How Houthi rebels are threatening global trade nexus on Red Sea

Press play to listen to this article

Voiced by artificial intelligence.

The U.S. is mustering an international armada to deter Iranian-backed Houthi militias from Yemen from attacking shipping in the Red Sea, one of the world’s most important waterways for global trade, including energy cargos.

The Houthis’ drone and missile attacks are ostensibly a response to the war between Israel and Hamas, but fears are growing that the broader world economy could be disrupted as commercial vessels are forced to reroute.

On Tuesday, U.S. Secretary of Defense Lloyd Austin held a videoconference with 43 countries, the EU and NATO, telling them that “attacks had already impacted the global economy and would continue to threaten commercial shipping if the international community did not come together to address the issue collectively.”

Earlier this week, the U.S. announced an international security effort dubbed Operation Prosperity Guardian that listed the U.K., Bahrain, Canada, France, Italy, the Netherlands, Norway, the Seychelles and Spain as participants. Madrid, however, said it wouldn’t take part. 

The Houthis were quick to respond. 

“Even if America succeeds in mobilizing the entire world, our military operations will not stop unless the genocide crimes in Gaza stop and allow food, medicine, and fuel to enter its besieged population, no matter the sacrifices it costs us,” said Mohammed Al-Bukaiti, a member of the Ansar Allah political bureau, in a post on X

Here’s what you need to know about the Red Sea crisis.

1. Who are the Houthis and why are they attacking ships?

International observers have put the blame for the hijackings, missiles and drone attacks on Houthi rebels in Yemen, who have stepped up their attacks since the Israel-Hamas war started. The Shi’ite Islamist group is part of the so-called “axis of resistance” against Israel and is armed by Tehran. Almost certainly due to Iranian support with ballistics, the Houthis have directly targeted Israel since the beginning of the war, firing missiles and drones up the Red Sea toward the resort of Eilat.

The Houthis have been embroiled in Yemen’s long-running civil war and have been locked in combat with an intervention force in the country led by Sunni Saudi Arabia. The Houthis have claimed several major strikes against high-value energy installations in Saudi Arabia over the past years, but many international observers have identified some of their bigger claims as implausible, seeing the Houthis as a smokescreen for direct Iranian action against its arch enemy Riyadh.

After first firing drones and cruise missiles at Israel, the rebels are now targeting commercial vessels it deems linked to Israel. The Houthis have launched about 100 drone and ballistic missile attacks against 10 commercial vessels, the U.S. Department of Defense said on Tuesday

As a result, some of the world’s largest shipping companies, including Italian-Swiss MSC, Danish giant Maersk and France’s CMA CGM, were forced to reroute to avoid being targeted. BP also paused shipping through the Red Sea. 

2. Why is the Red Sea so important?

The Bab el-Mandeb (Gate of Lamentation) strait between Djibouti and Yemen where the Houthis have been attacking vessels marks the southern entrance to the Red Sea, which connects to the Suez Canal and is a crucial link between Europe and Asia. 

Estimate are that 12 to 15 percent passes of global trade takes this route, representing 30 percent of global container traffic. Some 7 percent to 10 percent of the world’s oil and 8 percent of liquefied natural gas are also shipped through the same waterway. 

Now that the strait is closed, “alternatives require additional cost, additional delay, and don’t sit with the integrated supply chain that already exists,” said Marco Forgione, director general with the Institute of Export and International Trade.

Diverting ships around Africa adds up to two weeks to journey times, creating additional cost and congestion at ports.

3. What is the West doing about it?

Over the weekend, the American destroyer USS Carney and U.K. destroyer HMS Diamond shot down over a dozen drones. Earlier this month, the French FREMM multi-mission frigate Languedoc also intercepted three drones, including with Aster 15 surface-to-air missiles. 

Now, Washington is seeking to lead an international operation to ramp up efforts against the Iran-backed group, under the umbrella of the Combined Maritime Forces and its Task Force 153. 

“It’s a reinsurance operation for commercial ships,” said Héloïse Fayet, a researcher at the French Institute for International Relations (IFRI), adding it’s still unclear whether the operation is about escorting commercial vessels or pooling air defense capabilities to fight against drones and ballistic missiles. 

4. Who is taking part?

On Tuesday, the U.K. announced HMS Diamond would be deployed as part of the U.S.-led operation.

After a video meeting between Austin and Italian Defense Minister Guido Crosetto, Italy also agreed to join and said it would deploy the Virginio Fasan frigate, a 144-meter military vessel equipped with Aster 30 and 15 long-range missiles. The ship was scheduled to begin patrolling the Red Sea as part of the European anti-piracy Atalanta operation by February but is now expected to transit the Suez Canal on December 24.

France didn’t explicitly say whether Paris was in or out, but French Armed Forces Minister Sébastien Lecornu told lawmakers on Tuesday that the U.S. initiative is “interesting” because it allows intelligence sharing.

“France already has a strong presence in the region,” he added, referring to the EU’s Atalanta and Agénor operations.  

However, Spain — despite being listed as a participant by Washington — said it will only take part if NATO or the EU decide to do so, and not “unilaterally,” according to El País, citing the government.

5. Who isn’t?

Lecornu insisted regional powers such as Saudi Arabia should be included in the coalition and said he would address the issue with his Saudi counterpart, Prince Khalid bin Salman Al Saud, in a meeting in Paris on Tuesday evening. 

