Loc Performance Products, Inc. to Partner with BAE on U.S. Army’s Paladin Integrated Management Program — Press Release

– Loc Performance to Collaborate with BAE on Development of Final Drive Assembly

PLYMOUTH, Mich., Feb. 5, 2013 /PRNewswire/ — Michigan-based Loc Performance Products, Inc. will partner with global defense leader BAE Systems to design, test, and manufacture prototype final drive assemblies for the U.S. Army’s M109A6/M992A2 Paladin Integrated Management (PIM) program.

With a successful history of designing and producing the highest quality final drive assemblies for a variety of military vehicles, Loc will serve as the design lead for gears, along with providing design review support, developmental testing, and prototype manufacturing for the planned expansion of the self-propelled howitzer and ammunition supply-vehicle fleet.

Lou Burr, President of Loc Performance Products commented, “We are pleased to partner with BAE as we continue to design and produce superior products for our military clients. Loc is honored to be recognized as having an important role in the development of next-generation fighting and supply vehicles, and looks forward to the continued production of reliable, high performing products to meet the diverse needs of our nation’s armed forces.”

Loc Performance Products has produced over 13,000 final drive assemblies for the U.S. military, spanning the entire Department of Defense fleet of combat tracked vehicles. The expected production of slightly under 600 M109A6/M992A2 vehicle sets will represent the evolution of critical fire and munitions support in Heavy Brigade Combat Teams (HBCT) for a variety of deployments. With an estimated lifecycle through 2050, the PIM program will remain an essential component of the military’s tracked vehicle capabilities for the coming decades.

“The contract structure provides maximum value by leveraging Loc’s expertise in manufacturing and assembling final drives with BAE’s expertise in system engineering design and analysis,” said Chad Darr, Director of Product Development at Loc. “It offers the program a smooth transition into Low-Rate-Initial-Production (LRIP) by manufacturing the developmental prototypes utilizing production intent processes.”

Loc Performance Products is Michigan’s premier full service manufacturer of large CNC machined components and assemblies for military and industrial applications. With proven capabilities in product design and development through production, Loc offers comprehensive solutions and exceptional customer service to produce the highest quality products at competitive pricing.

For additional information on Loc Performance Products, visit: www.locper.com

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Rolls-Royce Continues Support of T-45

One of the advantages the OEM has when it comes to winning defense contracts is that they often will get the support and maintenance work from the government. It is uncommon now for the military to purchase complete Technical Data Packages (TDP) from the OEM’s and this makes it hard for some of the effort to be transferred to another supplier.

The engine in the T-45 trainer was actually developed jointly by Rolls-Royce and France’s Turbomeca originally for the Jaguar attack aircraft. That aircraft has been retired but the companies continue to support the power plant in its current uses.

The British company just received a further contract option to support the T-45 engine maintenance and parts support. This is the 4th option on the contract and is worth about $100 million.

The T-45 is a product of Boeing (BA) and BAE Systems (BAE:LSE) and is used by the Navy as a carrier training aircraft. It has been in use since 1991.

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ATK Keeps Major Contract for Lake City Plant

Alliant Techsystems (ATK) is a mid-sized defense contractor. It primarily manufactures ammunition, pyrotechnics and rocket motors. The company is experiencing some struggles due to the ending of the fighting in Iraq and Afghanistan and the potential defense budget cuts. It has made several changes recently to adjust to these new market conditions but key to the company’s near term success was retention of the contract from the U.S. Army to manage the Lake City ammunition plant operations.

Last year the company lost the contract for the Radford Plant in Virginia to BAE Systems (BAE:LSE). BAE was also aggressively targeting the Lake City contract as well. ATK had run these plants responsible for large amounts of ammunition and explosives for the U.S. military for several years and they were a core part of their revenue and earnings. Short term the loss of the Lake City contract would have been a blow to the company.

Yesterday it as announced that the Army had decided to award the contract to ATK again. The initial contract is for seven years but it has options for a further three. No value has been reported yet.

To indicate the size of the production at Lake City in September the company and Army celebrated the delivery of 2 billion 7.62mm rounds from the plant. Due to the demands of the last ten years of combat ATK had expanded the plant to produce over 1.5 billion rounds annually of 5.56mm as well as other sizes.

The winning of this contract gives ATK more time to continue its adjustments and reorganization to address the changing market it finds itself in and establish a good foundation for future performance.

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Army Continues to Invest in M2 Bradley Fighting Vehicles

The U.S. Army has not developed a new heavy armored vehicle since the 1980’s. They have continued to rely on the M1 Abrams tank and M2 Bradley Fighting Vehicle family for that mission. They did start a new system, Future Combat System (FCS), that would have used speedy, wheeled vehicles to ultimately replace the two venerable tracked systems but that was cancelled due to cost and schedule issues. The current systems have had to “make do” throughout the fighting in Iraq and Afghanistan.

That does not mean they haven’t spent billions on upgrading and refurbishing the systems. The current versions have received significant changes in armor, mobility and electronics. These has kept them capable of carrying out modern missions.

The Army just announced yet another contract to upgrade M2 Bradley’s assigned to the U.S. National Guard. BAE Systems (BAE:LSE), which through a series of mergers and acquisitions, now owns the rights to the Bradley originally designed and manufactured by FMC. That British company received a contract worth over $300 million to provide “enhanced survivability and interoperability” for vehicles belonging to a variety of states.

The company will see more contracts like this as the fighting winds down in Afghanistan and the Army resets their fleet of Bradleys to a common standard.

There is a new Ground Combat Vehicle (GCV) in development that will ultimately supplement or replace the M2. The Army is waiting to received prototype vehicles from different bidders to begin testing. BAE is one of several companies participating in that contest.

BAE like all of the other large defense contractors is facing challenging times as the U.S. and its Western European allies move to reduce their defense spending. Recent earnings were down compared to last year with a 10 percent drop in sales. Keeping existing programs like the Bradley active will only help it in the near future. If the U.S. does go ahead with the GCV and slowly replace the M2 BAE could lose several hundred million in revenue a year.

