C-130J Production Continues

Even though as part of the FY13 budget the Defense Department is proposing to restructure the existing C-130 fleet and cancelling the Aviation Modernization Program (AMP) production of the C-130J continues. With this the Air Force place a contract with Lockheed Martin (LMT) for 7 more of the capable transport for use by itself and the Marine Corps.

The $70 million option will procure 4 MC-130J tankers, 2 AC-130J gunships and a HC-130J for the Coast Guard. This is under the current production contract.

The next five year budget, though, due to the desire to cut several hundred billion in spending over the next five years is not so kind to the program. It sees a forty-one percent cut to the planned spending for production while also ending the AMP.

The AMP had been developed by Boeing (BA) but the plan was to have another contest to award the production and retrofit contract. Boeing under the development contract would have done some of the upgrades but the bulk would have been done by the winner of the new effort.

The budget also ends the C-27J Joint Cargo Aircraft (JCA) program which was buying twin engined transports from L-3 Communications (LLL) for use by the USAF Guard. This capability will be replaced by C-130 performing that mission. With the ending of fighting in Iraq and Afghanistan the planned use of the C-27J would have been much less then intended.

There is no guarantee that any of these budget proposals are final until Congress votes on the 2013 defense budget this year. They are the final say on what is cut and what is kept but generally they follow the Pentagon’s proposals.

Photo from kingair42’s flickr photostream.

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Rumors of Program Cuts Starting to Swirl Affecting Boeing

If the Pentagon is really going to cut tens of billions of spending a year from its budget then it will not be able to nibble around the edges. What it will need to do is cancel whole programs. These will include ones in development as well as those in production and may also include ones that have yet to start yet. Already rumors of what will be cut are starting to come out in advance of any announcements by the Department of Defense.

Earlier this month it had been mooted that the C-27 Joint Cargo Aircraft (JCA) program would be eliminated. This is a light transport originally intended for the Army but now will be fielded to the U.S. Air Force Guard across the U.S. It was a program not really supported by the Air Force and now it is coming out that it might be on the block.

Another Air Force program that is now rumored to be on the chopping block is the C-130 Avionics Modernization Program (AMP). The C-130 made by Lockheed Martin (LMT) is a four engined transport used by the Air Force and Marine Corps. It has been in use since the 1950’s and the current C-130J is still being built today in Georgia.

The AMP adds a new glass cockpit along with the capability to meet the Global Air Traffic Control Management (GATM) requirements that all aircraft will be required to met by the end of this decade.

So far under the program Boeing (BA) has received a contract to modify 26 C-130 of which 6 have begun the AMP retrofit. The contract for the remaining 195 aircraft was supposed to be competed next year.

Ending the AMP would save about $2 billion over the next several years. Cutting it now makes sense as the follow-on contract has not been awarded.

The aircraft though will still ultimately need to be upgraded for GATM reasons but this could be done cheaper without the addition of the glass cockpit and other modifications.

It can be expected that further “rumors” of this sort will be floated as the next budget is developed that should include the first wave of cuts. As always in this situation Congress will have to weigh in with their blessing or changes to these types of decisions so politics will also play a role.

Photo from Nellis Air Force Base’s Flickr photostream.

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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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Lockheed Workers Agree to New Contract Will Aid in Lowering Costs for Company

Most people do not realize that the large defense contractors in the United States have a unionized workforce. It is more then just their manufacturing related employees but often includes engineers and support staff as well. Boeing (BA), Lockheed Martin (LMT) and Northrop Grumman (NOC) who make aircraft and ships especially have this as one of their considerations because it does effect costs.

One of the advantages that EADS North America (EADS:P) was going to offer with their tanker program was a non-unionized workforce in Alabama that should have been a lower cost then Boeing’s unionized one in Washington state. Boeing though was able to get their costs in line and propose a cheaper solution to the KC-X mission.

While labor relations in the defense industry have tended to be fairly stable there have been strikes in the recent past. Both Sikorsky (UTX) and Boeing faced labor stoppages that did have some effect on their production of aircraft for the military and other defense customers. As with many recent contract negotiations the issues had more to do with benefits and health care costs rather then wages and work rules.