According to Bradley Bowman, senior director of the Center on Military and Political Power at Washington’s Foundation for Defense of Democracies, a number of Middle Eastern allies appear reluctant to take part.

“Where’s Egypt? Where is Saudi Arabia? Where is the United Arab Emirates?” he asked, warning that via its Houthi allies Iran is seeking to divide the West and its regional allies and worsen tensions around the Israel-Hamas war.

China also has a base in Djibouti where it has warships, although it isn’t in the coalition.

6. What do the Red Sea attacks mean for global trade?

While a fully-fledged economic crisis is not on the horizon yet, what’s happening in the Red Sea could lead to price increases.

“The situation is concerning in every aspect — particularly in terms of energy, oil and gas,” said Fotios Katsoulas, lead tanker analyst at S&P Global Market Intelligence.

“Demand for [maritime] fuel is already expected to increase up to 5 percent,” he said, and “higher fuel prices, higher costs for shipping, higher insurance premiums” ultimately mean higher costs for consumers. “There are even vessels already in the Red Sea that are considering passing back through the Suez Canal to the Mediterranean, even if they’d have to pay half a million dollars to do so.”

John Stawpert, a senior manager at the International Chamber of Shipping, said that while “there will be an impact in terms of the price of commodities at your supermarket checkout” and there may be an impact on oil prices, “there is still shipping that is transiting the Red Sea.” 

This is not “a total disruption” comparable to the days-long blockage of the canal in 2021 by the Ever Given container ship, he argued. 

Forgione, however, said he was “concerned that we may end up with a de facto blockade of the Suez Canal, because the Houthi rebels have a very clear agenda.”

7. Why are drones so hard to fight?

The way the Houthis operate raises challenges for Western naval forces, as they’re fending off cheap drones with ultra-expensive equipment. 

Aster 15 surface-to-air missiles — the ones fired by the French Languedoc frigate — are estimated to cost more than €1 million each while Iran-made Shahed-type drones, likely used by the Houthis, cost barely $20,000. 

“When you kill a Shahed with an Aster, it’s really the Shahed that has killed the Aster,” France’s chief of defense staff, General Thierry Burkhard, said at a conference in Paris earlier this month. 

However, if the Shahed hits a commercial vessel or a warship, the cost would be a lot higher.

“The advantage of forming a coalition is that we can share the threats that could befall boats,” IFRI’s Fayet said. “There’s an awareness now that [the Houthis] are a real threat, and that they’re able to maintain the effort over time.”  

With reporting by Laura Kayali, Antonia Zimmermann, Gabriel Gavin, Tommaso Lecca, Joshua Posaner and Geoffrey Smith.

Source link

#Houthi #rebels #threatening #global #trade #nexus #Red #Sea

Israel’s appetite for high-tech weapons highlights a Biden policy gap

Within hours of the Hamas attack on Israel last month, a Silicon Valley drone company called Skydio began receiving emails from the Israeli military. The requests were for the company’s short-range reconnaissance drones — small flying vehicles used by the U.S. Army to navigate obstacles autonomously and produce 3D scans of complex structures like buildings.

The company said yes. In the three weeks since the attack, Skydio has sent more than 100 drones to the Israeli Defense Forces, with more to come, according to Mark Valentine, the Skydio executive in charge of government contracts.

Skydio isn’t the only American tech company fielding orders. Israel’s ferocious campaign to eliminate Hamas from the Gaza Strip is creating new demand for cutting-edge defense technology — often supplied directly by newer, smaller manufacturers, outside the traditional nation-to-nation negotiations for military supplies.

Already, Israel is using self-piloting drones from Shield AI for close-quarters indoor combat and has reportedly requested 200 Switchblade 600 kamikaze drones from another U.S. company, according to DefenseScoop. Jon Gruen, CEO of Fortem Technologies, which supplied Ukrainian forces with radar and autonomous anti-drone aircraft, said he was having “early-stage conversations” with Israelis about whether the company’s AI systems could work in the dense, urban environments in Gaza.

This surge of interest echoes the one driven by the even larger conflict in Ukraine, which has been a proving ground for new AI-powered defense technology — much of it ordered by the Ukrainian government directly from U.S. tech companies.

AI ethicists have raised concerns about the Israeli military’s use of AI-driven technologies to target Palestinians, pointing to reports that the army used AI to strike more than 11,000 targets in Gaza since Hamas militants launched a deadly assault on Israel on Oct 7.

The Israeli defense ministry did not elaborate in response to questions about its use of AI.

These sophisticated platforms also pose a new challenge for the Biden administration. On Nov. 13, the U.S. began implementing a new foreign policy to govern the responsible military use of such technologies. The policy, first unveiled in the Hague in February and endorsed by 45 other countries, is an effort to keep the military use of AI and autonomous systems within the international law of war.

But neither Israel nor Ukraine are signatories, leaving a growing hole in the young effort to keep high-tech weapons operating within agreed-upon lines.

Asked about Israel’s compliance with the U.S.-led declaration on military AI, a spokesperson for the State Department said “it is too early” to draw conclusions about why some countries have not endorsed the document, or to suggest that non-endorsing countries disagree with the declaration or will not adhere to its principles.

Mark Cancian, a senior adviser with the CSIS International Security Program, said in an interview that “it’s very difficult” to coordinate international agreement between nations on the military use of AI for two reasons: “One is that the technology is evolving so quickly that the description constraints you put on it today may no longer may not be relevant five years from now because the technology will be so different. The other thing is that so much of this technology is civilian, that it’s hard to restrict military development without also affecting civilian development.”