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BAE to Upgrade South Korean F-16 Fighters

The defense industry is becoming more competitive internationally. As the U.S. and European governments begin to spend less on their domestic military the large defense contractors will compete more for deals with foreign customers. The recent award to BAE Systems (BAE:LSE) of a contract by South Korea for fighter upgrades illustrates this.

South Korea operates over 130 Lockheed Martin (LMT) F-16 fighters. The F-16 was sold to many U.S. allies and like the current F-35 program was designed to share production among those buying it. Parts were made across the globe and the aircraft was assembled in different places such as South Korea and the Netherlands. This not only increased the investment by those involved but also lowered risk and allowed greater production in a shorter time.

This also meant that those countries assembling the aircraft did not necessarily have to rely on the U.S. or Lockheed for components or support once the F-16 were delivered.

The contract which could be worth over a $1 billion will have BAE install new electronics into the aircraft. Most of the work will be done in America even though it is a U.K. company.

Interestingly this contract is not a direct sale to South Korea but was done through the U.S. Foreign Military Sales (FMS) program. This allows foreign customers to utilize U.S. contracts to purchase hardware and support rather then negotiating their own contract.

BAE is already working on existing U.S. and Turkish F-16.

Normally one would have expected this type of contract to go to the OEM for the aircraft but the fact that BAE is doing the work shows the U.S. owns some of the necessary technical data and one hopes competition is lowering the cost of the effort.

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Joint Venture Formed to Compete for Air Force Range Contract

April 18, 2012 by · Comment
Filed under: Editorial 

Three large defense contractors have formed a new joint venture in order to compete for the U.S. Air Force’s unified range management contract. ITT Exelis (XLS), BAE Systems (BAE:LSE) and L-3 Communications (LLL) have set up IBL JV, LLC (IBL) to hopefully win the work.

The Air Force has previously used separate contracts to run its two main ranges located on either coast of the United States. These provide space launch capability for satellites as well as managing those in orbit. The ranges also launch targets and support testing of systems. All three of these companies have at one-time-or-another been involved in running the ranges in the past.

The decision to combine the contracts has a goal of saving the government money through efficiencies of only having one contract. It would be used to carry out total support for the ranges including program management, maintenance and operations and housekeeping services.

Due to the size of the contract it is expected to attract a lot of attention from large, U.S. defense contractors who have a great deal of experience in this type of work.

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EUROFIGHTER: Five year support contract signed — Press Release

EUROFIGHTER: Five year support contract signed

Eurofighter Jagdflugzeug GmbH has today signed a major contract with NATO Eurofighter and Tornado Management Agency (NETMA) to support the fleet of Typhoon jets across the four Eurofighter core nations: Germany, Italy, Spain and the UK.

The five-year support contract is part of a new contract suite agreed with the nations which includes integrated mechanisms for continuing development work on the aircraft and will replace a number of legacy contracts whilst extending the terms for a longer period. The agreement demonstrates a commitment by all parties in achieving continued efficiencies on the programme; long-term support for the sustainability of aircraft covering all three production tranches and future enhancements and upgrades of the platform.

The new contract will focus on performance and affordability and will ensure a range of support services to the Typhoon users. The contract will also help to sustain European aerospace engineering, capability and jobs.

As part of the contract, Eurofighter’s partner companies: AleniaAermacchi in Italy, BAE Systems in the UK and Cassidian in Germany and Spain will work closely with the local MOD’s and Air Forces to improve the way it delivers a range of support services. This work will provide a strong basis for future support requirements including potential export opportunities.

The contract will help to sustain the thousands of jobs that are supported by the Eurofighter programme across a range of disciplines such as engineering, supply chain and project management and is further confirmation of the role of the Eurofighter programme as catalyst of high-tech aerospace European manufacturing, engineering and technological capabilities. Today, around 100,000 jobs are supported by the programme in the four core nations and the economic impact generated largely off-sets the investments made to develop and manufacture the aircraft.

Enzo Casolini, Eurofighter CEO, said: “This contract is important for the Eurofighter programme but also for the nations and the Air Forces. The contract’s goal is not only to deliver savings to the customer, but also guarantee a better management for the processes involved in the sustainability of the aircraft in-service. This can be considered a massive step in supporting the enhancements programme planned for Eurofighter, which is a fantastic, young platform with plenty of development capability still to be exploited”.

Today Eurofighter is the largest new generation fighter programme in the world with 559 aircraft under production contract, 321 aircraft delivered and in-service with 16 units in six air forces. Based on the number of aircraft in service and the number of customer air forces, this multi-role aircraft can be considered the best coalition fighter available on the market. Eurofighter made its combat debut during Libya operations in 2011 performing in both air-to-air and air-to-ground roles.

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US Sea Trials Aid UK Navy — Astute Returns to the U.K.

Special to Defense Procurement News from Imogen Reed.

UK Royal Navy Submarine HMS Astute returned to British shores earlier this month after a period of US Sea Trials – the most successful to date since it was launched in 1997. HMS Astute is the most powerful and advanced submarine that the UK has ever sent to sea and the first in its series of “Next Generation” machines. For almost five months she has been employed in extensive trials in North America which included trialling and firing her main weaponry for the very first time.

Brief History of HMS Astute

Astute was built at BAE’s Submarine facility in Northern England’s most famous shipbuilding town Barrow-In-Furness eleven years ago and finally launched after a delay of almost forty three months in 2007. The delay was caused in part by budgeting difficulties and issues concerning transferring funds to BAE Systems. She left her home of Barrow for good in 2009 and was finally sent to her new home port of Faslane the same year. She was given her HMS prefix in a ceremony that was presided over by HRH The Duchess of Cornwall.

