Defense Procurement News

I say awarded rather then won as who else will do the work? These will support Egyptian and Taiwanese systems previously purchased. More details here. As previously discussed, FMS is a great multiplier of procurement programs abilities through cost reduction and savings. It also has a great political overtones as the US will favor a country with advanced capabilities.

Lockheed-Martin was awarded a contract by the Missile Defense Agency (MDA) to provide AEGIS radars and support to the Japanese Navy. The contract is for $40 M and will be paid through Japanese FMS funds. It looks like it will outfit one Kongo class cruiser with the antennas and software. Who would have thought that MDA would be running FMS contracts? When I was there we did not even discuss it. More information on the contract award is here. More information on the Kongo class is available here.

The DLA qualified on 28 December 18 teams to participate in an Indefinite Delivery/Indefinite Quantity (ID/IQ) contract to provide facility support across the United States. What this means is that the contract will award a group of hours of work to one of the teams. There is no total of hours to be awarded (IQ) and no time limit on when they can be awarded during the life of the contract (IQ). There is no guarantee that any of the companies will be given work, or that any work will be given at all. Some how this will save the government money. See Defenselink.mil for more.

On 28 December the US Army awarded Lockeed-Martin a $267 M contract for High Mobility Artillery Rocket System (HIMARS) full rate production. HIMARS is the Multiple Launch Rocket System (MLRS) on a wheeled platform. Further details are available at Defenselink.mil.  They were also given a similar contract for Guided MLRS at the same time.  So the Army is still investing in new artillery fire systems.

Very little artillery has been used in Iraq or Afghanistan as they preferred fire support system is aircraft. Also many of the artillery troops find themselves pulling security missions. Much like the English in Northern Ireland, the US Army has been using his support units as basic light infantry. In fact, the Air Force has been doing these kind of missions as well, to the point where the Chief of Staff has whined quite a bit about it. See Stars and Stripes: Airman taking on more dangerous roles in Iraq.

In another example about how diversified the world of defense contracting is, Rolls-Royce won a $7 M research contract for their Pascagoula, MS facility. They will conduct research on coating metal parts with boron and nickel to reduce friction. The facility right now produces propellers, and plans to construct large water jets for future Navy applications. See more about the award here. You can read more about Rolls-Royce in Mississippi here.

According to sources in the new Australian Government of Prime Minister Rudd, all planned defense procurements will be reviewed and considered for change or cancellation. The last Australian government had decided to buy 24 F-18 Super Hornets to fill the gap before the Joint Strike Fighter (JSF) aircraft was available. The Age reports that this contract will be reviewed as part of a new look at the nation’s air defense needs. If the contract is cancelled it will be a blow to both the US Navy and Lockheed. US defense programs rely on Foriegn Military Sales (FMS) to lower the price of equipment through increasing quantities to get price breaks from the contractors. The fact that a new government, though, is reviewing the previous one’s defense plans is not new, and will happen in the US in the Spring of 2009. For example, in 1992 two budgets were submitted to Congress, one by the outgoing Bush administration and one by the new Clinton one.

According to this article in The Marianas Variety, DZSP 21 received a contract option worth $66 M to continue support to the US Navy facilities on Guam.  This is a good example of the type of support that DoD contracts for now.  DZSP 21, a team of a variety of companies, will provide basic services such as food management, power and administrative support.  In the distant past this was done by government and Naval personnel.

President Bush will pocket veto the 2008 Defense Authorization Act over one obscure part. The Administration objects to a law that will allow courts to freeze Iraqi Government assets as part of lawsuits against the Saddam regime. The Iraqi government has threatened to move all of its assets out of American banks if the law is enacted. Further details can be found here.

Somehow this means that the White House lost track of what was in the bill, or had not read it.  There was no warning to Congress or any attempt to negotiate the issue.  All this means is that the veto will be overridden with the same language in it, as neither the House or Senate should feel like compromising.

Roby’s Country Gardens, a Kentucky company, recieved an order for over $18 M of produce for the US Navy, Air Force and Marines. More detail from the Business First site here.

This article from Schaeffer’s Investment Research discusses how Force Protection corporation’s stock took a hit as they received a smaller than expected order from DoD for Mine Resistant Ambush Protected (MRAP) vehicles. DoD awarded three companies orders for a total of 3,126. Force Protection received the smallest part of that order. On 19 December the stock fell over $4.00. Yesterday it closed at $4.81, well below its 52 week high of $31.16. See the original article here. Stock information is at CNN Money.

More information on Force Protection is here. If things continue the way they have in Iraq orders for MRAP vehicles will continue to decline. They had been a knee jerk reaction by Congress anyway, and demonstrated clearly how not to procure things.

