A protester outside Boeing Co.’s 2013 annual shareholder meeting in May
Ashley Lapin/MEDILL

The Federal Aviation Administration came out with its first plan for allowing drones in domestic airspace – called the Integration of Civil Unmanned Aircraft Systems in the National Airspace System Roadmap — in early November to better inform the public on its integration plan.

There has been open criticism of the FAA for not being transparent enough with its plan for testing out UAS. The FAA has since attempted to share more information with the public through online public forums and now the Roadmap.

What do those in the UAS industry think of the plan?

Phil Finnegan, director of corporate analysis at Teal Group Corp., a company of aerospace and defense industry analysts, said that the Roadmap is a viable plan, but it showed “integrating UAVs into the national airspace is going to be a long, complicated process.”

The Roadmap has done a lot to address transparency concerns, Finnegan said, but others disagree.

Amie Stepanovich, director of the Domestic Surveillance Project at the public interest research group Electronic Privacy Information Center, still has concerns about how drones will affect Americans’privacy rights.

When asked whether she felt that the pros of allowing widespread use of UAS in domestic airspace outweigh the cons, Stephanovich replied, “Never.” While she said that technology can be used for surveillance in positive ways, she underlined that it is imperative that all negative ramifications be brought to light and thoroughly analyzed before UAS are integrated into U.S. airspace.

In the Roadmap, the FAA “did some really good things and there are things they could have done better” to protect privacy rights, she said. In February 2012, EPIC petitioned the FAA to ensure privacy policies and the FAA recently responded with draft privacy rules for test sites, which it will use to evaluate transparency and privacy matters for the nationwide rollout.

Mario Mairena, government relations manager of the Association for Unmanned Vehicle Systems International, a U.S.-based nonprofit organization representing the UAS industry and devoted to advancing the unmanned systems and robotics communities, said that privacy is not necessarily the FAA’s responsibility.

“The FAA’s mandate is ‘safety and do no harm.’ Privacy – that debate belongs to the courts and the states,” Mairena said.

Another big question is whether the FAA can fully follow and complete the Roadmap on schedule as far as testing UAS and then moving on to a full UAS integration into the NAS.

Finnegan projected that full integration of small and large-system UAS will take at least a decade. Mairena said that AUVSI is optimistic that the FAA will be able to keep its schedule for successful integration of UAS into the NAS.

So what is next for UAS? Will Amazon be employing UAS domestically to deliver packages in the near future, as founder Jeff Bezos vowed?

“It’s not going to happen anytime soon,” said Finnegan. “For one thing, the FAA has ruled out autonomous systems – that would be an autonomous system. If they were to do this, Amazon’s a smart company, they would want to make sure it’s cost-effective. Compared to traditional means of delivery, is it going to be cost-effective? Highly unlikely. Is it an eventuality? Maybe many many years from now, but not in the near term or the medium term.”

Professor Robert Pape, director of the Chicago Project on Suicide and Terrorism at the University of Chicago, recently conducted a study on such a bombing.

“I just wanted to know the answer for myself, what the moral issues were involved with bombing Auschwitz,” Pape said in a recent interview.

Pape said that the biggest takeaway from his research is that bombing Auschwitz would not have come at the expense of the U.S. war effort – the issue was that the U.S. had found that strategic bombing was not helping in its efforts to defeat the Germans.

As a moral issue, when the U.S. received the intelligence, it was assumed there was not the large number of prisoners that, in fact, there were. According to Pape, there were hundreds of thousands of Jews at issue, not millions.

“There was no precision bombing,” said Pape, so the U.S. would have had to drop so many bombs to get a 90 percent probability of destroying the crematoriums at Auschwitz that more than 4,000 prisoners would have perished.

Dr. Michael Berenbaum, who edited the book, “The Bombing of Auschwitz: Should the Allies have attempted it?” explained that in June 1944 the Jewish Agency for Israel, the ruling party over the Jewish settlement in Palestine, decided not to ask the Allies to bomb Auschwitz.

“The reasoning behind that decision was, ‘We do not know what is happening on the ground’,” Berenbaum said. “’Because we do not know what is happening on the ground and innocent Jews could be killed, we cannot request that Auschwitz be bombed.”

However, Berenbaum said the counterargument is that at least 8,000 people were being killed daily by the summer of 1944 so they would have died anyway and bombing Auschwitz would have seriously hurt Germany’s ability to slaughter Jews.

“Consequently, once you know what was happening in Auschwitz, that assumption [that the people on the ground are alive and going to stay alive] is not a valid assumption,” Berenbaum said.