A Unique Submarine

It is a submarine that will never need refuelling because it is powered by a nuclear reactor and its sonar can track ships that are as far away as 3,000 miles (or 4,380km). Similarly, her missiles have a target range of around 1,200 miles (or 1,930km). In a new technological breakthrough Astute has been built in such a way that it can be reprogrammed in mid flight to shoot missiles in another direction. Additional features on Astute are a digital optical mast system – this will replace the conventional and traditional periscope. It will offer low light and infrared capabilities. It is hoped that this will help the submarine to quickly capture and analyse data which can then be shared with other vessels.

The US Sea Trials

In February 2010 she underwent her first series of sea trials and dives, but it wasn’t until late last year that she began her stay with the US Navy’s Atlantic Undersea and Test Evaluation Centre which is situated in the Bahamas. This test situation was used to trial the submarine’s capability of firing Spearfish torpedoes as well as Tomahawk Missiles. Astute’s first Tomahawks were fired on 15th November 2011 into the US Navy’s Gulf Of Mexico range. All in all, four Tomahawks were fired in the direction of the Eglin Air Force Base – mainly to test for accuracy. Six Spearfish Torpedoes were also fired. These were the first salvo firings of a UK Submarine for more than 15 years. Earlier in February 2012, Astute came face to face with the USS Mexico in the Atlantic Undersea and Test Evaluation Centre for a series of staged war games in which the Heads of both the UK and US Navy met, in what was an historic and unprecedented occasion. Over the course of this tenure with the US she sailed some 16,400 miles (or 26,400km). The US Naval base in King’s Bay, Georgia was also visited and UK Naval Officers were impressed with what they saw. Astute is still very much in her trial period but it is hoped that this experiment and the help proffered by the US Navy will have strengthened and fortified its capabilities.

When it is officially commissioned it is hoped that it will undertake missions including anti-submarine and anti-ship missions, intelligence gathering and supporting land forces. Astute has, for now, returned to its base in Faslane for maintenance. It is hoped that later on during 2012 it will undertake more sea trials.

US Navy Official’s Impressed With Capabilities

Altogether she spent 77 days at sea and was inspected by 18 stars worth of US and UK Naval authority including America’s Chief Of Naval Operations ADM Jonathan Greenert, who has been in post since September last year. US Naval Officers were apparently “blown away” by the capabilities and strengths shown by Astute and felt that the Submarine had got tremendous capability and could only improve with time and more testing. The success of this test mission has not only strengthened the UK’s Naval Capabilities, but it has also shown the bond between the US and UK and their ability to work together in the name of defence if needed is stronger than ever.

Photo from U.S. Navy Imagery’s Flickr Photostream.

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Lockheed Martin Expands Facility for F-35 Component Manufacturing in Pinellas Park, Fla. — Press Release

Lockheed Martin Expands Facility for F-35 Component Manufacturing in Pinellas Park, Fla.

PINELLAS PARK, Fla., Feb. 22, 2012 /PRNewswire/ — Lockheed Martin’s (NYSE:LMT) operation in Pinellas Park officially opened a new 57,000 square foot manufacturing facility today to produce aircraft canopy components for the F-35 Lighting II fighter.

The new facility is an annex to Lockheed Martin’s existing 197,000 square foot building that has been producing structural components for more than 10 different types of aircraft since 1997. The operation began with 80 employees and has since grown to its current workforce of 250, with additional jobs expected as the F-35 program moves toward peak production. The expanded facility can support production of up to 20 F-35 canopy units a month.

In remarks at the event, Harry Glenn, chief of staff for U.S. Rep. Bill Young, chair of the House Appropriations subcommittee on defense, said, “The Lockheed Martin Pinellas facility has distinguished itself with its quality, safety and efficiency and has become a center of excellence for the manufacturing of F-35 canopies.”

Aircraft canopy components include the “windshield” of the aircraft – a clear plastic bubble – and the frame, ejection pyrotechnics and other structures that support it.

The F-35 is expected to be one of the largest military aircraft programs in history, including thousands of aircraft to be produced for world air forces over several decades. The F-35 Lightning II is a 5th Generation fighter, combining advanced stealth with fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. Lockheed Martin is developing the F-35 with its principal industrial partners, Northrop Grumman and BAE Systems.

Core competencies at the Pinellas facility include sheet metal and extrusion fabrication and structural subassembly. To date the facility has produced components for the C-130J, F-22, F-16, C-5 and P-3, in addition to the F-35. Besides supporting Lockheed Martin aircraft programs, the facility does work for several other companies.

Headquartered in Bethesda, Md., Lockheed Martin is a global security company that employs about 123,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation’s net sales for 2011 were $46.5 billion.

For additional information, visit our Web site:


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FCPA Security Case Ends In A Fiasco

Two years ago at the SHOT Show where civil, security and military small arms manufacturers display their wares the FBI ran a major sting leading to the arrest of 22 individuals for attempted bribery of a foreign official in order to gain a contract. It was one of the biggest cases in terms of numbers of persons and companies involving the Foreign Corrupt Practices Act (FCPA).

The FCPA is designed to prevent U.S. and foreign companies, too, from being involved in bribes or other illegal means to gain work from overseas customers. If a company does business in the U.S. or with the U.S. government it may be targeted under this act. Recently large companies have been charged under this law including the Dutch giant Siemens, BAE Systems as well as oil support company KBR.

This case involved a fake representative of an African country negotiating for equipment for a police force that would require some payments to people to make the deal go through. Different companies were involved and various people charged.

Now after two years of failing to convict anybody in the first two trails the FBI and Justice Department have given up. Rather then attempt to retry the cases they have decided to drop charges against the remaining defendants. Whether they will attempt to retry the first two trials remain to be seen.

The first ended in an acquittal and the second in a mistrial as the jury could not make a decision. This was primarily due to the fact that the prime witness for the prosecution was considered unreliable as well as details of communications between him and the FBI agents involved in the case portrayed them negatively. The jury also felt that at no time was it made clear to the defendants that the payments demanded were bribes.