Now Lockheed Martin’s workers represented by the machinists union have signed a new deal rather then go on strike as recommended by the union. These workers are primarily in Georgia and are involved in C-130 production and other work. The major dispute in this negotiation was the company’s plan to have new employees get a much less generous pension plan then existing ones.

Lockheed’s goal was to reduce their costs and with most companies their labor is their biggest expense. They face extreme pressure from the Defense Department to control costs on the F-35 program and this type of contract with a sizable portion of their workforce will aid them in doing that. The problem though is that whether in the long run the company can reduce benefits and maintain their experienced, effective workforce who are key to production of systems on time and to meet the military’s needs.

Photo from Beige Alert’s flickr photostream.

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A400M Buyers and EADS Reach Deal on A400M Program

a400m eads europe agreement transportThe EADS (EADS:P) developed A400M transport has been the most important military aerospace project in Europe for the last ten years. The multi-engined propeller driven aircraft was designed to support the airlift needs of seven European countries as well as compete on the world market for military transport contracts. Unfortunately due to issues with engine and software development and integration the program is at least four years late and billions of dollars over cost.

Because the program was considered low risk the contract was structured so that the buyers provided up front money to pay for the development and then would not have to pay anymore until deliveries started. As the costs and schedule changed EADS and the customers renegotiated the programlast year as the program faced cancellation and EADS paying back millions in penalties. The decision was made to keep the program going with EADS paying some of the cost and the contract has been in renegotiation since.

During that time the United Kingdom has announced changes to their planned quantities as well as a complete restructuring of their defense spending as part of SDSR.

Word leaked this weekend that a new agreement had been reached. The buyers will now pay up to about $18 million more per airframe but some will now buy less. They will also pay about $3.5 billion more for the program with EADS paying all of the other cost overruns. The aircraft is now in the flight test stage and the first aircraft will be accepted in 2013 rather then the originally planned 2009.

If the A400M was not completed the Europeans would be faced with buying either the Boeing (BA) C-17 or Lockheed Martin (LMT) C-130J. The A400M is designed to be bigger and longer ranged then the C-130 but more fuel efficient then the C-17. Unfortunately the delays in the program meant that the program missed out on some opportunities for foriegn sales as the C-17 and C-130 have been purchased by countries like the U.A.E. and Canada.

EADS would like to sell the aircraft to the American military but needs to identify a mission This may prove difficult as the C-17 production is winding down as the Air Force has met their inventory requirement and there is expected to be pressure on the U.S. defense budget that would reduce opportunities for new programs.

The new agreement is good news for EADS and Europe as canceling the transport would have been a blow to the aerospace giant’s finances as well as a black eye for the state of the industry in Europe as a whole.

Photo from Chris MOEEG’s flickr photostream.

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Rumors of Indian C-17 Contract Closure

Unless there is a miracle in the 2011 defense budget whenever it is passed by Congress the last C-17 for the U.S. Air Force has been funded. The strategic transport has received several plus ups in recent budgets to buy aircraft beyond what the Air Force and Department of Defense has planned. Boeing (BA) is already planning the winding down of the production line and the factory in Long Beach, CA.

The C-17 has seen heavy use in the current operations in Iraq and Afghanistan as lift is one of the most important force projections and support assets. Even though the mission the aircraft carries out is important the Obama Administration made ending production one part of their defense spending reforms. In the 2009 and 2010 budgets they accepted the additional aircraft from Congress as part of getting their other changes through including ending F-22 procurement.

The C-17 has been purchased by some foreign customers and the U.S. and Boeing have aggressively marketed it to others. The aircraft remains the only Western long range strategic transport in production alongside Lockheed Martin’s (LMT) shorter ranged and smaller C-130J. EADS (EADS:P) is now offering their A400M transport which falls between the two U.S. aircraft offering longer range then the C-130 and smaller cargo capability compared to the C-17.

Now it seems some of these efforts are paying off. Reportedly Kuwait wants to purchase at least one of the aircraft and India is ready to close on a deal for ten. The total value of these sales is over $4 billion.