So could the U.S. have pulled off the bombing of Auschwitz in 1944? Yes. But whether the U.S. should have bombed Auschwitz: that is a topic that is still up for debate.

CEO Jim McNerney answers questions after Boeing Co.‘s 2013 annual shareholder meeting.
Ashley Lapin/MEDILL

(ARTICLE ORIGINALLY PUBLISHED MAY 15, 2013 ON MEDILL MONEY MAVENS)

Boeing Co.’s annual shareholder meeting at the Field Museum April 29 was a lively event. The James Simpson Theatre was packed with shareholders, some waiting to hear the latest updates on Boeing’s 787 Dreamliner troubles with overheating batteries.

CEO Jim McNerney, with interruptions from a few shareholder gadflies, apologized to shareholders for the incidents, which led the Federal Aviation Administration to ground the U.S. 787 fleet for three months, But the company made fixing the battery problem its top priority, he said, noting the FAA and its global counterparts had certified Boeing’s solution and approved the 787s to return to service the week prior.

“While we deeply regret the impact this issue had on our customers, we have learned from it and have made our airplanes even better,” said McNerney. “The promise of the 787 and game changing benefits it provides to customers and our passengers remains fully intact.”

On that positive note, McNerney also reported that Boeing had a strong 2012, with record revenues of $81.70 billion, 19 percent higher than 2011. He also mentioned a large backlog of orders, including 209 new orders booked in the first quarter of 2013 when earnings reached $3.90 billion.

McNerney also called a new Boeing airplane facility in Charleston, S.C., “a major milestone,” because it is the first commercial airplane factory built in the U.S. in more than four decades.

Of course, the commercial aviation business is only half of Boeing. The rest of the Chicago-based aerospace giant’s business comes from providing military aircraft and other equipment, a sector under pressure from budget cutting. “Despite a very difficult and uncertain business environment,” McNerney said that Boeing’s defense business had exceeded expectations in 2012. He added that he expects international sales to grow to be 30 percent of the company’s 2013 revenues.

Items on the meeting’s agenda included an advisory vote to approve the compensation packages of the company’s top executives. McNerney received almost $27.5 million in compensation for 2012, which was a 20 percent increase from 2011. His pay package was a beacon for criticism for a group of protesters who marched in front of Boeing’s headquarters on South Wacker Drive April 6.

The protesters, incensed by McNerney’s increased salary, rallied to decry Boeing’s plans to create a new combat drone. However, Boeing shareholders felt differently. They approved the compensation packages by a wide majority.

Shareholders voted against a shareholder proposal to require executives to retain significant amounts of company stock. They also voted against a proposal that would have required Boeing to have a chairman of the board who is separate from the CEO and president. The shareholder who submitted the proposal noted that McDonald’s Corp.  does it that way and “if it’s good enough for McDonald’s, it should be good enough for the shareholders of Boeing.”

During the shareholders’ forum, various shareholders came forward to ask for everything from Boeing’s support in banning knives from airplanes to adding jobs in northern Wisconsin.

At a press conference following the meeting, McNerney expounded on the company’s outlook for a growing international clientele for defense products.

“I think Boeing has an unusually strong international operation because of the legacy of our commercial business,” said McNerney. “So when the two businesses get together outside the United States, I think we’re somewhat advantaged as we market our products, so I think we’re going to continue to gain share outside the United States.”

While McNerney was talking with reporters, Boeing shareholders had the option of a complimentary admission ticket to the Field Museum.

L-3’s 2012 annual profit has fallen 23 percent from a year ago due to a higher income-tax bill.
Ashley Lapin/MEDILL

(ARTICLE ORIGINALLY PUBLISHED JAN. 30, 2013 ON MEDILL REPORTS CHICAGO)

Defense contractor L-3 Communications Holdings Inc., helped by solid demand across key product lines, turned in stronger-than-expected fourth-quarter results Wednesday.

In the latest quarter, net income dropped 23 percent $212 million or $2.25 per diluted share, from $274 million or $2.72 per diluted share in last year’s quarter. In the year-ago quarter, however, L-3 was the beneficiary of a dramatically lower income-tax bill.

Sales inched up to $3.56 billion from $3.54 billion a year ago.

New York-based L-3 provides the U.S. government and other customers with aircraft-maintenance services, and also offers cyber-security and intelligence-related services. Because the Department of Defense is such a big customer, L-3 – like other defense contractors – is under a shadow because budget negotiations have to date not yielded an agreement; if an accord isn’t reached, the government is obliged to implement big cuts in its defense contractors beginning March 1.

“Overall, we had a solid fourth quarter, underscored by strong orders, sales and cash flows, in spite of the challenges and uncertainty in the U.S. defense budget,” said Chairman and CEO Michael T. Strianese.