The FCPA is an important tool and the U.S. has worked hard to end the practice of defense contractors paying officials in other countries for contracts. That does not mean it does not still happen and there remain cases in the U.S. of government officials taking bribes. Other nations have had a harder time but overall the defense industry is a lot less corrupt then it was thirty years ago.

These cases illustrate that the government has to be very careful how it approaches these situations and the way they prepare their case.

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BAE Systems Holds on for Good 2011

BAE Systems (BAE:LSE) the large British defense contractor reported its earnings for 2011. It like many of the U.S. defense contractors was able to report a fairly decent profit on falling revenues. Like Lockheed Martin (LMT) and others the company had focused on reducing costs in a time of reduced orders from the American and British defense establishment.

Sales fell 14 percent to only $30 billion but net profit actually increased to $1.95 billion up $298 million primarily due to the elimination of so many positions in the last year. For 2012 the company is confident that it will increase earnings especially if the Saudi Typhoon fighter deal negotiations is completed.

The company has been adjusting to the changing defense market by focusing less on big hardware sales of aircraft and vehicles and increasing its exposure in intelligence and cyber security. This area now accounts for about 7 percent of the company’s business line.

BAE Systems also has a large American component that will be affected by the U.S. defense plans. They may see work on their core vehicle programs slowed or cut back as the fighting in Iraq and Afghanistan ends and the U.S. plans to invest less in new systems. They are competing for the new Ground Combat Vehicle (GCV) contract and this may see major reductions in planned spending over the next five years. They do, though, make the M2 Bradley the GCV will replace so more money might be spent on that.

BAE Systems and the other large defense contractors will soon be facing a situation similar to the Nineties with U.S. defense spending. At that time the U.K. giant had little exposure to the U.S. but now it is a major contractor. The company is also going through a similar situation in the U.K. but that started last year. Expect little movement in its stock despite recent favorable financials.

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Army Awards Helicopter Protection Development Contracts

The U.S. Army’s rotary winged force has made great contributions to the fighting in Iraq and Afghanistan and has suffered some losses in these missions. The primary threat in those actions were small arms and machine gun fire but there was some use of surface-to-air missiles. The aircraft are fitted out with threat detection and jamming equipment and the Army plans to continue its investment in new systems for this mission.

With that two contracts were awarded last week to begin development of a new system that will jam or misdirect infra-red guided missiles which home in on the heat signal of the helicopter. The Common Infrared Countermeasure (CIRCM) program once it goes into production could be worth several billion dollars due to the number of Army, Navy, Marine Corps and Air Force helicopters that could have the system installed.

The two contracts to Northrop Grumman (NOC) and BAE Systems (BAE:LSE) will allow the company’s to develop their proposed solution to the CIRCM requirements. They both have a value of around $38 million. Once these contracts are complete the Army will evaluate the proposed solutions and then choose one to go into Engineering & Manufacturing Development (EMD) to begin production and installation.

The CIRCM program was considered so valuable that proposals were received from ITT Exelis, Lockheed Martin (LMT) and Raytheon (RTN) as well. All of the companies that bid have experience with airborne jammers and protection systems.

Even though the U.S. defense budget is facing large cuts over the next five to ten years programs like this still need to be developed and introduced. There exists a large fleet of aircraft that will remain and they need to be updated to face improved threats from around the globe. If CIRCM is cut in the future it might be to stretch out the development or production so that the annual program cost is lower but eventually the desired result is achieved.

Photo from The U.S. Army flickr photostream.

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Alliant Techsystems Faces Double Dose of Bad News

24 January – Updated to reflect the loss of the Lake City contract would be a blow to the company instead of “will be”.

Over the last ten years the U.S. military has consumed large amounts of ammunition. This includes not only small arms and support weapons like machine guns and mortars but also larger and more sophisticated weapons such as tank rounds, artillery shells, aerial bombs and guided missiles. Alliant Techsystems (ATK) has become one of the largest suppliers of ammunition and other pyrotechnics to the U.S. military during this time.

Up to last year they had contracts to run two of the largest government owned plants involved in this process — the one in Radford, VA that manufactures nitrocellulose used as the basis for ammunition as well as the one in Lake City, MO which makes small arms ammunition.

Last year the Army awarded the contract for Radford to BAE Systems (BAE:LSE) in the spring. Alliant protested that decision and the Army agreed to revise the competition and conduct another source selection. In October the new contract bids were received and again BAE won. Alliant protested that decision too.

Unfortunately the Government Accountability Office (GAO) announced today that it had denied that protest upholding the award to BAE. Alliant will lose a key contract that it had had since 1995. BAE’s 10 year initial contract also has multiple five year options that could make the contract last until 2036. The value could be well over a billion dollars if all options are exercised and production at Radford remains fairly steady.

Alliant will also face a challenge this year for the Lake City contract as BAE announced it will team with ammunition manufacturer Olin (OLN) to form a team to bid on that one. The Lake City contract could be worth up to $200 million a year to the winner. With the knowledge used for their successful Radford contract proposal BAE and Olin should have a good chance of winning the Lake City one as well.

The loss of these two contracts would be a hard blow to Alliant as they form a decent portion of their revenue each year. They have already seen declines in revenues the last few quarters and this would continue that negative trend. In 2011 their total sales to the U.S. Government, primarily ammunition and explosives, was about $3.3 billion. In their annual report the company stated that they “derived approximately 15% of our total fiscal
sales from the military small-caliber ammunition contract at Lake City”. The loss could be made up if their were other contracts to win or demand for their other products would increase. Unfortunately with the fighting winding down in Afghanistan and budget cuts predicted this might be hard.

Alliant may have recognized that the future might get tough as they moved their headquarters from Minnesota to the Washington D.C. area. In this they followed Northrop Grumman (NOC) which left California. It places them nearer Congress and the Pentagon and will facilitate engagement. This should aid them in keeping work and perhaps gaining new efforts.