In Gaza, drones are being largely used for surveillance, scouting locations and looking for militants without risking soldiers’ lives, according to Israeli and U.S. military technology developers and observers interviewed for this story.

Israel discloses few specifics of how it uses this technology, and some worry the Israeli military is using unreliable AI recommendation systems to identify targets for lethal operations.

Ukrainian forces have used experimental AI systems to identify Russian soldiers, weapons and unit positions from social media and satellite feeds.

Observers say that Israel is a particularly fast-moving theater for new weaponry because it has a technically sophisticated military, large budget, and — crucially — close existing ties to the U.S. tech industry.

“The difference, now maybe more than ever, is the speed at which technology can move and the willingness of suppliers of that technology to deal directly with Israel,” said Arun Seraphin, executive director of the National Defense Industrial Association’s Institute for Emerging Technologies.

Though the weapons trade is subject to scrutiny and regulation, autonomous systems also raise special challenges. Unlike traditional military hardware, buyers are able to reconfigure these smart platforms for their own needs, adding a layer of inscrutability to how these systems are used.

While many of the U.S.-built, AI-enabled drones sent to Israel are not armed and not programmed by the manufacturers to identify specific vehicles or people, these airborne robots are designed to leave room for military customers to run their own custom software, which they often prefer to do, multiple manufacturers told POLITICO.

Shield AI co-founder Brandon Tseng confirmed that users are able to customize the Nova 2 drones that the IDF is using to search for barricaded shooters and civilians in buildings targeted by Hamas fighters.

Matt Mahmoudi, who authored Amnesty International’s May report documenting Israel’s use of facial recognition systems in Palestinian territories, told POLITICO that historically, U.S. technology companies contracting with Israeli defense authorities have had little insight or control over how their products are used by the Israeli government, pointing to several instances of the Israeli military running its own AI software on hardware imported from other countries to closely monitor the movement of Palestinians.

Complicating the issue are the blurred lines between military and non-military technology. In the industry, the term is “dual-use” — a system, like a drone-swarm equipped with computer-vision, that might be used for commercial purposes but could also be deployed in combat.

The Technology Policy Lab at the Center for a New American Security writes that “dual-use technologies are more difficult to regulate at both the national and international levels” and notes that in order for the U.S. to best apply export controls, it “requires complementary commitment from technology-leading allies and partners.”

Exportable military-use AI systems can run the gamut from commercial products to autonomous weapons. Even in cases where AI-enabled systems are explicitly designed as weapons, meaning U.S. authorities are required by law to monitor the transfer of these systems to another country, the State Department only recently adopted policies to monitor civilian harm caused by these weapons, in response to Congressional pressure.

But enforcement is still a question mark: Josh Paul, a former State Department official, wrote that a planned report on the policy’s implementation was canceled because the department wanted to avoid any debate on civilian harm risks in Gaza from U.S. weapons transfers to Israel.

A Skydio spokesperson said the company is currently not aware of any users breaching its code of conduct and would “take appropriate measures” to mitigate the misuse of its drones. A Shield AI spokesperson said the company is confident its products are not being used to violate humanitarian norms in Israel and “would not support” the unethical use of its products.

In response to queries about whether the U.S. government is able to closely monitor high-tech defense platforms sent by smaller companies to Israel or Ukraine, a spokesperson for the U.S. State Department said it was restricted from publicly commenting or confirming the details of commercially licensed defense trade activity.

Some observers point out that the Pentagon derives some benefit from watching new systems tested elsewhere.

“The great value for the United States is we’re getting to field test all this new stuff,” said CSIS’s Cancian — a process that takes much longer in peacetime environments and allows the Pentagon to place its bets on novel technologies with more confidence, he added.

Source link

#Israels #appetite #hightech #weapons #highlights #Biden #policy #gap

Meet The Billionaire Who Built A Fortune ‘Price-Gouging’ Customers Like The Pentagon

These are good times for Nicholas Howley. TransDigm, the airplane-parts maker he cofounded, has sidestepped allegations of excess profits of as much as 4,436%, the stock has hit record highs, and Forbes has determined that Howley’s net worth now has three commas.

By Jeremy Bogaisky Forbes Staff

Lawmakers had a lot of questions at a January 2022 congressional hearing into what they called price-gouging in military contracting, featuring parts-supplier TransDigm Group.

Nicholas Howley, the company’s cofounder, board chair and former CEO, didn’t have a lot of answers.

One question: Did your company refuse to give pricing data to the military?

“I don’t know,” Howley replied.

Was Howley aware that his compensation as CEO was more than the CEOs of Raytheon, Boeing and Lockheed Martin combined?

“I don’t know.”

Seventeen times Howley ended up answering, “I don’t know.” Which infuriated Rep. Katie Porter (D-Calif.). “For $68 million a year,” she told Howley, referring to his 2020 compensation, “you need to know what’s going on in your company.”

What Porter and everybody else didn’t know: Howley has made out much better than that.

Since TransDigm went public in 2006, Forbes estimates that Howley has amassed a fortune of $1.1 billion. That’s based on his disclosures of TransDigm stock sales and publicly reported CEO compensation before he stepped down to become board chair in 2018.

