US Revamp of Procurement Systems Good News for Industry
Research Report

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U.S. defense-focused equities listed on the Australian Stock Exchange should benefit from the Department of War's procurement systems overhaul, reported Bell Potter analysts Baxter Kirk and Stuart Howe in a Nov. 11 research note.

For these companies, this is "a big win," the analysts wrote, "in terms of overall U.S. defense sector demand, the potential for increased public/private funding support, access to defense markets, take-up of new technologies and fostering of small and innovative firms."

About the Overhaul

The DOW's Acquisition Transformation Strategy is a sweeping overhaul of defense procurement, the Bell Potter team explained. At the core is the desire to rebuild and shift the country's defense industrial base to wartime preparedness. Achieving this will require rapidly fielding new technologies and modernizing systems, bolstering and delivering industrial capacity, eliminating inefficiencies, and replacing compliance with speed, agility, and execution.

The strategy specifically calls for:

• Eliminating the Joint Capabilities Integration and Development System to do away with lengthy, redundant requirement reviews
• Reducing Federal Acquisition Regulations (FAR) to only the critical ones to eliminate compliance layers that slow contract execution
• Increasing use of long-term, multiyear contracting to provide the industry with predictable demand
• Allowing government buyers to procure directly from innovative or niche suppliers, particularly for critical subsystems and technologies
• Engaging with allied industry partners to facilitate faster armament of partners and joint manufacturing initiatives
• Completing bid protests faster to accelerate contract implementation and penalizing protest losers to discourage frivolous protests
• Leveraging private-sector capital via new financial tools and risk-sharing models to expand production capacity and modernize the defense industrial base
• Prioritizing commercial-off-the-shelf adoption when possible, directing agencies to buy, adapt, and field existing technology rather than develop systems from scratch, to reduce cost and time to field
• Financially rewarding acquisition personnel for taking risks responsibly and delivering results quickly

The analysts noted that for drone-related companies, these changes should result in contracts being signed more rapidly and demand for products being clearer.

"Additive manufacturing will be a key enabler of the strategy through reduced product development costs and lead times (agile engineering/rapid prototyping/accelerating iteration cycles) and enabling distributed/point of need manufacturing of high-end componentry," wrote the analysts.

Other Industry News

The Bell Potter team presented and commented on other drone-related news published in November before its report.

Nov. 7, Defense News, "Army aims to field 1 million drones in next 2-3 years": The U.S. Army, through its Skyfoundry program, aims to buy "millions of drones" over the next two to three years versus the roughly 50,000 drones it procures each year now.

"This initiative should see significantly increased demand for unmanned components suppliers, including Elsight Ltd. (ELS:ASX), Codan Ltd.'s (CDA:ASX) direct-to-consumer business, and Li-S Energy Ltd. (LIS:ASX)," wrote the analysts.

Nov. 7, Defense News, "German Luftwaffe dispatches drone-defense experts to help Belgium": Belgium's several sightings of drones illegally invading its airspace prompted Germany to send drone defense experts to its neighbor to evaluate and assist with the problem. Bell Potter believes this article highlights the country's urgent need for counter-UAS technology, a positive, they said, for providers of such solutions, like DroneShield Ltd. (DRO:ASX; DRSHF:OTC).

Nov. 7, Defense News, "Of fiber-optics and FPVs—6 questions with a Ukrainian drone trainer":

A Ukrainian drone pilot trainer discussed how his unit is tackling operator shortages, how it is adapting to intense electronic jamming and countermeasures, and how effective domestic and Western-supplied unmanned systems are against Russian platforms.

"We highlight the notable reduction in fiber-optic drone success from a rate of 70–80% for those drones without fiberoptics to 40–50% for those with," the analysts wrote.

Nov. 4, Drone Life, "Pentagon's DOGE unit takes the lead in revamping U.S. military drone procurement": The U.S.' Department of Government Efficiency was tasked with accelerating the purchase of many uncrewed systems. This is particularly positive for ELS, LIS, and CDA's direct-to-consumer business, noted the analysts.

Nov. 3, Breaking Defense, " Give 'em E-HEL: Army seeks industry ideas for counterdrone laser systems": To bolster its C-UAS capabilities, the U.S. Army asked industry for ideas to field high-energy laser systems (HELWs) capable of destroying small- to medium-sized drones. The analysts noted that this article highlights the increasing interest in and demand for HELWs.