India has long tried to develop their indigenous arms industry while buying selected Russian and Western equipment. Over the last few years in a bid to modernize their military and raise their general technological level they have attempted to purchase more U.S. equipment. These have included Boeing P-8I maritime patrol aircraft and an ongoing competition for a new fighter that includes bids from Boeing, Lockheed, MiG, Daussault and SAAB. The C-17 buy would be part of this effort.

The more foreign sales that Boeing can secure the longer it can keep the production line open and people in California employed. The Indian sale would be quite an addition as it would become the largest fleet outside of the U.S. These sales will be much appreciated by Boeing and its workers.

Photo from TMWolf’s flickr photostream.

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Looking for a Mission and a Buyer: The A400M in America

The European defense conglomerate EADS (EADS:P) has been working for several years to develop the A400M “Grizzly” transport aircraft. This advanced turboprop transport falls in between the two Western standard aerial transports Lockheed Martin’s (LMT) C-130J and Boeing’s (BA) C-17 in terms of size and capacity. EADS is also advertising its ability to fly from short, unimproved airfields when compared to the two U.S. Air Force basic aircraft. In this way the A400M is more like traditional Soviet transports where this capability was emphasized over other characteristics. EADS would like to sell the A400M to the U.S. military as well as other foriegn customers to help with the total cost of the program and perhaps even make a profit.

The problem they face is that the United States has invested over the last twenty years in a fleet of C-17 and C-130 to augment their heavy lift C-5 which is about to be upgraded. There is little requirement for a new transport even if it is offers advantages over the current aircraft. In fact the U.S. believes it has too many C-17 due to Congress’ adding buys over the Air Force’s acquisition objective for the last several years. It looks like the 2011 budget will not contain any more C-17 aircraft when it is finally completed. This means that EADS is looking for an uphill climb to sell the aircraft in the U.S. just from a requirement stand point.

The A400M has had a troubled development history ending up being two years late and much more expensive then planned. EADS has renegotiated the contract it had with its European customers to try and adjust for these issues. The problem they face is that to try and make the money up they will need to sell much more then originally planned. This means they must look for overseas customers in a crowded market. Only two countries had planned to place Foreign Military Sales (FMS) orders for the aircraft: Malaysia and South Africa. South Africa canceled theirs due to the cost increases. While the domestic customers state commitment to the program they also could readjust their quantities putting even more cost pressure on the aircraft program.

Unfortunately the delays in the A400M means it missed some potential orders that it might have been able to bid on if the original schedule had been met. The demands of fighting in Afghanistan have increased the need for tactical transports like the A400M but the C-130J has been able to win a great deal of contracts that the A400M might have. Lockheed has a hot production line in steady state that provides availability and cost stability. The A400M was several years in the future with some unknowns when it came to cost.

Another problem that EADS must face is the U.S. political opposition to buying non-domestic aircraft. While they are bidding on the KC-X against Boeing there is a lot of criticism of the Air Force for even allowing their bid. Partly this is due to concerns about “U.S. jobs” and just the normal chauvinism present in any large arms deal. Due to declining industrial base issues the U.S. has to consider an EADS bid if they want any competition on the KC-X. The transport market is a little more diverse and EADS could face competition from more then one U.S. manufacturer making it hard to make the KC-X argument for any new airlift mission.

Another cautionary tale for the A400M is the U.S Army’s planned Joint Cargo Aircraft (JCA) program. The Army originally wanted to purchase an aircraft smaller then a C-130 to provide lift in Iraq and Afghanistan between bases. As the name implies it became a shared program with the Air Force partly because they buy fixed wing aircraft and the Army has a very limited fleet of tactical transports and ISR assets. The program ended up purchasing the C-27 Spartan an Italian made aircraft through a contract with L-3 Communications (LLL). In the 2010 budget reforms the program was transferred to Air Force management and the plans to buy aircraft significantly scaled back. The JCA faced issues as it didn’t fit with the Air Force plans even if the Army wanted it. The A400M will face the same issues.

Once the A400M enters service it may prove to be a very capable, effective aircraft. Unfortunately to break into the U.S. market it may be too late as the defense budget declines and the C-5, C-17 and C-130 fleet soldiers on.

Photo from Ronnie Macdonald’s Flickr photostream.