To critics, TransDigm is a symbol of corporate greed. Its playbook: buy companies that are the only ones that make particular aircraft parts and jack up prices for customers who don’t have alternatives. Reviews by the Pentagon’s inspector general in 2019 and 2021 found that immediately after acquiring a company, TransDigm raised prices on 44 of 46 items, and reaped profit margins as high as 4,436% over the 15% that investigators deemed reasonable. It was all legal. Still, a former employee described TransDigm as a “cancer.” Another told Forbes that the company is the “Satan of aircraft parts.”

To investors, however, TransDigm’s business model has proven ingenious. The Cleveland-based company has rung up a total return (stock-price appreciation plus dividends) of 29% annually since its IPO, according to FactSet data, with revenue growing over tenfold to $5.6 billion in fiscal 2022. That total return is No. 1 by a wide margin among U.S.-listed aerospace and defense companies over that span, roughly a third better than the next closest, rival parts-maker HEICO.

To taxpayers, TransDigm is a boondoggle. With $816 billion in funding, the Pentagon is the fifth-largest line item in the U.S. government’s $5.8 trillion budget for fiscal 2023. Overcharging for spare parts alone may have inflated defense spending by billions over the past two decades, according to Pentagon audits that looked at a universe of companies beyond just TransDigm. A review of a 2018 contract with a TransDigm unit found that the military would pay $119.3 million over 10 years for 100 parts that should have cost $28.3 million — $9 million a year up in smoke. Air travelers, too, pay higher fares due to what the House Oversight committee has called TransDigm’s “abusive pricing practices.” Airlines are the company’s biggest customers.

In a statement, the company said, “The Department of Defense audits of select contracts consistently concluded that TransDigm businesses followed all laws and regulations.” It also said, “The DoD typically receives a substantial discount to commercial market prices where available.”

Howley, 71, has generally avoided talking to the media. He didn’t respond to requests to speak to Forbes.

Howley isn’t the only TransDigm executive who’s gotten rich. The company awards big stock-option packages to executives, including the managers of its subsidiaries, contingent on meeting ambitious financial goals.

“It’s made many people quite wealthy,” Bob Henderson, who retired at the end of 2021 as vice chairman, told Forbes.

The company’s zeal for inflating prices is well documented. The Defense Department has conducted at least four investigations going back to 2006. All of them concluded that TransDigm has reaped excessive profits. In May, CBS’ 60 Minutes produced a segment on price-gouging that called out the company along with some of the biggest Pentagon contractors.

Less well-known is the relentless pressure to improve financial returns, and qualify executives for stock awards, that four former employees told Forbes has led managers to boost revenue with aggressive accounting maneuvers that could amount to fraud. And Forbes is reporting the billion-dollar wealth of the man behind the sprawling operation for the first time.

Birth Of TransDigm

Howley grew up in Havertown, a Philadelphia suburb, the son of the president of Lansdowne Steel & Iron, which made munitions for the U.S. military. (Like father, like son: a 1971 GAO report faulted the company for overstating costs to inflate pricing.) Howley worked there during high school and while studying mechanical engineering at Drexel University, he said last year on a podcast hosted by a business partner, private-equity investor Will Thorndike. “That was likely the best on-the-ground practical business experience I received in my life,” Howley said of Lansdowne, where he operated machine tools and got his first taste of management and finance.

After earning an MBA from Harvard in 1979, Howley landed at IMO Industries, an industrial conglomerate, where he was eventually tasked with setting up four underperforming aerospace parts units for sale. On the podcast, Howley described, at times gleefully, how he and his boss, Doug Peacock, maneuvered behind the scenes to buy the businesses themselves, negotiating a joint bid with the private-equity firm Kelso. When management realized what Peacock was up to, they fired him, but given Howley’s key role in the sale process they couldn’t easily jettison him, he said, despite suspicions he was in on it, too. There were other bidders, but “they weren’t going to get much help from me,” Howley said with a laugh.

Thus was born TransDigm in 1993. Howley and Peacock quickly arrived at a formula to grow industrial companies. “You can get the price up, you can get the cost down and you can generate new business,” Howley said on the podcast. “Almost anything else, tertiary at best.”

Bathroom Faucets

In 2022, TransDigm said about 90% of its sales were from proprietary products. Many of them might not seem special — things like valves, door latches and bathroom faucets. But the company takes advantage of peculiarities in the highly regulated nature of the aviation industry. Every part on a commercial aircraft, and the methods for manufacturing it, must be certified as safe and reliable by the Federal Aviation Administration. It’s a time-consuming and expensive process, and even with huge price hikes, most of TransDigm’s products remain a small part of the overall cost of an aircraft, mitigating the incentive for customers to seek out less expensive alternatives.

When an aircraft is under development, parts makers compete to win a place on it. That holds down prices. Companies may lose money or scratch out thin profits selling components to Boeing and Airbus during the initial production runs. But they have a freer hand in selling replacement parts to airlines and other operators — the so-called aftermarket. Planes can keep flying for decades after they’re no longer produced.

True to that formula, the aftermarket accounted for 55% of TransDigm’s sales last year, but roughly three-quarters of a measure of profit called Ebitda (earnings before interest, taxes, deductions and amortization).

One example is the case of a quick-disconnect coupling half, a small part that allows for the rapid connection and disconnection of fluid lines without tools. TransDigm sold it to the Pentagon in 2017 at a price that amounted to a 219% a year increase from 1991. On a subsequent purchase for the same price in 2018, the inspector general determined TransDigm booked an excess profit margin of 1,698%.