All defense contractors no matter what the size are facing the same problems that Alliant is. Cost pressure on the Defense Department will make them look at new providers who may offer the best price meaning contracts will be harder to keep. There will also be less contracts due to the retrenchment from the recent fighting and budget cuts. If the 1990’s when a similar decline in defense spending is a guide then some contractors will have to adjust or face converting to new markets or just merging with other companies.

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Australia Signs Contract with BAE for Warship Modernization

November 29, 2011 by · Comment
Filed under: Business Line 

Post World War II most navies end up keeping their ships for decades. This means that every several years they need to be modernized and upgraded with new equipment and systems as technology develops. This is often the most efficient way of introducing new capabilities rather then going through the process of designing and fabricating a whole new vessel. Often hull and engines had many more years of useful life allowing these systematic upgrades to occur over several decades.

Australia has over the last several years invested and plans to invest in much new and improved equipment for its armed forces. Part of this is to help spur their economy while another is to improve their overall capability. This includes plans for new armored vehicles, ships and aircraft. At the same time they continue to keep their existing assets and add to their capabilities when appropriate.

As part of this the Australian government has just issued a contract to BAE Systems (BAE:LSE) Australian subsidiary to upgrade the 7 ANZAC or Perth class frigates operated by their Navy. New Zealand also operates two of the same class ships. The contract is worth about $262 million.

The Perth are based on a the European design MEKO 200 frigate class used by Turkey, Portugal and Greece and originally manufactured by German builder Blohm + Voss. The Australian ships were delivered in the 90’s and were built in Australia.

The new contract calls for installation of new radars and combat information system. It will cause the removal of the existing masts and their replacements with new ones. The ship will continue to be armed with its existing guns and missiles which are based on American weapons. The work will be done in Australia and is expected to take about 6 years.

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Raytheon Hopes to Put U.S. Missiles on India’s New Fighter

As the contest to choose India’s newest fighter begins its final stages with a decision expected sometime before the New Year the discussion of ancillary contracts has begun to heat up. The decision is now between two European contenders, France’s Dassault Rafael and the Eurofighter Typhoon, with the U.S begin shut out despite bids from Lockheed Martin (LMT) and Boeing (BA).

Even so there are now reports that the U.S. defense contractor, Raytheon (RTN), is working to make sure that whomever wins the contract for over 100 modern fighters they have the ability to equip it with their missiles.

Due to contraction in the U.S. defense industry Raytheon has become the primary manufacturer of air-to-air missiles as well as many different types of ground attack and strike systems. In this it competes with European companies like Mistral and BAE Systems (BAE:LSE).

Based on reports the company is hoping that India will choose the AIM-120 AMRAAM as a potential air-to-air system. The AMRAAM was developed over twenty years ago as a replacement for the AIM-7 Sparrow radar guided system. Raytheon also makes the AIM-9X infra-red guided system. The AIM-120 has been sold to a variety of customers and has been integrated onto non-U.S. aircraft.

The Massachusetts based company also makes different guided bombs and missiles that India could consider. This includes the Paveway laser guided system or the Joint Stand Off Weapon (JSOW). The U.S. could also sell India the Joint Direct Attack Munition (JDAM) which adds a GPS guidance unit to different sized bombs. Raytheon also makes the Minature Air Launched Decoy (MALD) system which could be used by India to protect their aircraft.

Once the major award is announced for the multi-billion procurement of the aircraft then the various equipment and support contracts will follow. This does offer an opportunity for the U.S. defense contractors shut out from selling the primary aircraft to get some of the work associated with the system.

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General Dynamics To Acquire Force Protection

In a major shakeup of the U.S. armored vehicle industry General Dynamics (GD) announced late yesterday that it intends to acquire Force Protection (FRPT). GD is one of the largest defense contractors in the United States and makes a diverse product line including the Stryker wheeled combat vehicle, submarines, C4I systems and other defense related systems. Force Protection came to the fore in the middle part of the last decade as a successful provider of Mine Resistant Ambush Protected (MRAP) vehicles used by the U.S. and its Allies in Iraq and Afghanistan.

GD will pay about $5.52 a share for the South Carolina based company for a total cost of around $360 million. The transaction still needs to go through all of the necessary shareholder and Government wickets but GD hopes to close it out by the end of 2011.

Force Protection is a good example of the boom-and-bust aspect of the defense industry. They were early producers of MRAP vehicles selling quite a few to select customers before in 2004-2005 Congress and the DoD decided to invest in thousands of the heavily armored vehicles. MRAP were seen as the best counter to the mine and Improvised Explosive Device (IED) threat in Iraq and Afghanistan that were causing hundreds of casualties among U.S. troops traveling in their support vehicles which tended not to be heavily armored.

MRAP were bought initially to equip engineering units responsible for removing these threats but then became standard tactical vehicles. Hundreds were purchased from a variety of suppliers including Force Protection, Navistar (NAV), BAE Systems (BAE:LSE) and other companies across the globe. Factories sprang up in South Carolina, Mississippi and other states to produce them. The U.S. used rapid acquisition to buy the MRAP, spares and logistical support and by 2007 deaths were much reduced.

Force Protection’s earnings and stock mirrored this boom going up to a high in 2008 in the mid-$20 range. Unfortunately at a certain point the U.S. had purchased all that it needed especially of the first generation MRAP and by the end of 2008 Force Protection was struggling to make a profit and its stock had dropped below $10.

The company did not win contracts for the new MRAP vehicle being purchased for Afghanistan losing out to Oshkosh (OSK) for the MRAP-ATV contract. It had bid on some other work like Australia’s and Canada’s new armored vehicles but those contracts are yet to be awarded. It did in 2010 win a contract to build vehicles for the U.K. worth a substantial amount.

The acquisition by GD reflects the changing market that currently exists. With defense cuts coming it will be hard for the U.S. to support multiple suppliers for this product. GD gains manufacturing capability and staff who will make money supporting their existing vehicles and will help GD with the design and production of new systems.