The latest quarter’s $2.25 per share in earnings topped the $2.12 analysts surveyed by Yahoo Finance had been expecting. Per-share results got a boost because fewer shares are outstanding: thanks to an ambitious share-repurchase plan, L-3 now has reduced its shares outstanding by 6.5 percent.

In New York Stock Exchange trading Wednesday, L-3 shares rose 22 cents to close at $78.11.

During the company’s conference call with analysts, questions centered around the upcoming “sequestration,” the formal term for the budget cuts to take place on the March 1 doomsday. Chief Financial Officer Ralph G. D’Ambrosio said the company can’t provide any guidance until the situation clarifies.

L-3 “reported a good quarter,” said CRT Capital Group analyst Brian Ruttenbur. Noting that the company hasn’t factored in any effects from the potential sequestration in its guidance, he said, L-3’s “outlook is a bit rosy.”

L-3 isn’t unaware of the disruption such budget cuts would create. “What we do know is that the prospect of sequestration remains a major concern for the nation, the defense industry and L-3,” CEO Strianese said. “More than two million American jobs are at risk. Put simply, indiscriminate budget cuts would put our national security in jeopardy” and threaten the defense sector, he said.

L-3’s net income for full-year 2012 was $810 million or $8.30 per diluted share, down from the prior year’s $954 million or $9.03 per share. Net sales for FY12 were $13.15 billion, slightly lower than net sales of , $13.16 billion in 2011.

General Dynamics Corp.’s share price has remained stable during the past 12 months despite the threat of government budget cuts.
Ashley Lapin/MEDILL

(ARTICLE ORIGINALLY PUBLISHED MARCH 20, 2013 ON MEDILL REPORTS CHICAGO)

The war was over. After decades of fear, proxy wars and preparation for a nuclear attack, the U.S. government no longer needed to commission as many military implements.
When the Cold War ended, this was the reality defense contractor General Dynamics Corp. faced. As Uncle Sam dialed back defense outlays in the era of what was known as the “peace dividend,” the company was able to still run a profitable business by serving both government and private-sector clients.
Now, a little over two decades later, it’s possible that the same situation could repeat itself: as of March 1, because of what’s known as the “sequester,” the U.S. government is significantly cutting its spending on defense contracts.

That is bad news for GD, which is currently one of the nation’s top five defense companies. The Falls Church, Va.-based company’s vast line of defense products include submarines, surface warships, combat tanks, and Stryker combat vehicles, along with a host of intelligence, surveillance and reconnaissance systems, and cyber security systems.

General Dynamics Corp.’s 2012 revenues broken down by sector.
Ashley Lapin/MEDILL

Of course, the government has already been reducing its defense outlays, as it winds down the wars in Afghanistan and Iraq. Now, with the sequester’s looming cuts in defense, GD may be vulnerable to a drop in business.

When the company reported its 2012 results early this year, CEO Phebe Novakovic acknowledged the difficulties GD faces with the government cuts in defense spending, but stayed upbeat. “We will continue to manage our business aggressively as we approach the opportunities and the challenges of the future,” Novakovic said.

General Dynamics, which traces its roots back to 1899 when it was called the Electric Boat Co., has over time branched out to encompass aerospace, combat systems, information systems and technology, and marine systems.

After the end of the Cold War, the company shed much of its military defense businesses, but in the late 1990s began once again to expand its presence in that sector. As a result, GD was well positioned to profit from the upswing in U.S. defense needs, particularly during the first decade of the 21st century.

The recent difficulties mentioned by Novakovic were reflected in GD’s 2012 results, which showed a 3.6 percent decline in revenues, to $31.51 billion. The softer revenue had been expected, because of diminishing government spending. Thanks to a $2 billion “impairment” charge linked to mark down the value of GD’s Information Systems & Technology group and certain other charges, GD had a full-year net loss of $332 million, or 94 cents a share. Excluding the impact of those charges, adjusted earnings for the year were $6.48 a share.

Out of GD’s 2012 revenues, fully two-thirds came from the U.S. government. GD’s biggest revenue generator is its information systems and technology sector, which drew 43 percent of sales from the Defense Department, and another 42 percent from other federal agencies, according to a report by Morningstar analyst Neal Dihora.

With the nation’s budget deficit mounting, lawmakers passed the Budget Control Act of 2011, which mandated cutbacks in a variety of programs. The act will directly affect the defense sector with approximately $582 billion in cuts over a period of 10 years. The sequester, as it is called, will begin with a $55 billion reduction in defense spending in 2013 if no legislation is passed to change it.

