Products Speak Louder Than PowerPoints

Kratos is disrupting the traditional procurement model by learning what the customer wants and developing it long before the Request for Proposal.

Kratos operates differently than your typical defense contractor. It is a public company that acts more like a venture-backed, high-tech startup. Rather than waiting for the customer to begin a program of record or issue a Request for Proposal, Kratos anticipates a need and gets to bending metal, shaping composites, or writing software–on its own dime.

The result, says Eric DeMarco, president and chief executive officer of Kratos Defense & Security Solutions, Inc., is that when the customer is ready to actually buy something, Kratos is ready with a product that closely matches the specifications. These products typically utilize commercially available technology, keeping costs to a minimum and driving affordability in a world of increasing threats and declining defense dollars.

Kratos also has proven adept at leveraging supply lines for existing products to rapidly develop new ones. A prime example is the company’s Air Wolf tactical drone.

In this Q&A, DeMarco discusses the benefits and challenges of Kratos’ disruptive approach to defense contracting.

Breaking Defense: How has being an agile, tech-focused company allowed you to approach defense contracting differently?

DeMarco: It’s enabled us to take more of a commercial approach where we don’t have to chase formal requirements or programs of record. We meet with Army, Air Force, Space Force, Navy, and Marine Corps customers. We look at their strategy papers on what they believe they’re going to need three, four, five years from now. We go to our board, which includes venture capitalists, and brief them on it. With their approval, we will then actually develop and build a functioning system and take the solution–not a PowerPoint – to the customer.

We can literally go and design, develop, build, and demonstrate things for the customer very rapidly, in a year or two, and get their feedback. If they like it, we make some tweaks and are able to deliver it to them much quicker than the traditional defense approach allows.

Breaking Defense: Isn’t that risky?

DeMarco: We minimize our schedule risk, our technical risk, and financial risk because we primarily use proven technologies, many of which are found commercially. So there are quantities out there, which means low cost. Affordability is a key aspect of this commercial-venture approach that we take. It is central to Kratos’ mission.

If we come up with and deliver the right product, at the right time, at the right price, we should win. The customer should acquire it. We think that gives the customer an advantage both financially and against our adversaries.

Breaking Defense: Are there drawbacks to this approach?

DeMarco: We probably have a handful and a half of products and systems that are in the infamous valley of death. We’ve flown them, we’ve demonstrated them–satellite systems, ground systems, drone systems–and we’re trying to get into a program of record or get to a quantity production scenario. That’s the risk.

However, we think the benefit, more times than not, outweighs that risk. Because our affordable, leading-edge systems are built from proven, mostly commercially available technologies, we are able to quickly pivot and break out subsystems that have more immediate applications and offer the same advantage of affordability. And we believe that our approach is the right approach for our country and the Department of Defense.

Breaking Defense: Are you willing to have some products of yours die of thirst in the valley of death?

DeMarco: I don’t want to say willing. We’re doing this eyes wide open. But obviously we are in constant, direct communication with the user community. We know that our customers want this, and we are confident in our model. It provides significant benefit to the Pentagon and allows their needs to be met before they know they exist. The valley of death is not a nefarious thing. The users want us to get our technologies across it and established as programs of record, but they obviously have rules and processes they have to follow.

I’m sure those rules were very effective and appropriate at the right time. Today, with how fast China is moving, and how fast Russia is moving in certain areas, we as a country have to change the paradigm and look at these rules and the traditional way we have been developing and procuring defense technologies to ensure rapid-development companies like Kratos can get our products to the user and we don’t fall behind our near-peer adversaries.

Breaking Defense: You’ve cited your Burns Flat drone facility in Oklahoma as an example of Kratos’ venture philosophy. How did that come about?

DeMarco: We made the decision four or five years ago that our next drone production facility was going to be in Oklahoma. While we were pursuing that, we became aware of an old spaceport out in Burns Flat. So we checked it out, and we said to ourselves, ‘wow, if we could work with the state government, the appropriate local government, Senator Inhofe’s Office and the FAA, and we could get approval for the Burns Flat spaceport to be a real drone port–not for quad copters, but for jet drones–that Kratos and other companies could use, that would significantly increase the speed of development and flight and reduce the dependence on the government customers.’

As you probably know, the long pole in the tent is getting on weapons ranges. Getting on ranges is very costly. With our now operational unmanned division production facility nearby and a state-run testing range at Burns Flat, we could test on a very short notice instead of having to schedule something on a weapons range months and months in advance.

In August, we flew our Air Wolf at the newly approved Burns Flat Test Range for the first time. We are confident that access to this less scheduled, local range will further increase Kratos’ ability to rapidly develop and demonstrate jet drones, supporting subsystems, and other tactical and target systems and aircraft.