Prices and manufacturing costs have been redacted in reports the Defense Department releases to the public, but for a 2019 congressional hearing, House Democrats revealed that the inspector general found it cost TransDigm $173 to make a quick-disconnect coupling that it sold it to the Pentagon for $6,986.

While the Pentagon has not accused TransDigm of breaking any laws, something is definitely broken, starting with the rules governing defense acquisitions. A big reason the Pentagon hasn’t negotiated better deals is that TransDigm has been able to refuse its requests for cost information to gauge the fairness of its pricing. By law, military contractors don’t have to produce cost data on transactions below $2 million. Congress raised the limit in 2018 from $750,000, saying it wanted to cut red tape.

Voluntary Refund

Former TransDigm employees told House Oversight Committee staff that the company structured contracts to avoid hitting the thresholds that would trigger cost-reporting requirements. From 2017 through June 2019, 95% of TransDigm’s contracts fell below that level.

After getting pummeled in the 2019 hearing over the Pentagon inspector general’s findings, the company complied with a request to refund $16.1 million in overcharges. TransDigm has so far stiff-armed the Defense Department on another request — to return $20.8 million in excess profit found in a 2021 follow-up review. TransDigm claims that the 15% profit limit the inspector general’s report set is arbitrary and the review’s methodology was flawed because it excluded legitimate costs.


Here are five types of spare parts TransDigm sold to the Defense Department with profit margins as high as 4,436% over what the Pentagon inspector general deemed a fair level (15%), according to a 2019 report.

There’s one area where TransDigm may have broken rules. The Pentagon’s inspector general said in 2019 it had asked the Defense Criminal Investigative Service to look into allegations, first raised by the Washington business publication Capitol Forum, that the company failed to disclose in the federal contracting system that it was the owner of 12 subsidiaries that bid for Pentagon business. That would make it harder for the military to track TransDigm’s pattern of price hikes.

A spokesperson for the inspector general’s office told Forbes she could neither confirm nor deny that an investigation was underway. TransDigm didn’t respond to Forbes’ request to comment on the matter.

For all the attention directed at its relationship with the Pentagon, TransDigm’s direct sales to the military account for less than 10% of its revenue, according to Howley’s congressional testimony. More quietly, the company’s aggressive price increases have also ruffled feathers with airlines.

“They hate [TransDigm] with a passion, but they have no choice,” a former employee at subsidiary AvtechTyee told Forbes. “You don’t like it, your plane doesn’t fly.”

Plane makers can be caught in the middle. The airline customers complain to Boeing that TransDigm prices are high, and that’s making it hard to manage cost,” Abdol Moabery, CEO of GA Telesis, a company that repairs planes and distributes parts, told Forbes. “Boeing didn’t contract TransDigm to make these parts. Boeing contracted a company that TransDigm bought.” Boeing declined to comment.

TransDigm’s counterargument is that the expense and effort it puts in to deliver reliable parts quickly, so planes don’t languish idle on the ground, is worth the sting of higher prices. “Customers should not have to worry about our product and if they’re going to get it when they need it,” said Henderson, the retired TransDigm executive. “That comes with price.”

Shipping Parts Prematurely

At TransDigm subsidiary AvtechTyee, which makes structural components and audio and flight-deck systems, pressure to perform led managers to commit fraud, said Phyllis Santistevan-Sullivan, who was AvtechTyee’s finance chief and worked there from 2018 until she was fired in May 2021.

In a lawsuit filed in February, Santistevan-Sullivan claimed the company improperly sped up booking revenue to meet aggressive quarterly financial targets and pushed favorable numbers into the future when they weren’t needed for the current period. Santistevan-Sullivan says she was fired in retaliation for pushing back at the practices. She told Forbes she presumes similar things happen at other TransDigm units. “You could see presidents that weren’t meeting their goals would be let go,” she said. “If you can’t meet your budget, you’re not going to be around very long.”

Howley acknowledged on the podcast that the company is quick to replace underperforming executives.

In a court filing, TransDigm’s lawyers denied the allegations in Santistevan-Sullivan’s lawsuit and said she was fired for poor performance. The company declined a request from Forbes to comment further. A trial is scheduled for December 2024.

Santistevan-Sullivan said she discovered that $400,000 of revenue was improperly booked on a new project for Boeing, though no product was shipped, nor was Boeing invoiced.

She said the company also sent a prototype part to defense giant Lockheed Martin in 2019, almost a year before it was ready, so that hundreds of thousands of dollars in revenue could be recorded that quarter. Lockheed sent it back.

The former AvtechTyee employee who spoke anonymously corroborated Santistevan-Sullivan’s account of the Lockheed Martin incident, but said she was wrong in one respect — the part had actually been shipped to Lockheed prematurely twice to book milestone payments. “By the second time they were no longer really enjoying us very much,” he said.

Lockheed declined to comment.

Santistevan-Sullivan and the former employee said the part was shipped to Lockheed over the objections of engineers on the orders of Kevin Hanson, AvtechTyee’s vice president of sales and marketing. An idiosyncrasy of TransDigm is that sales and marketing chiefs are the No. 2 executives behind the subsidiary presidents, former employees told Forbes.

The former employee said the revenue booked from shipping the unfinished part was crucial to hitting quarterly targets, which were key to executive promotions. Missing the quarter’s revenue target “would have derailed [Hanson’s] ascendancy,” he told Forbes.

Hanson was promoted to president of the TransDigm subsidiary Korry Electronics in October 2021. He didn’t respond to a request for comment.