It can be expected that there will be an uptick in M&A with mid-level companies like this that will see limited markets. The U.S. Government has made clear that it is not in favor of the bigger defense contractors merging as happened in the Nineties but the cut backs will see many smaller corporations disappear either changing markets or being absorbed by their competitors.

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Eurofighter delivers to the Spanish Air Force Typhoon nr. 300 — Press Release

Eurofighter delivers to the Spanish Air Force Typhoon nr. 300

The 300th Eurofighter Typhoon produced by the four partner companies of the European consortium, was delivered today by Cassidian to the Spanish Air Force, Ejercito del Aire. This milestone makes the Eurofighter Typhoon the only new generation multi-role aircraft to reach the impressive figure of 300 examples in service.

The Eurofighter Typhoons – developed and manufactured by Cassidian in Germany and Spain, BAE Systems in the UK and Alenia Aeronautica in Italy – are now in service across the globe with 16 units in six air forces replacing 11 aircraft types. This confirms Eurofighter as not only the best performing multi-role aircraft available on the world market but also the most effective and best value solution to meet the air defence requirements of air forces and nations worldwide.

To date, the fleet has completed over 130,000 flying hours with well above average operational availability and unmatched operational performance which was demonstrated recently during operations over Libya.

Eurofighter Typhoon is the aircraft of choice for the United Kingdom, Germany, Italy, Spain, the Kingdom of Saudi Arabia and Austrian Air Forces.

The event coincides with the Seoul Air Show 2011 where Eurofighter is exhibiting its capabilities to support the campaign for the FX-III acquisition project where the South Korean Defence Ministry is seeking to purchase some 60 next-generation fighters with the target of having them delivered for operational service in 2016.

Enzo Casolini, Eurofighter GmbH CEO, said: “Today’s milestone is another important example of how successful this joint European consortium is. The programme, the largest industrial collaboration in Europe, is a shining example of what can be achieved through cooperation, bringing together European capabilities; securing thousands of long-term jobs and generating a positive economic impact for the customer nations”.

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Rolls-Royce to Support Navy Trainer Aircraft

The U.S. Navy executed the third year of a contract with Rolls-Royce (RR:LSE) to provide support for the engines used in their primary trainer, the T-45 Goshawk. The T-45 is a version of the British Hawk trainer originally manufactured by McDonnell Douglas but now by Boeing (BA). The T-45 utilizes two F405 (Adour) engines from Rolls-Royce.

The contract for one years support has a value of almost $100 million.

The T-45 is a primary conversion trainer that supports transition to the F/A-18 and AV-8A jet aircraft. The Navy has received over 200 of the aircraft and it is part of an integrated Training System that utilizes simulators and instruction programs.

The U.S. Air Force is considering starting a new competition for a training aircraft to replace their elderly T-38 aircraft. This is used by that service to support transition to their advanced jet fighters and bombers. The T-38 has been in service since the Sixties and has been upgraded multiple times. The current T-38C Avionics Upgrade Program is expected to extend their life until 2020.

BAE Systems (BAE:LSE) the manufacturer of the Hawk aircraft has already indicated that they will bid a version of that aircraft called the Hawk Advanced Jet Trainer. They will do this as partners of Northrop Grumman (NOC).

The trainer and a new helicopter are the only two really new aircraft programs on the horizon for the U.S. Air Force and there are concerns that budgetary pressures may cause their delay or a decision to not go forward with them. The majority of the Air Force aircraft procurement budget is oriented towards the F-35 Joint Strike Fighter (JSF) and the KC-46A tanker.

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Labor Woes Add to Oshkosh’s Struggles

Further Update – It has been announced the Union has accepted the latest offer from the company and a new five year contract has been signed.

Update – The Union voted on Saturday the 8th on an updated proposal from the company and again turned down the offer. The Union has offered to continue negotiations.

Oshkosh Corp. (OSK) is one of a few, recent stories of success where a company is able to expand its business into defense from its more traditional lines of work. Oshkosh is traditionally a manufacturer of construction and emergency vehicles but was able to win two major defense contracts for support vehicles in the last five years. These have generated a great deal of revenue and some profit for the Wisconsin company when its traditional work was declining due to the global economic downturn.

Oshkosh was able to win the production contract for the U.S. Army’s standard truck, the Family of Medium Tactical Vehicles (FMTV), as well as a new Mine Resistant Ambush Protected (MRAP) for Afghanistan called the MRAP-All Terrain Vehicle (ATV). This was designed to be lighter and more maneuverable for use in Afghanistan’s rougher terrain with its limited roads.

The MRAP contract, though, is winding down as the need for the vehicles declines. The U.S. is planning on leaving both Iraq and Afghanistan in the next few years and is struggling with fitting the MRAP, which is primarily a heavily armored bus, into its tactical Table of Organization and Equipment (TO&E). If the next war includes a different threat then the role of the MRAP will be limited. This means that Oshkosh needs to find new customers or new work for their rapidly built up production capability for the MRAP.

The winning of the FMTV contract from BAE Systems (BAE:LSE) who had purchased the company that had that work for over twenty years was driven by price. Oshkosh bid very aggressively and hoped to make money off of modifications and other work related to the vehicles. Even though the Army and Marine Corps are buying thousands of those vehicles the margin on them is very low.

These two issues have combined to limit Oshkosh’s profit. The company is bidding on Canada’s new contract for an armored vehicle to help its situation but budgetary pressures will probably reduce its options for new contracts and new systems.

Now Oshkosh faces labor issues. Unlike BAE’s Sealy, TX workforce its is unionized. There current contract expired last Friday and the new one was voted down by the United Autoworker’s Union (UAW). As with many current labor negotiations healthcare costs and other issues remain the primary areas of disagreement.

Right now the union workers are not on strike and Oshkosh has not locked them out and the two sides met this weekend for more discussion. If the problems are not resolved in the near term though either could happen disrupting production for the military and affecting Oshkosh’s revenue.