Breaking Defense: Can you talk about how you fast-tracked development of the Low Cost Attritable Aircraft Program?

DeMarco: Kratos’ digital engineering/rapid development in our core competency areas like drones is second to none in the world. We’re number one, by far. We demonstrate that on the Low-Cost Attritable Strike program day after day: 30 months from a white piece of paper to our Valkyrie, a 3,000-mile strike unmanned drone, flying. We do that all the time. We don’t show up with PowerPoints; we show up with products.

For the development of the XQ-58A, while the customer contributed about $10 million, we assumed the risk and contributed about $30 million because that’s part of our business model. And because we made that contribution, we drove schedule. Thirty months later an airplane was flying.

Breaking Defense: How about your OpenSpace software-defined satellite ground system?

DeMarco: The vast majority of defense companies build products and systems that are typically tied to a government program of record for which the satellite primes build a satellite and the ground equipment. Everything is driven by that program. With OpenSpace, we took a broader look and said, ‘Let’s look at the future of network technologies and see how we can apply them to the massive innovation that is occurring in the space domain.’

Satellites are undergoing rapid evolution including software-defined payloads, spot beams, proliferated LEO constellations, small sats and more, but the ground systems haven’t kept up. The idea behind OpenSpace is to make the leap to the next curve, creating a software ground platform that is fully digital, that moves off of custom hardware to generic xx86 and cloud environments, that can share and integrate space information with other cross-domain data, that is easily scalable, configurable, resilient, and, most of all, is based on industry standards so it is vendor neutral in terms of network elements. That also means we’re not tied to a program, which means we’re not tied to a schedule.

To use an analogy, most space networks are still living in a 2G world where the rest of communications technology advanced to 3G and 4G long ago and is now implementing 5G. Keep in mind Kratos has been a major space company for a long time. Our products support more than 85 percent of U.S. space missions and are used by upwards of 75 percent of commercial satellite operators. We’ve taken that knowledge and invested well over $100 million in the past four years in OpenSpace to bring to space the capabilities that cell phone users take for granted.

I think we’ve got a tiger by the tail here because this significantly reduces cost and increases speed of deployment and capability. And let me emphasize, this is not bleeding edge. We’ve basically taken technologies, architectures, and standards used for modern terrestrial ground and cell-phone networks and applied it to the space network. This reduced risk and pulled the schedule to the left. And it also means defense space systems will interoperate better with commercial communications networks.

Breaking Defense: How are you parlaying existing programs into new capabilities?

DeMarco: I’ll give you an example. We are the leading target drone producer for the U.S. Department of Defense. Our MQM-178 Firejet is the target drone of choice for the U.S. Army, for their testing of Patriot missiles and other systems.

We have built hundreds of target jet drones for the Army and other important customers. We have a supply chain for engines, electronics, avionics, composites, everything to build the airplane. Following the Kratos model, we recognized a need and took that target drone and turned it into a tactical drone called Air Wolf that carries tactical system-type payloads, including weapons.

Because we’re leveraging the target-drone supply chain and building the new system from a low-cost product up, the price point for these is $300,000 to $500,000 each. This is for an extremely survivable jet aircraft that can deploy weapons.

This is just one example, but we employ this philosophy companywide, whether we are developing unmanned systems, hypersonics, microwave electronics, next-gen turbojet and turbofan engines or providing satellite communications, training, and combat systems.

At Kratos, we are laser focused on affordability as a technology and applying rigorous design-to-cost requirements into all of our systems and solutions from development through final production. It’s how we believe we can begin to shift the paradigm.

Breaking Defense: What kinds of weapons?

DeMarco: A large range, most of which we cannot discuss, but I’ll give you an example which we just recently demonstrated. We can send out a swarm of Air Wolf drones or any other of our tactical systems that can, in turn, release a swarm of loitering munitions, for example. Now you have two massive swarms coming at the adversary that are extremely cost-effective and more precise than the conventional approach to this type of mission with manned systems and long-range missiles.

Our long-range, survivable UAS like Air Wolf can get us closer to the battlefield, carrying these shorter-range, swarm-capable loitering UAS en masse, deploy them, and then also carry out its own mission, including kinetic. You can have half of them being on a suicide mission and half of them providing intelligence, surveillance, reconnaissance, and targeting, It gives the adversary a major targeting problem that they can’t afford to ignore and, in my opinion, can’t solve.

This provides the U.S. an affordable, extremely effective way to meet the increasing and more complex threats of the modern battlefield. In addition, we are specifically focused on the China threat with the new products that Kratos Ghost Works is developing.