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C-130 Future Bright Despite Cloudy AMP

July 22, 2010 by · Comment
Filed under: Syndicated Industry News 
C-130 Future Bright Despite Cloudy AMP
July 19, 2010

FARNBOROUGH — In an annual look at the retrofit and modernization prospects for the Lockheed Martin C-130, Forecast International finds that the aircraft will continue to receive generous funding, even though its largest program is at risk of termination.

With a total estimated cost of $4.6 billion, the Avionics Modernization Program (AMP) is intended to replace obsolescent and outdated cockpit avionics on 218 aircraft with modern, sustainable equivalents. In addition to offering the usual benefits of a cockpit upgrade – reduced crew workload and increased functionality – the new avionics systems would interface more easily with future avionics retrofits. The upgrade program has been in active development since 2001 with Boeing as the prime contractor; however, development has not gone smoothly.

"The original United States Air Force requirement was for 434 aircraft, but is now down to 218,” said Adam Feld, Aerospace/Defense Retrofit & Modernization Editor at Forecast International. “The Navy is also seeking funding for 47 Navy and USMC aircraft, but the program has come under heavy fire due to its price tag. Even with Boeing trying to keep costs down, the Air Force just isn't sure there's room in the budget."

And the USAF has taken action on that uncertainty, calling for the program's termination in favor of a series of less ambitious upgrades that provide only the necessary functionality. According to USAF Chief of Staff General Norton Schwartz, the AMP is simply too expensive.

"Congress doesn't appear all that enthusiastic about cutting the AMP," says Feld. "The United States has already spent about $1.5 billion on development and there's also international interest to consider. Saudi Arabia is looking to spend as much as $800 million upgrading its own C-130 fleet, for instance. For the time being, Congress is funding the program but also deferring it. According to the FY10 budget request, we're not going to see a real increase in production until 2015, which would give the global economy some more time to recover and may relieve some of the pressure to cut spending."

Yet even if the AMP does get terminated, that doesn't mean the C-130 will have to go without. Feld notes that "if a program is necessary, the United States will find a way to fund it. It may not be as extensive as intended in terms of number of aircraft or the quality of the upgrade, and it may take some time, but the minimum need will be met. Even if the AMP is terminated in favor of smaller programs, the aircraft may still receive that extra functionality through follow-on programs over the coming years or decades. The overall cost in time and money will be higher, but it will get where it needs to be."

Even with the AMP at risk, the C-130 remains a popular platform that provides a wide array of services to more than 60 countries worldwide. It serves as a transport, aerial refueling tanker, electronic warfare platform, close air support gunship, and firefighting airtanker, and even flies search-and-rescue and special operations missions. Despite its age, demand is on the rise, and Lockheed Martin has had to boost production of the latest variant, the C-130J. The USAF is funding an ambitious electronic warfare modification for the aircraft known as "Compass Call," and the USMC is mounting weapons on its KC-130 tankers under the Harvest Hawk program. "The AMP is a big program, but it won't make or break the C-130," says Feld.

A detailed look at all major retrofit programs for the C-130 is available in the August supplement of Forecast International's Airborne Retrofit & Modernization Forecast.

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Today in the Department of Defense, Thursday, June 10, 2010

Today in the Department of Defense, Thursday, June 10, 2010
June 9, 2010

Secretary of Defense Robert M. Gates is traveling.

Deputy Secretary of Defense William J. Lynn has no public or media events on his schedule.

A National Capital Region Flyover of Arlington National Cemetery occurs at 9:05 a.m. EDT with one C-130.

Chairman, Joint Chiefs of Staff, Adm. Mike Mullen will speak at the National Defense University's Graduation held at 10 a.m. EDT, at Fort Lesley J. McNair in front of historic Roosevelt Hall.

Under Secretary of Defense for Policy Michele Flournoy will give the key note address at 4 p.m. EDT at the Center For A New American Security's annual conference.

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U.S. Air Force Chief Of Staff Delivers First Lockheed Martin C-130J Super Hercules For Dyess AFB, Texas

U.S. Air Force Chief Of Staff Delivers First Lockheed Martin C-130J Super Hercules For Dyess AFB, Texas
April 16, 2010 11:42 AM

MARIETTA, Ga., -- At ceremonies today in Abilene Texas, Air Force Chief of Staff Gen. Norton A. Schwartz delivered the first of 28 Lockheed Martin [NYSE: LMT] C-130J Super Hercules airlifters to the 317th Airlift Group at Dyess Air Force Base. Schwartz flew the C-130J to Dyess from Little Rock Air Force Base in Arkansas.