Strikes are uncommon in the defense world as few major contractors are unionized. Sikorsky, part of United Technologies (UTX), had an ugly strike about six years ago that caused issues with UH-60 Black Hawk and CH-53E Sea Stallion helicopter production and took several months to recover from. Oshkosh is not facing that situation but it does add pressure to the company as they are trying to negotiate limited cost growth to maximize the profit from their products.

The next few months could be critical to the company’s defense prospects as the opportunities for new contracts in the U.S. are limited and there may be cuts to existing ones if there is a big decline in defense spending. This means it would be best for the union and the company to resolve their issues quickly and avoid a long term conflict.

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More Defense Related Layoffs Announced

As the big defense contractors continue to restructure themselves and their workforces for what is expected to be a period of decline in spending more layoffs were announced this week. The pressure too from the U.S. and other governments to be more price conscious is also affecting decisions related to the size of overhead and support employees.

Many of the major U.S. corporations have already announced plans to reduce their overall number of employees including General Dynamics (GD), Boeing (BA) and Lockheed Martin (LMT). Despite all three having strong sales and many major programs they feel that it is best to begin creating a leaner overall structure.

Lockheed followed up its earlier announcement of eliminating 1,500 jobs in its Aeronautics unit which builds the F-35 Joint Strike Fighter and the C-130 transport with word that it has already cut 540 of them. This includes over 200 at its Georgia plant making the C-130 and F-22 fighter. This is about 2.5 percent of the workforce at that facility.

In a bigger move British defense giant, BAE Systems (BAE:LSE), said that it would plan on reducing its workforce by about 3,000 positions. Most of these would be related to aircraft production where the Eurofighter Typhoon is near the end of its production run. Most of the original European customers have ordered all of that aircraft that they plan to buy leaving it needing Foreign Military Sales (FMS) customers to keep the line going beyond the next decade.

The Typhoon is being considered by India and potentially Japan for their new fighter but it is one of many that is being bid and price pressure is very strong for these deals making it hard to predict a winner.

BAE Systems has enjoyed a strong decade as it has grown in the U.S. market as well as supplying a British military involved in Iraq and Afghanistan. Now the U.K. is trying to reduce its overall spending which will seriously affect its defense spending while the U.K. has left Iraq and will leave Afghanistan with the U.S. in the next few years. The U.S. defense budget will also be reduced limiting further growth in that market.

BAE is one of the largest employers in the U.K. and these job losses will be a blow to that country’s economy and well being. The announced cuts represent almost 10 percent of their workers in that country. Earlier this year BAE had already began to make smaller cuts related to specific programs. This large one seems to be an adjustment to what is perceived as plans for the British Government’s future spending proposals.

As defense budgets decline it won’t only be contractor positions eliminated but also civil service and military as well. A large amount of money goes to these types of jobs and the quickest way to save is to cut back there. At a time when the U.S. and European economies are still struggling with higher then normal unemployment these types of moves will not help but must occur if budgets are to be balanced.

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Boeing Continues to Announce Sub-Contractors for KC-46A

As the KC-46A aerial tanker program moves forward headed up by Boeing (BA) they continue to announce the different sub-contractors and parts suppliers. The latest is that BAE Systems (BAE:LSE), the British defense giant, will be providing touch panels to operate some of the systems on the aircraft.

The panels are derivatives of the current ones they manufacture for Boeing’s 737 airliner indicating that Boeing will follow its plan of utilizing components from its different aircraft to support the 767 based tanker. The cockpit is planned to be a version of that used in the new 787 Dreamliner expected to enter service in the next few months.

Troubles Ahead for JLTV?

As the Pentagon re-evaluates its budget priorities in the coming months and years as it faces the potential for major reductions some new programs may be scaled back or cut. New systems that were a priority a few years ago in order to replace existing hardware that is now considered too old or not right for current operations may suddenly be seen as not necessarily being worth the amount of investment required. There are rumblings that the Joint Light Tactical Vehicle (JLTV) program to replace the ubiquitous HUMVEE made by AM General might be one of those being considered.

The HUMVEE began replacing the M151 Jeep in the Eighties and has seen steady production for almost thirty years. Tens of thousands have been made for use by all parts of the U.S. military as well as many allies across the globe. Faced with the mine and Improvised Explosive Device (IED) threat in Iraq and Afghanistan its level of protection and armament was found wanting. Different up-armored variants were made but a new program, JLTV, was started to replace it.

Last year the Army decided not to buy anymore for itself as it had reached the number it required. It looked like the HUMVEE line would close out. It remains open as there are still Foreign Military Sales (FMS) and the other Services are buying some as well as the Army deciding to keep some production. The JLTV program, though, was continuing with planned production starting in 2013.

The JLTV used competitive prototyping and is currently testing three different vehicles in the Technology Development phase of the acquisition cycle. Teams of companies including BAE Systems (BAE:LSE), General Dynamics (GD) with AM General, and Lockheed Martin (LMT) have built prototypes two of which will be chosen for the next phase; Engineering, Manufacturing and Development (EMD); which will then be the basis for the production decision. The JLTV due to the requirement for so many vehicles has the potential for billions of dollars in business over the next thirty years.

It is now being reported that the JLTV budget is being reduced which may cause schedule delays deferring when the JLTV enters service. The Army is also looking at starting a program to upgrade HUMVEE vehicles for itself and the Marine Corps. This would be cheaper then buying a whole new system and also delay the need for the JLTV.

If things get as bad financially as they have in the past then there may be a chance that the military is told to make do with what they have which would lead to elimination of the JLTV and the HUMVEE recapitalization program. No matter what happens the U.S. military is entering a period of a challenging budget climate and there may be more new programs in the same situation.

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Army Decides to Recompete Radford Contract

In June the U.S. Army announced that it had awarded a contract with BAE Systems (BAE:LSE) to run the U.S. explosives production facility at the Radford, VA Army Ammunition Plant. The losing company, ATK (ATK), who had had contracts to run the facility for several years protested the award. Under normal processes the Government Accountability Office (GAO) which is responsible for deciding these matters would have made a decision no later then September.