Improper revenue recognition is one of the most common types of financial fraud, accounting for 40% of fraud enforcement actions by the Securities and Exchange Commission between 2014 and 2019, according to a study by the Anti-Fraud Collaboration. The SEC didn’t respond to Forbes’ questions about TransDigm.

Acing The Audits

Two former finance employees at another subsidiary told Forbes that when TransDigm buys a company, it’s aggressive about setting up the so-called opening balance sheet — the basis against which future revenue and profit growth will be measured. The company books unusually high reserves for inventory losses and marginally profitable part-supply agreements that can be used as a “kitty” to boost revenue in the first few years after an acquisition, they said.

Creating high reserves reduces the book value of the acquired company, which requires TransDigm to record high amounts of what bookkeepers call goodwill to account for the difference between the company’s value and the purchase price. Goodwill essentially is a statement of confidence by TransDigm that it will make up the difference in value by improving the business.

TransDigm reported goodwill in 2022 that’s 48% of its total assets — an unusually high share, said Francine McKenna, an accounting expert and former Wharton lecturer who publishes a newsletter called The Dig. The company has only booked a hit to goodwill in its earnings once, in 2017. Both are “massive” red flags that TransDigm may be overpaying for its acquisitions and not acknowledging cases in which it hasn’t reaped the returns it expected, McKenna said.

TransDigm didn’t respond to questions about its accounting practices, but said in its statement that the company “undergoes thorough internal and external audits.”

Clear Skies

After years of government reports documenting TransDigm’s aggressive pricing, some things may be starting to change.

Rule-writing is under way on a measure passed by Congress last year that will give the Defense Logistics Agency, which handles purchasing for the Pentagon, the ability to compel companies to provide more information to back up claims that an item they’re selling to the military is identical to ones they sell to civilian customers. Companies have taken advantage of loose definitions of what counts as commercial products under regulations that absolve them of the responsibility to release cost data to determine if prices are reasonable on the presumption that those prices are governed by market forces and should be spared government red tape.

DLA has made slow progress on a program to reverse-engineer parts made by TransDigm to spark competition, which would, theoretically at least, lead to lower prices. It completed the process with 13 parts and said it received competitive bids for an unspecified number. That’s out of a universe of 986 parts DLA sourced from TransDigm that it identified as initial candidates.

Analyst Ken Herbert of RBC Capital Markets said he doubts there will be much interest from industry given the small quantities that the Pentagon orders of many of the parts. “I’m skeptical DLA can get enough companies fired up to take on the risk and make the investments,” he said.

Meanwhile, it’s clear skies for TransDigm’s commercial business. Air travel has rebounded from pandemic lows and airlines are clamoring for more planes while Boeing and Airbus are struggling to meet demand. The result is airlines holding onto older planes longer, and continuing to take jets out of storage that were parked in 2020. That means they’re spending more on maintenance and aftermarket parts — TransDigm’s sweet spot. Because of supply chain disruptions, airlines are also building higher inventories of parts. Even after TransDigm stock reached an all-time high last week, it remains a top pick for a number of Wall Street analysts.

TransDigm has had leverage to carry out some of its highest price increases ever, said Herbert. Airlines, rather than fighting it, are passing on the costs in higher airfares. “It’s sort of a perfect storm in a positive way for a company like TransDigm,” he said.

With assistance from Robert LaFranco.


MORE FROM FORBESThis Startup Wants To Fight Bladder Cancer With A Genetically Engineered VirusMORE FROM FORBESThe Top 10 Richest People In The World (August 2023)MORE FROM FORBESThis Grammy Winner Now Has A Best-Selling Brand At WalmartMORE FROM FORBESThe Age Of Disruption: Meet The 50 Over 50 2023MORE FROM FORBESFracking Pioneer Harold Hamm Explains How America Became The World’s Energy Superpower

Source link

#Meet #Billionaire #Built #Fortune #PriceGouging #Customers #Pentagon

Daniel Ellsberg, Pentagon Papers whistleblower who exposed Vietnam War secrets, dies at 92

Daniel Ellsberg, the U.S. military analyst whose change of heart on the Vietnam War led him to leak the classified “Pentagon Papers,” revealing U.S. government deception about the war and setting off a major freedom-of-the-press battle, died on Friday at the age of 92, his family said in a statement.

Issued on: Modified:

Ellsberg, who had been diagnosed with inoperable pancreatic cancer in February, died at his home in Kensington, California, the family said.

Long before Edward Snowden and Wikileaks were revealing government secrets in the name of transparency, Ellsberg let Americans know that their government was capable of misleading and even lying to them. In his later years Ellsberg would become an advocate for whistleblowers and leakers and his “Pentagon Papers” leak was portrayed in the 2017 movie “The Post.”

Ellsberg secretly went to the media in 1971 in hopes of expediting the end of the Vietnam War. It made him the target of a smear campaign by the Nixon White House. Henry Kissinger, who was then the president’s national security adviser, referred to him as “the most dangerous man in America who must be stopped at all costs.”

When he went to Saigon for the State Department in the mid-1960s, Ellsberg had an impressive resume. He had earned three degrees from Harvard, served in the Marine Corps and worked at the Pentagon and the RAND Corporation, the influential policy research think tank.