While defense has long been GD’s bread and butter, it has been preparing for the effects of the sequester since 2011, when the Budget Control Act was signed into law and created the risk of a sequester, according to Rob Doolittle, staff vice president of communications for GD.

Still, if General Dynamics is going to be hit hard by the government’s defense cuts, the company’s share price offers little evidence that anyone is greatly concerned about the sequester’s potential financial impact on GD in 2013.

Lawmakers have until March 27 to pull things back from the brink; however, it is still uncertain whether or not they will come to an agreement.

One reason GD shares have held up as well as they have is likely due to the company’s plans for offsetting the loss in government spending with other sources of income. Among other things, the company’s aerospace group, which makes the highly popular Gulfstream line of private jets and isn’t exposed to the public sector, is growing rapidly.

Novakovic recently told analysts that GD will have to be “nimble” in the current environment, and added that opportunity is “clear at Gulfstream and in parts of our other businesses where we’re going to have organic growth.”

GD is also riding out the current turbulence because, like other defense contractors, it has already locked in contracts for the coming years. These include multiyear procurement orders which ensure that the company will receive the same amount of funding on an annual basis over a set time period (from two to five years).

Analysts surveyed by Yahoo Finance expect GD’s per-share earnings this year 2013 to $6.76 from the adjusted $6.48 last year.

Things could be worse. “A diversified offering with key platforms that ensure the superiority of the armed forces puts the company in an enviable position in a time of budget strains around the world,” says Morningstar’s Dihora.

“Though we think defense spending will ease in the coming years, an entrenched product range, a robust aerospace business and an operational focus will power the firm’s return on invested capital well above its cost of capital for years to come.”

According to Brian Ruttenbur, managing director for CRT Capital Group LLC, the fact that GD will be growing its business jet line is a solid positive for the company. However, Ruttenbur retains some concerns about GD’s outlook.

In an industry note on the defense/security & safety/space satellite technology, Ruttenbur said, “The company’s large exposure to the Army is a big negative in our view. We believe that the Army will be cut the most amongst the service branches in Sequestration. We estimate GD has approximately 34 percent of overall revenue tied to U.S. government services, which, by our calculation, is the second highest of the defense primes.”

In addition, he said, GD’s margins are beginning to erode,” and “we expect things could get worse in the coming years.”

Despite the defense budget cuts, it looks as if GD will ride out 2013 pretty well. Novakovic’s stance is clear.

“What you’re going to see us do is pursue – and I can’t say this enough – pursue margin expansion and generate cash and earnings,” she told analysts. “We are not going to chase revenue. We’re going to stick to our knitting and do what we know how to do.”

Military aircrafts counted for 25 percent of Boeing Co.’s 2012 total aircraft sales.
Ashley Lapin/MEDILL

(ARTICLE ORIGINALLY PUBLISHED FEB. 28, 2013 ON MEDILL REPORTS CHICAGO)

With the March 1 deadline just a day away, President Obama has summoned House and Senate leaders to the White House Friday for a final meeting to discuss how to avoid the $85 billion in budget cuts that will go into effect at midnight.

However, the outlook for a compromise is not promising as both sides appear to be resigned about what is to come.

Some experts are downplaying the immediate effects.

“A lot of people won’t notice it at all,” says Mark Rom, associate professor in the American Government department at Georgetown University. “The people who are directly affected will be affected dramatically, but if you’re not directly affected you may not even notice.”

Some of those who are going to be affected dramatically by the sequester are defense contractors, such as Boeing Co. Some $40 billion to $45 billion of the cuts will be targeted at defense spending.

But Boeing executives maintain that it’s business as usual for now.

“It is too early to speculate on what deep defense budget cuts might mean for individual programs or the facilities that support them,” said Boeing representative Karen Fincutter. “That said, Boeing has been anticipating declining U.S. defense budgets for several years and we have been making the changes necessary to compete and grow in this environment.”

Dennis Muilenburg, CEO and president of Boeing’s Defense unit, said at an industry conference that the company is hopeful that modifications to the sequester can still be made. “Boeing’s own worst-case scenario would reflect between $100 billion and $300 billion in Pentagon cuts” over the five-year sequestration period, the Wall Street Journal reported.

Multiyear government contracts already in place with defense contractors such as Boeing are likely to cushion the blow.
Such contracts are common between defense contractors and the U.S. government. Many of Boeing’s defense contracts have a duration of four years and ensure stable funding and services over that time period. In turn for that security, the company provides its services and products at a lower cost.

Currently, Boeing has several multiyear procurement contracts and fixed-price contracts with the government. Teal Group Corp. analyst Richard Aboulafia said this will pose an interesting situation for the government.