Radio Iowa reports on the significant impact Boeing winning the US Air Force’s KC-X new tanker aircraft contract would have on the state. There are several major parts suppliers for Boeing that would be utilized to provide components for the aircraft. The report is here. An AFL-CIO official is quoted as saying “Iowa is in a perfect position to benefit if the manufacturing takes place within our borders. Rockwell-Collins, based in Cedar Rapids, will produce navigation and communications avionics for the tanker. Boeing will also utilize three other suppliers in Iowa. Alcoa in Bettendorf, Carlton Life Support Systems in Davenport and Datalink Solutions in Cedar Rapids.”

The other aircraft being considered is the Airbus A340 tanker variant, an aircraft they have already sold to some European nations. This aircraft would be assembled in Mobile, AL. So the state of Alabama has a vested interest in Airbus winning the contract.

For more information on the KC-X program see this.

The Motley Fool has some interesting analysis about the recent award by the US Army of the UH-60 production contract to Sikorsky Aircraft Corporation (SAC), which is part of UTC. While the size of the contract is large, $1.7 Billion, it is a drop in the bucket in total UTC revenues. SAC also has had the lowest margin of any part of the company. The article is here. While it is true that UTC is a very large corporation, the award will keep SAC busy for several years and has the potential to spin off Foreign Military Sales and other work.

Computer Sciences Corporation (CSC) signed a contract with the DISA to manage their various networks. CSC will be the lead on a team of various companies including BAE and CACI. More details can be found here. CSC continues to cement its role as a major systems integrator for the Department of Defense and the three services.

According to AFX News Limited:

Russia’s JSC VTB Bank is selling its 5 pct stake in the European Aeronautic Defence and Space Co (EADS) to the VEB state bank for development and foreign trade for 1.45 bln usd, banking industry sources told Russia’s Vedomosti newspaper. … The sources added that VEB will then transfer the stake to Russia’s United Aircraft Corp (UAC).

Vnesheconombank Chairman Vladimir Dmitriev later confirmed the deal. More details here, and here.

According to a report in a German newspaper, EADS does not expect to reach an operating margin of 10% until 2015. I’d be amazed if they attain it then, because EADS has never attained an operating margin this high before. Its best performance ever was in 2005, when it had a margin of 8.3 percent. Since then, margins have plunged due to the rise in the Euro, and troubles at Airbus. Although, EADS has taken some steps to improve their business, such as selling six Airbus plants, it is clear from this forecast that the company has a long way to go. Given that a prediction of operating margins seven years ahead has little credibility, what EADS is really saying is that there will be no margin recovery for the foreseeable future.

More details on the story can be found at Agency France Presse and MSNBC

This award is a classic example of a SETA contract. Science, Engineering, Technical and Analytical support contracts are given to companies to support DoD program offices in the management of their procurement programs. Here Wyle Laboratories and Bearing Point won a contract to support the E-2C office. Details are on Defenselink.mil. More information can be found here.

According to Defenselink.mil Sikorsky was awarded a $1.5 billion contract for UH-60 and HH-60 aircraft. Of note, the proposal was received by the Army in October, 2005. So this contract took over 2 years to be awarded. See the DoD announcement here.

Further information can be found here.

DoD awarded a contract for clothing, as announced yesterday on Defenselink.mil

“Golden Manufacturing Co. Inc., Golden, Miss.,* is being awarded a maximum $52,527,000.00 firm fixed price contract for cold weather coats and universal field combat uniforms. There are no other locations of performance. Using service is Army. This proposal was originally Web solicited with 11 responses. This contract is awarding base year only at this time. Contract funds will not expire at the end of the current fiscal year. Date of performance completion is Mar. 31, 2009. The contracting activity is Defense Supply Center Philadelphia (DSCP), Philadelphia, Pa. (SPM1C1-08-D-1036).”

According to Defenselink.mil, Northrop-Grumman was awarded a $50 M contract for long-lead items to support the production of three E-2D aircraft.

More information about the program can be found here.

The C4ISR Journal has more detail on the purchase of BAE’s Pennsylvania based surveillance and attack unit. Cobham has been buying other companies as it builds up its capabilities and revenue. See the article here.

The United States, in competition with Russia and Europe, will attempt to sell a significant quantity of weapons over the next several years. This is seen as a way to further a strong relationship with the key South Asian nation. See an article at Defensenews.com here. Obviously this will be a big change for India, as traditionally it has chosen Russia or Britain as its main supplier. The US also has provided significant arms to Pakistan since the 1980’s.

Since the current war is a “Long War”, it would make sense for the Pentagon to move its wartime expenses into its regular budget appropriation. Currently, the annual appropriation funds the core of the military such as training, bases in America, regular procurement and support. The cost of the war is paid through supplemental appropriations. These are mainly the war’s Operations and Maintenance (O&M) costs and combat loss replacement of hardware. Occasionally the Pentagon will add some R&D and regular procurement into the supplemental requests, but these do not always make it through the process. According to this article at Defensenews.com, there is a proposal to include the costs of the war in the regular budget process. This would start with the FY10 Budget, which would be submitted to Congress in February, 2009. No idea if the next President would support this.