He was a dedicated Cold War warrior and hawk on Vietnam at the time. But Ellsberg, in his 2003 book, “Secrets: A Memoir of Vietnam and the Pentagon Papers,” said he was only one week into a two-year tour of duty in Saigon when he realized the United States was in a war it would not win.

Meanwhile at the behest of Defense Secretary Robert McNamara, Pentagon officials had secretly been putting together a 7,000-page report covering U.S. involvement in Vietnam from 1945 through 1967. When it was finished in 1969, two of the 15 published copies went to the RAND Corporation, where Ellsberg was once again working.

Anti-war rallies

With his new perspective on the war, Ellsberg started attending peace rallies. He said he was inspired to copy the “Pentagon Papers” after hearing an anti-war protester say he was looking forward to going to prison for resisting the draft.

Ellsberg began sneaking the top-secret study out of the RAND office and copying it at night on a rented Xerox machine – using his 13-year-old son and 10-year-old daughter as helpers. He took the documents with him when he moved to Boston for a job at the Massachusetts Institute of Technology and ended up sitting on them for a year and a half before passing pages to the New York Times.

The Times ran its first installment of the “Pentagon Papers” on June 13, 1971, and the administration of President Richard Nixon moved quickly to get a judge to stop further publication.

Nixon’s claim of executive authority and invocation of the Espionage Act set off a freedom-of-the-press fight over the extreme censorship of prior restraint.

Ellsberg’s next move was to give the “Pentagon Papers” to the Washington Post and more than a dozen other newspapers. In New York Times v. U.S., the Supreme Court ruled less than three weeks after first publication that the press had the right to publish the papers, and the Times resumed doing so.

The study said the U.S. officials had concluded that the war probably could not be won and that President John F. Kennedy approved of plans for a coup to overthrow the South Vietnamese leader. It also said Kennedy’s successor, Lyndon Johnson, had plans to expand the war, including bombing in North Vietnam, despite saying during the 1964 campaign that he would not. The papers also revealed the secret U.S. bombing in Cambodia and Laos and that casualty figures were higher than reported.

On the run

The Times never said who leaked the papers but the FBI quickly figured it out. Ellsberg remained underground for about two weeks before surrendering in Boston.

“I felt that as an American citizen, as a responsible citizen, I could no longer cooperate in concealing this information from the American public,” Ellsberg said at the time. “I did this clearly at my own jeopardy and I am prepared to answer to all the consequences of this decision.”

He would say that he regretted not leaking the papers sooner.

Even though the “Pentagon Papers” did not cover Nixon’s handling of Vietnam, the White House’s “plumbers” unit, which would later pull off the Watergate break-in that led to Nixon’s downfall, was ordered to stop further leaks and discredit Ellsberg.

Two and a half months after first publication, two men who later figured prominently in Watergate – G. Gordon Liddy and E. Howard Hunt – broke into the office of Ellsberg’s psychiatrist to search for incriminating evidence.

Ellsberg and a RAND colleague were eventually charged with espionage, theft and conspiracy. But at their 1973 trial, the case was dismissed on the grounds of government misconduct when the break-in was revealed.

In his later years, Ellsberg, who was born April 7, 1931 in Chicago, Illinois, became a writer and lecturer in the campaign for government transparency and against the proliferation of nuclear weapons.

He said Snowden, a contractor for the National Security Agency who gave journalists thousands of classified documents on government information-gathering before fleeing the country, had done nothing wrong. He also said he considered Army Private Chelsea Manning a hero for turning over a trove of government files to WikiLeaks.

His books include “The Doomsday Machine: Confessions of a Nuclear War Planner” in 2017 and “Secrets: A Memoir of Vietnam and the Pentagon Papers” in 2002.

The once-top-secret papers that Ellsberg shepherded into the mainstream can be read online at

Ellsberg had been married twice, first to Carol Cummings, with whom he had two children. That marriage ended in divorce.

His second marriage was to Patricia Marx, with whom he a son.


Source link

#Daniel #Ellsberg #Pentagon #Papers #whistleblower #exposed #Vietnam #War #secrets #dies

Pentagon intelligence leak: What we know so far

It’s been less than a week since news of highly classified military documents on the Ukraine war surfaced, sending the Pentagon into full-speed damage control to assure allies and assess the scope of the leak. 

The information on scores of slides has publicized potential vulnerabilities in Ukraine’s air defense capabilities and exposed private assessments by allies on an array of intelligence matters, raising questions about whether the leak will erode allies’ trust in sharing information with the US or impact Ukraine’s plans to intensify the fight against Russia this spring. 

Overall, the leaked documents present a “very serious risk to national security,” a top Pentagon spokesman told reporters Monday.

This is a look at what the documents are, what is known about how they surfaced, and their potential impact. 

The classified documents – which have not been individually authenticated by US officials – range from briefing slides mapping out Ukrainian military positions to assessments of international support for Ukraine and other sensitive topics, including under what circumstances Russian President Vladimir Putin might use nuclear weapons.

There’s no clear answer on how many documents were leaked. The Associated Press has viewed approximately 50 documents; some estimates put the total number in the hundreds. 

  • Where did they come from?

No one knows for sure, not even the Pentagon chief. 

“They were somewhere in the web, and where exactly, and who had access at that point, we don’t know. We simply don’t know,” Defense Secretary Lloyd Austin said at a press conference Tuesday. “We will continue to investigate and turn over every rock until we find the source of this and the extent of it.” 

It’s possible the leak may have started on a site called Discord. 

