As the space shuttle Discovery took its farewell ride over Washington on the back of a Boeing jet in April, Linda Hudson watched from a VIP viewing area at the National Air and Space Museum’s Udvar-Hazy Center near Dulles. The shuttle now rests at the museum—where Hudson is a board member—a relic of the bygone era of manned space flight.
Hudson, president and CEO of the defense contractor BAE Systems Inc., grew up an hour from Cape Canaveral in central Florida. She lived so close to the NASA launch complex that on a clear day she could see the rockets take off. By the time she was 16, she was taking flight lessons and dreaming of becoming a pilot or an astronaut.
Seeing the shuttle make its final lap was a bittersweet moment for Hudson, now 61. But a lot of things are coming to an end these days.
Not a month before Discovery’s retirement, another vehicle significant to Hudson had its swan song: The last US military Mine-Resistant Ambush-Protected Vehicle in Iraq was sent to a museum in Fort Hood, Texas.
The combat vehicles, called MRAPs, became icons of the wars in Iraq and Afghanistan. Troops traveling in outdated trucks and Humvees were vulnerable to improvised explosive devices (IEDs). In 2007, the Army finally ordered the MRAP, designed specifically to withstand IEDs.
BAE produced three of the five MRAP models used in the wars. That program, coupled with another popular BAE product, the Bradley Fighting Vehicle, propelled earnings in BAE’s land-and-armaments sector—the part of the company that manufactures combat vehicles and weapons systems—from $4 billion to nearly $12 billion between 2007 and 2010.
Those products also boosted BAE’s presence in the United States. BAE Systems Inc.—headquartered in Arlington with more than 40,000 employees nationally and 6,500 in the Washington area—is the US subsidiary of the United Kingdom’s BAE Systems. Within the company, the US half is known simply as “Inc.” Because it’s foreign-based, BAE is less well known in the American market than such competitors as Lockheed Martin and General Dynamics, two of the region’s largest employers. But it’s one of the ten largest defense contractors in the US, typically hovering around number six. Its UK-based parent is the second-biggest defense company in the world, reporting $30.7 billion in revenue last year, about $16 billion behind Lockheed, the largest.
London headquarters or not, by the peak of the wars more than half of BAE’s earnings were generated by its American subsidiary. Today, Inc.’s business accounts for about half of total BAE revenue.
Though BAE’s combat-vehicle business remains the world’s largest, the spending boom is over. With the end of the Iraq War and with the war in Afghanistan winding down, revenue in the land-and-armaments sector has slid back to $6 billion. BAE Inc.’s overall revenues in 2011 were $14.4 billion, compared with $17.9 billion in 2010 and $19.4 billion in 2009.
The future of the entire defense industry is uncertain. In January, Defense Secretary Leon Panetta announced $487 billion in defense-budget cuts over the next decade, and there could be $500 billion of additional cuts if so-called sequestration kicks in. That will be triggered if Congress can’t agree on a plan to reduce the federal deficit by next January—and these days it doesn’t seem as if Congress can compromise on anything.
This changing environment puts Hudson at the helm of a contractor—and an industry—at a crossroads. On a spring afternoon, she sits in a conference room adjoining her 21st-floor office in Rosslyn, overlooking the Pentagon and the Potomac River. She has close-cropped blond hair, a pink manicure, and sparkly baubles on her fingers. She’s surprisingly petite, yet her presence is commanding.
On the wall behind her is one of several artworks, which she commissioned, made of recycled combat-vehicle parts. Those vehicles, after all, have been Hudson’s biggest focus for the last several years. But as major weapons and vehicles programs become less affordable for the Department of Defense, Hudson is working to diversify BAE’s offerings further to ride out the downturn.
This isn’t the first time she has found herself in a tight spot. In fact, she has challenged the odds throughout her career.
“Not all executives are really good at
but she’s very good.”
Before joining BAE in 2007 to lead the land-and-armaments division, Hudson was head of General Dynamics’ armament-and-technical-products division. When she took over that business, it was floundering. Hudson’s mandate from then-company executive vice president Gordon England was either to improve division performance enough to make it attractive to a buyer or to figure out a way to make it a profitable piece of General Dynamics.
Hudson didn’t want to sell off the division. She overhauled its business model, laid off a third of its employees, and shut down its internal factory, outsourcing all manufacturing instead. Under her watch, the division quadrupled its revenues and became a driver of General Dynamics’ growth.
“She was financially very astute,” says England, now president of the consulting firm E6 Partners. “Not all executives are really good at making decisions, but she’s very good.”
Her performance caught the attention of BAE, which recruited her in January 2007, a key moment, as it would turn out, for the contractor and the Pentagon.
The same month, President George W. Bush announced the Iraq War surge, in which 30,000 additional troops would be deployed to the country by the following summer. Annual war casualties had consistently hovered around 900; the American public’s support was waning. The Department of Defense needed to curb the death toll—meaning the moment was ripe for a company that made combat machines.
“It’s easy to forget how close we were in Iraq to pulling the plug on the whole thing,” says Michael O’Hanlon, a senior fellow at the Brookings Institution focusing on national-security and defense policy. “The MRAP helped make the wars politically viable.”
When Hudson took over as president of land and armaments, BAE’s MRAP was in its infancy. Hudson pushed full steam ahead—even though the Defense Department had yet to actually place an order for the new vehicles. The company invested nearly $100 million of its own money before the Pentagon put in an order.
“We made a decision that we were going to do everything we could to get systems available to the warfighter as quickly as possible and to move out on our own money in advance of when the customer was ready,” Hudson says.
During the same period, BAE Systems Inc. acquired Armor Holdings, a maker of tactical military vehicles and vehicle armor, for $4.5 billion. That company was folded into Hudson’s land-and-armaments group, and it, too, had a design for an MRAP.
The investment paid off many times over. Because of the advance work Hudson’s group had done, once the Defense Department put out the call, BAE delivered the first vehicles within 43 days—an effort that significantly raised the company’s profile in Washington power corridors.
BAE became one of the Army’s largest suppliers of armored vehicles, building and upgrading 9,686 MRAPs. The contracts brought in more than $5.3 billion for the company.
Though she doesn’t come from a military family, Hudson developed a love of fighter jets in elementary school. She says she can’t really explain it—she simply liked fast airplanes. Her aptitude for numbers garnered special attention from her junior-high math teacher, who first told her about engineering. By the end of high school, when Hudson realized that becoming a pilot or astronaut was a nearly impossible goal for a woman in the 1960s, she had set her sights on engineering.
“I decided if I couldn’t fly airplanes, if I couldn’t participate in the space program, I could design those things,” she says.
Hudson was one of two women in the engineering program at the University of Florida. By the time she graduated in 1972, her exceptional grades had earned her several job offers. She went with the highest bidder, Harris Corporation, where she designed B-1 bombers and classified satellite programs.
Asked to describe the professional environment for women in those days, she answers succinctly: “Very ugly.” She recalls sitting in meetings and feeling invisible.“You went into every situation with people assuming you didn’t deserve to be there.”