The protest though is now not necessary as the Army has decided to recompete the contract which led to the GAO dismissing the protest. After a review by the GAO the Army will change some parts of the Request for Proposals (RFP) and allow bidders to submit new ones. This is good news for ATK as the Radford contract had a value of over $800 million over its ten year duration.

Because of this decision ATK, the incumbent, will continue to operate the plant and be paid by the Army until a new contract is awarded. Both BAE and ATK have indicated they will submit new proposals and there is always a potential for other companies to also try to win the work.

If the U.S. defense budget does decline for any company the key will be keeping their existing contracts and then attempting to win new ones. Having a core of existing work will cushion any lack of new work caused by the reduced opportunities available in the next decade or so as the U.S. reduces its investment in Iraq and Afghanistan as well as new development programs or building up stockpiles of weapons and munitions.

ATK recently had a rough quarter with sales down which led to a drop of about 4% in profits when compared to the similar quarter last year. One areas where revenue was down was sales of ammunition to U.S. allies like Afghanistan. The loss of the Radford contract would have reduced annual revenue $80 million or so or about 2%. A chance to win the work back will only help the company in the future.

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Army Awards Next Contracts for New Ground Combat Vehicle (GCV) Program

The U.S. Army awarded the next set of contracts for further development of the new Ground Combat Vehicle (GCV). This program is to develop and produce a system to replace the current M2 Bradley family of armored troop carriers. The Bradley along with its M1 Abrams Tank partner were originally developed in the 1980’s as replacements for the M60 and M113 models of vehicles.

As with other recent programs such as the Mine Resistant Ambush Protected (MRAP) – ATV for use in Afghanistan and the Joint Light Tactical Vehicle (JLTV) program to develop the HUMVEE replacement the U.S. military is taking a step-by-step approach where multiple bidders are awarded contracts to develop prototype vehicles. These competing systems will then participate in a series of tests and one will be chosen to go on. The goal is to reduce risk and also price through competition.

The Army awarded two contracts for this next stage of the program. Three teams had submitted bids and the one by SAIC (SAIC) and Boeing (BA) is the odd man out. The proposals from the team of BAE Systems (BAE:LSE) and Northrop Grumman (NOC) was awarded a $450 million contract for this next effort while the General Dynamics (GD) team won one worth $440 million. This phase of the program is to last twenty-four months and at the end the Army will select one proposal to begin entering the Engineering, Manufacturing and Development (EMD) phase which will lead to low rate production.

Boeing and SAIC had been the lead contractors on the Army’s Future Combat Systems (FCS) program which was to develop a family of wheeled vehicles that would replace the M1/M2 family. Due to cost and schedule problems this program was cancelled by the Obama Administration in 2009 and part of this decision is the new GCV program.

BAE Systems currently refurbishes and maintains the M2 vehicles having acquired the U.S. company responsible for original production and development. GD makes the Stryker wheeled combat vehicle for the U.S. Army that was originally the interim solution while FCS was developed.

The GCV is not without controversy as the original Request for Proposal (RFP) was cancelled and a new one issued when it was found that solutions were going to be in the 70 ton weight class and cost upwards of $25 million. This was mainly due to the requirements for armor to protect against Improvised Explosive Devices (IED) and mines. These two contracts arise out of the new RFP issued last December that was more flexible about its requirements.

The total requirement for the GCV could be several thousand vehicles and be worth tens of billions of dollars over the next several decades.

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Oshkosh Struggles with the Defense Budget and the World Economy

August 2, 2011 by · Comment
Filed under: Editorial 

Oshkosh (OSK) had been a bright spot in recent years as the heavy truck manufacturer’s turn to defense contracts had helped keep the company buoyant during the recent economic downturn. Primarily known for building vehicles such as fire engines, concrete trucks and ambulances all of their product lines took deep blows as the construction industry contracted and governments cut back their investments in equipment. The company was able to win two major U.S. defense contracts that helped offset this market.

Now the first and largest of those is winding down as the U.S. also begins its draw down of forces committed to Afghanistan. This was the Mine Resistant Ambush Protected – All Terrain Vehicle (MRAP-ATV) contract designed to produce a smaller, more maneuverable MRAP for use in Afghanistan’s rough terrain. The U.S. had invested billions in a variety of MRAP vehicles from diverse sources to protect troops in Iraq from the mine and Improvised Explosive Device (IED) threat. Many of these were large and required smooth terrain or roads. The MRAP-ATV chosen via a contest would be able to handle off road transport better. Oshkosh won a contest held by DoD and earned several billion dollars worth of MRAP and support work. That contract is ending as the U.S. has purchased its planned quantities of MRAP-ATV.

Oshkosh was also able to win the right to make the U.S. Army’s standard truck, the Family of Medium Tactical Vehicles (FMTV), produced for years in Sealy, TX by Armor Holdings, now part of the United Kingdom’s BAE Systems (BAE:LSE). They won this contract on price and this is reflected in the small margins on the contract. It did though keep their plants working and has the potential to generate a great deal of revenue if not profits.

The end of the MRAP-ATV contract has had an affect now on earnings for two quarters. In the first quarter this year profit was down forty percent as commercial sales had not grown to make up for the defense business. Now for the second quarter similar results were reported.

The company reported a net income of 75 cents per share or down almost two-thirds from the last year’s $2.31. Revenue was just over $2 billion down about $420 million. Defense sales fell by thirty-five percent comparatively or over $1 billion. The company is hoping that the U.S. and world economy will improve to help its commercial sales in the future and the company expects to be profitable which is a big improvement over 2009 when the company lost about a billion dollars.

Oshkosh is a bidder on other defense contracts including Canada’s new tactical vehicle system. If they win that contract it will help balance out declines in U.S. defense sales.

As the U.S. economy improves and the defense budget is reduced Oshkosh might be one of several companies that took advantage of the growing market in the first decade of this century that now decides to minimize its reliance on it.

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