Discord is a social media platform popular with people playing online games. The Discord site hosts real-time voice, video and text chats for groups and describes itself as a place “where you can belong to a school club, a gaming group, or a worldwide art community.”

A Department of Defense plaque is seen outside the Pentagon in Washington, DC on October 6, 2021. © Mandel Ngan, AFP


In one of those forums, originally created to talk about a range of topics, members would debate the war in Ukraine. According to one member of the chat, an unidentified poster shared documents that the poster claimed were classified, first typing them out with the poster’s own thoughts, then, as of a few months ago, uploading images of folded papers.

The person who said he was a member of the forum told The Associated Press that another person, identified online only as “Lucca,” shared the documents in a different Discord chat. From there, they appear to have been spread until they were picked up by the media. 

Many details of the story can’t be immediately verified. And top US officials acknowledge publicly that they’re still trying to find answers. 

The leaks have highlighted how closely the US monitors how its allies and friends interact with Russia and China. Officials in several countries have denied or rejected allegations from the leaked records. 

The AP has reported on US intelligence picking up claims from Russian operatives that they were building a closer relationship with the United Arab Emirates, the oil-rich Middle Eastern nation that hosts important American military installations. The UAE rejected the allegations, calling them “categorically false.”

The Washington Post reported Monday that Egypt’s president ordered subordinates to secretly prepare to ship up to 40,000 rockets to Russia as it wages war in Ukraine. A spokesman for the Egyptian foreign ministry said Egypt was maintaining “noninvolvement in this crisis and committing to maintain equal distance with both sides.”

Other leaks have concerned allegations that South Korean leaders were hesitant to ship artillery shells to Ukraine and that Israel’s Mossad spy service opposed Prime Minister Benjamin Netanyahu‘s proposed overhaul of the judiciary. 

Funded at $90 billion annually, the US intelligence agencies have sweeping powers to tap electronic communications, run spies and monitor with satellites. The results of those powers are rarely seen in public, even in limited form. 

The Pentagon has begun an internal review to assess the leak’s impact on national security. The review is being led by Milancy D. Harris, the deputy undersecretary of defense for intelligence and security, a defense official said in a statement to AP. The team includes representatives from the offices of legislative affairs, public affairs, policy, legal counsel and the joint staff, the official said. 

The Pentagon was also quickly taking steps to reduce the number of people who have access to briefings, a second defense official said. Both officials spoke on the condition of anonymity to discuss sensitive matters. Pentagon officials are also closely monitoring where the leaked slides are “being posted and amplified,” said Chris Meagher, assistant to the secretary of defense for public affairs. 

Separately, the Justice Department has opened a criminal investigation into how the slides were obtained and leaked. 

CIA Director William Burns on Tuesday called the leak “deeply unfortunate.”

“It’s something that the US government takes extremely seriously,” he said in remarks at Rice University. “The Pentagon and the Department of Justice have now launched a quite intense investigation to get to the bottom of this.”

Senior military leaders have been contacting allies to address the fallout. That includes calls “at a high level to reassure them of our commitment to safeguarding intelligence and fidelity to our security partnerships. Those conversations began over the weekend and are ongoing,” Meagher said. 

US officials are likely to face more questions when they travel to Germany next week for the next contact group meeting, where representatives of more than 50 nations gather to coordinate weapons and aid support for Ukraine. But the document leak is not expected to affect that meeting or allies’ willingness to continue to provide military assistance to Ukraine, a senior defense official told The Associated Press, speaking on the condition of anonymity to discuss sensitive matters.

“I think a lot of the allies will probably be more curious about why it happened,” said Chris Skaluba, director of the Atlantic Council’s transatlantic security initiative. Given the high-level security clearance needed to access the information in the first place, the leak raises questions as to who “would have that much of an agenda to put it out there,” and whether the intent was to undermine support for Ukraine, Skaluba said. 

Austin on Tuesday contacted his South Korean counterpart, Defense Minister Lee Jong-sup, to discuss the leaked documents, several of which were particularly sensitive to Seoul because they described US surveillance of its ally and detailed South Korean reservations about providing munitions directly to Ukraine. 

The two defense chiefs agreed that a “considerable number” of the leaked documents were fabricated, Kim Tae-hyo, a deputy national security director, told reporters. He said the alliance between the two countries wouldn’t be affected by the leak and South Korea would seek to further strengthen cooperation with the United States. 

And both Austin and Secretary of State Antony Blinken reached out to their counterparts in Ukraine. Austin suggested Tuesday the leaks would not have much of an impact on Ukraine’s plans for a spring offensive. 

Ukraine’s strategy will “not be driven by a specific plan. They have a great plan to start and but only President Zelenskyy and his leadership really know the full details of that plan,” Austin said. 

For other sensitive issues highlighted in the leaked slides, such as Ukraine’s shortage of air defense munitions, the shortage itself has been known and is one of the reasons US military leaders have been pressing allies to supply whatever systems they can, such as the Iris-T systems pledged from Germany and the US-manufactured Hawk air defense systems provided by Spain. 

“Publicizing an apparent shortage of anti-aircraft missiles may give comfort to Russia. But if it energizes Ukraine’s partners to accelerate delivery of missiles and other air defense capabilities, Kyiv will be grateful. The bigger ‘known unknown’ is the extent to which these leaks influence US political support for Ukraine,” said Ben Barry, senior fellow for land warfare at the London-based International Institute for Strategic Studies. 


Source link

#Pentagon #intelligence #leak