Legally, the contracts ensure the same level of funding for the rest of the contract period. However, the sequester cuts this “guaranteed” funding significantly. According to Aboulafia, Boeing could bring suit against the government if the contracts are not fulfilled.

The irony of that is not lost on Aboulafia.

“The whole point of setting up these contracts is to avoid uncertainty,” Aboulafia said. “However, the government is facing uncertainty with more uncertainty.”

Damian Lewis as Nicholas “Nick” Brody in Homeland (Season 2, Episode 1).
Photo courtesy of Kent Smith/SHOWTIME

(ARTICLE ORIGINALLY PUBLISHED MARCH 20, 2013 ON MEDILL REPORTS CHICAGO)

Whether it is Orson Welles’ radio rendition of “The War of the Worlds” or the laughable antics of Maxwell Smart in the 1960s TV series “Get Smart,” Americans’ obsession with the national security and spy genre has a long history in the entertainment business.

Ashley Lapin/MEDILL

Now more than ever, however, films like “Zero Dark Thirty” and the Showtime hit “Homeland,” seem to have struck a particular chord with American audiences. The fascination with  top secret government missions and getting a peak behind the scenes is what draws in so many viewers, experts said.

“It’s a combination of knowing it’s some truth and the unknown of the truth, that gives the thrill in watching shows like ‘Homeland,’” said Adrienne Mazzone, executive vice president of TransMedia Group, a Florida public relations firm that works in arts and entertainment.

Mazzone says while we rely on information the media  reports, the media is not always privy to the full story.  Viewing shows like “Homeland” makes people think they are getting a fuller picture of what the government is not sharing, she said.

Walter Podrazik, an adjunct lecturer in the University of Illinois at Chicago’s communications department, agrees.

Podrazik, who also authored a series of books on media history with a specialization in TV, said that the American obsession with reality TV plays a role in this trend. This sense of voyeurism creates a desire to go behind the scenes and see what is behind the public face.

“The aftermath of 9/11 and the wars in Afghanistan and Iraq have been around for a while now. In a way this storytelling is this generation owning and dealing with this war,” said Podrazik. “This is not already in the pages of the history book, this is now – this is them. There are many stories to tell. What does it all mean? If it’s worth it, why is it worth it? If it isn’t, why? There is a captivating draw.”

On top of real-life security concerns, Americans are also drawn to implausible and somewhat apocalyptic security breaches. AMC’s “The Walking Dead,” a series about a police officer leading a group of survivors in a world overrun by zombies brings in millions of viewers on a weekly basis.

While popular media based on historical events takes liberties, it is common for producers to seek the CIA’s and FBI’s input. CIA spokeswoman Jennifer Youngblood said

For example, “Zero Dark Thirty,” drew early controversy because of its enhanced portrayal of torture by the CIA, which critics have called “disturbing” and “misleading.”

“Over the years, CIA has engaged with writers, documentary filmmakers, movie and TV producers, and others in the entertainment industry,” said CIA spokeswoman Jennifer said the CIA’s priority is to “protect sources and methods” and “debunk myths about the Agency” by answering writers’ questions.

“Our goal is an informed and balanced portrayal of the men and women of the CIA, their vital mission, and the commitment to public service that defines them,” said Youngblood. “The protection of national security equities is always paramount in any engagement with the entertainment industry.

FBI Public Affairs Specialist Beth Lefebvre said that while the FBI is open to providing guidance to TV and film producers, the decision of how to portray the FBI is in their hands.

“While the FBI in some cases does assist producers, many of these productions are works of fiction and for entertainment purposes – writers and producers can choose how they ultimately portray their characters or the plot line and how accurately they want to depict the FBI in the storyline,” Lefebvre said.

The U.S. has been involved in wars and international conflicts for much of its almost 237-year history. But nothing in recent history has instilled as much fear and fascination as the terrorist attacks spearheaded by al–Qaida and its leader, Osama bin Laden.

Podrazik points out that recent films and TV shows portraying 9/11 and the wars in Afghanistan and Iraq differ from the Vietnam War-era productions. He says that the Vietnam War was so wrapped in controversy that it was hard to talk about it at that time. Therefore, the outcome was “surrogate criticisms” depicted by TV shows and films.

He believes we have since learned from the Vietnam experience. “Before we avoided it. Now we want to take it head on,” Podrazik said.

Columbia Pictures’ film “Zero Dark Thirty,” a dramatization of the real-life mission to assassinate Osama bin Laden, was No. 1 the weekend of its nationwide release, bringing in $24.4 million in ticket sales. Through today, domestic box office sales total $95.3 million.