking flight which help strengthen U.S. national security and ensure our industry remains competitive in the increasingly competitive global marketplace.

Symbolic of these partnerships, for the first time at Farnborough, an F-35 Lightning II advanced technology fighter aircraft manned by U.S. Marine Corps and British Royal Air Force crews will make an appearance.

AIA will convene a number of roundtables with senior government officials in the Boardroom of our Operations Center throughout the week. We will also host member companies and distinguished guests at our President’s Reception on Sunday, July 10th at Grosvenor House, JW Marriott Hotel and during the U.S. Industry Reception at the U.S. Ambassador’s residence in London on Tuesday, July 12th. AIA members interested in attending these receptions should contact: Monika.Nielsen@aia-aerospace.org. Farnborough attendees are also welcome to stop by AIA’s booth in the U.S. Pavilion.

A“new” Executive Report is coming this fall. With a completely revised and expanded layout, the Executive

Report will help our ability to get AIA’s message out to the broader aerospace and defense community.

Please contact us with story ideas about member company innovations, people that are making a positive difference in our industry, or a guest editorial or advocacy column. You can send your ideas to: edward.goldstein@aia-aerospace.org.

Our expanded magazine also will include advertising for the

first time to help our members and other interested parties reach other A&D companies and decision makers here in Washington D.C. with their direct messages. And to expand our reach across communications platforms, the Executive Report will contain ties to our new website, while the website will include a novel electronic version of the Executive Report.

We’re excited to bring you a more dynamic Executive Report. We hope you will look forward to the next issue!

Executive Report Changes Coming

On July 14-15, the Odle Middle School “Space Potatoes” rocketry team from Bellevue, Wash., champions of the

2016 Team America Rocketry Challenge, will take on contestants from Great Britain, France, and for the first time Japan, in the International Rocketry Challenge at the Farnborough International Airshow. Sponsored by AIA and the National Association of Rocketry, this year’s TARC competition featured 789 teams from all 50 states, the District of Columbia and the U.S. Virgin Islands. Nearly 5,000 students participated in TARC throughout the year. The Space Potatoes, comprised of Mikaela Ikeda (12), Larry Jing (14), Karl Deerkop (14), Srivatshan (Sri) Sakthinarayanan (14) and Stephanie Han (13), were awarded more than $20,000 in scholarships and funds for their school and an all-expense paid trip to London

curtesy of TARC’s Diamond Sponsor, the Raytheon Company. Lockheed Martin Corporation, Thales USA and 19 other AIA member companies also sponsor AIA’s signature STEM

education program.Space Potatoes member Stephanie

Han is already considering a career in rocketry and says the team’s careful gathering of data throughout the year and preparing for TARC, “enabled us to assume the performance of the rocket when we were in a rush at the finals.” Speaking like a true mission

controller, team captain Mikaela Ikeda says her role is to “keep everyone in check. When people are getting worried, I have to be the sane one and make sure everyone does their jobs.” We know they will, and wish the Space Potatoes much success at Farnborough!

TARC Champs Headed to International Rocketry Challenge

The Space Potatoes receive the TARC championship trophy.

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