A Different Kind of Battle

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In the land Down Under, the so-called Hunter-class frigate is being hailed as the government’s weapon of the future—and quite a financial prize for the aerospace industry.

Spanning the size of a football field and a half, the ship comes equipped with an anti-missile defense system, advanced gunnery, and enough space to carry two wartime helicopters. The Australian government has ordered nine of the vessels—at a cost of around $25 billion—but not before imposing a critical requirement on BAE, the British defense and aerospace giant behind the deal. It must hire and train some 5,000 locals to build, maintain, and run the entire infrastructure around the ships.

It’s just the latest example of how today’s modern warfare has taken on an entirely new dimension for the industry that backs it. No longer do these firms rely on superpowers like the United States and China for megadeals; countries from Poland to Saudi Arabia are becoming big customers of firms like Lockheed Martin, Raytheon, Boeing, Northrop Grumman, and Spirit AeroSystems. But this multi­billion-dollar opportunity comes with a new challenge: Instead of outsourcing the work to the firms, those countries want the companies’ help in finding jobs and training local workers to build and run these massive jetliners and war machines.

“Jobs development and training is a huge part of any sale,” says Jon Barney, a Korn Ferry senior client partner who specializes in aerospace and defense. “The countries want to develop their economies, train their people, and develop export businesses as part of their return on investment.”

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The non-superpowers have jumped into the defense game in part because global security issues have become such a big concern. At the same time, they’re seeing the deals as a great way to boost their own economies, reskilling workers in a variety of fields including high tech. But that creates a new wrinkle for many aerospace and defense organizations, since few are more experienced at bringing in their experts than finding and training talent far from their home offices and management.

In the case of Australia’s deal, for example, an Australian-government-owned shipbuilding firm will become part of BAE during the construction phase of the program, and then revert back to government ownership once it is complete. As Gabby Costigan, the CEO of BAE Systems Australia, put it, “There is a new war for talent in the defense sector in Australia.”

According to Samantha Marnick, executive vice president and chief administration officer at Spirit AeroSystems, the new world customer base “means doing work in places you weren’t thinking of doing work in before.” Indeed, a Korn Ferry survey of more than 100 industry leaders found that 56 percent said they expect their need to recruit talent to increase in the next year. Jeff Kohler, a former Air Force lieutenant general and ex-Boeing senior executive who now leads his own advisory firm, J. Kohler Global LLC, says most foreign countries’ aerospace and defense companies are state run and “way behind” in operations and management. “Training is a huge learning curve that could potentially add a lot of costs for firms,” he says.

In response, along with partnerships, some firms are taking on a “hub and spoke” approach to developing overseas talent, combining regional offices from the parent company with local offices and management. Still, that requires a lot of calculations, including everything from the cost difference between locals verses expats, skills needed, tax laws, and the level of integration, says Nigel Sutton, vice president international, Northrop Grumman Innovative Systems, Defense Systems Group.

However the deals are being arranged, Korn Ferry’s Barney says countries are going to become frustrated if they don’t see the jobs being created or any improvement in local skill sets. He believes ultimately there should be metrics to measure the progress. As for now, the warfare is clearly focused beyond price, including a $6 billion deal in March between the Polish government and Raytheon for the Patriot integrated air and missile defense system—the largest arms procurement deal in the country’s history.

“The sale price was important,” says Tom Vecchiolla, a former president of Raytheon International who was recently named CEO of the engineering services contractor VT Systems, “but the more important piece to the Polish government was creating and sustaining high-technology jobs.”