Kratos [KTOS] is folding in the work that the company has done on the XQ-58A Valkyrie for the U.S. Air Force Skyborg program into offerings for the service’s Collaborative Combat Aircraft (CCA) effort.
The company is likely a top contender for CCA Increment 2.
Air Force Secretary Frank Kendall said this week that the Air Force plans to award concept definition and preliminary design contracts for Increment 2 in fiscal 2025 after the service narrows the field of Increment 1 CCA teams from five to two or three in a few months.(Defense Daily, Feb. 13).
Kendall has released a planning number of 1,000 CCAs to deploy from and aid 300
Lockheed Martin [LMT] F-35As and 200 Next Generation Air Dominance (NGAD) manned fighters.
The Air Force has said that it wants the first CCAs for air-to-air missions and later for others, such as intelligence, surveillance, and reconnaissance. The Air Force has said that CCA is a top priority, yet the service does not plan to field CCA until 2028–a slower than “Ukrainian innovation” outfitting that is likely a function of the time that the Air Force expects operational integration of the new CCA to take.
The U.S. Marine Corps has been flying the XQ-58A Valkyrie at Eglin AFB, Fla., for the Marine Corps’ Penetrating Affordable Autonomous Collaborative Killer – Portfolio (PAACK-P) program, which may field in the next two years (Defense Daily, Oct. 6, 2023).
“Skyborg propelled us into two things–stuff related to CCA and stuff related to Marines,” Steve Fendley, the president of Kratos’ unmanned systems division, said in a Feb. 14 telephone interview. “We’re flying all the time with Marines down at Eglin now.”
The Air Force has contracted with teams–led by Anduril, Boeing [BA], General Atomics, Lockheed Martin, and Northrop Grumman [NOC]–for concept definition and preliminary design of CCA Increment 1 (Defense Daily, Jan. 24). Northrop Grumman, Boeing’s Phantom Works, and Lockheed Martin’s Skunk Works have significant experience in low-observables that are likely to be part of the “exquisite” category of CCAs.
A Feb. 5 analysis by R.W. Baird & Co.—Drone Outlook: NGAD and CCA, What to Expect in 2024?–suggested that Kratos is a partner with Northrop Grumman on CCA Increment 1.
“Our checks indicate NOC has likely partnered with KTOS on the CCA program, even though this has not been made official,” the analysis said.
Last summer, Northrop Grumman said that it had decided not to bid on NGAD (Defense Daily, July 27, 2023).
“At Kratos, we believe that it’s better to have a big part of something instead of all of nothing,” Kratos CEO Eric DeMarco told stock analysts on a Feb. 13 earnings call. “And based on a program’s requirements, including schedule, the potential size of a Kratos investment required, the technical development and financial risk to Kratos, and also expected customer preferences, we may team with one or more of our prime partners on certain program opportunities instead of Kratos priming ourselves. We believe this teaming or partnership approach has been very successful, including recently on a high-profile program.”
DeMarco told analysts that the company has four Valkyrie variants and a fifth that Kratos’ Ghost Works unit is assessing.
“We expect to receive the largest Valkyrie-related contract award to-date in late 2024, and I am confident that all 24 Valkyries we have produced, or plan to complete production on, will ultimately be sold, or delivered to funded customers,” he said. “We are establishing an additional production line, for the new drone system program that we are under contract on with a partner.”
Some top Air Force officials are suggesting the need for a significantly higher target number of CCAs than the 1,000 planned.
While Air Force estimated CCA flyaway costs range between $25 million and $33 million, including a number of “exquisite” CCAs with stealth characteristics, there may be a coming shift to a CCA mix with more attritables around a price of $5 million to $10 million.
“We expect a variety of [CCA] mission sets at different price points, ranging from $5 million+ (“attritable” category; high unit volumes) to “exquisite” (which will have lower unit volumes but higher priced in the $20 million+ category),” according to the Feb. 5 R.W. Baird analysis.
If attritables end up as a bigger share of CCA, the $5 million XQ-58A Valkyrie could be a significant player.
“The reason the Valkyrie and Kratos have an attractive position is their entire supply chain is based off their target drone business,” Peter Arment, a defense and aerospace analyst at R.W. Baird, said in a Feb. 14 telephone interview. “They’re already doing $200 million a year in target drone business so they have a very low cost structure that is unmatched by any of the [defense] primes. Then, if you beef up the engines, or you’re gonna partner with someone and they’re gonna take care of all the ‘exquisite’ sensors or weapons packages, that might drive up the price, but Kratos is starting at a $3 million to $5 million price point with the Valkyrie, and, if you load it with stuff, may be you get to $10 million [per drone].”