In delivering the first aircraft, the Air Force's top uniformed officer said the C-130 has been flying in the skies over Abilene for almost 50 years, noting that the "latest version of the backbone of our tactical airlift capability will continue the great legacy built by generations of aviators."

"The delivery of this C-130J and others like it is a step toward modernizing our airlift inventories," General Schwartz said, "we'll continue to make progress in this area over the next few years."

The new aircraft will replace the existing Dyess fleet of 33 aging C-130s flown by the 317th Airlift Group. The C-130J Super Hercules fleet will be delivered over the next two years with final delivery in 2012.

"This is certainly yet another proud day for the C-130J program" said Ross Reynolds, Lockheed Martin vice president for C-130 programs. "We are seeing more and more that when the time comes to replace aging C-130 fleets, or establish new fleets, the choice is made to acquire the Super Hercules. There is no other airlifter that has the capability, flexibility and proven track record of the C-130J. From airlift recapitalization in the U.S., to the growing list of countries selecting the C-130J, this aircraft has the capability to meet whatever operational challenges the future holds."

Other nations which are operating, or have ordered, the C-130J include Australia, Canada, Denmark, India, Iraq, Italy, Norway, Oman, Qatar, Tunisia, the United Kingdom and the United States. Most recently Israel signed a Letter of Offer and Acceptance with the U.S. Government to a

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How U.S. Defense Contractors Are Creating Their Own Competition

February 18, 2010 by · Comment
Filed under: BNET, Syndicated Industry News 

Saudi Arabia recently awarded a contract for U.S. made C-130 transport aircraft engine maintenance to a Greek company. Over the last few decades…

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South Africa May Be The First A400M Casualty

The A400M is one of EADS most ambitious military programs. The new tactical transport would be developed and built in Europe for several different nations and provide a possible counterweight to the C-130 for overseas sales. The aircraft has faced development struggles that has led to a two year delay in the delivery of the test vehicles and caused the customers to rethink whether to continue. This would have been harsh for EADS as they would have to pay penalties to the countries that invested in them.

In July it was decided to renegotiate the contract to allow EADS time to restructure it and meet its obligations. The A400M has also attracted some foriegn customers and now South Africa is considering canceling their order for eight aircraft due to a price increase of over 150 percent. If the contract was not canceled by the end of the month the nation must continue on with the program and pay the new price. This would be about $6.4 billion compared to the original estimate of $2.6 billion in current exchange rates.

Defense acquisition programs that run late or over budget are nothing new. Normally when an overseas sale occurs of this kind of system it is after it has been in production for a few years and the price stablized. In this case South Africa gambled that the A400M would be completed on time and cost without any serious issues. This has turned out not to be true and they are facing a price increase of starting over. The aircraft are considered key to their peace keeping capability.


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Goodrich To Refit Wheels And Brakes On C-130 Fleet

Goodrich Corp was awarded a contract by the U.S. Air Force to begin retrofitting the C-130 fleet of transport aircraft with new wheels and brakes. The contract is worth up to $400 million. Goodrich hopes that these products will also be sold to foriegn customers of the highly used aircraft.

The new system of boltless wheels and carbon brakes should improve the wear and reduce maintenance on the aircraft. C-130 transports tend to be used on rougher fields then the C-17 and face different issues. Anything that makes maintenance less common and improves the life of components like these should save the operator money in the long run. It also may raise the readiness rate of this aircraft critical to the United State’s efforts in Afghanistan and Iraq.

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Joint Cargo Aircraft Loses Boeing

The U.S. Army and Air Force plan to purchase about seventy-eight Joint Cargo Aircraft (JCA). This is a light transport to supplement the C-130 primarily used for short haul missions in theater. The C-27J was selected to be the aircraft for the mission. This is a jet built by Finmeccanica in a joint venture with L-3 Communications. The team had been in discussions with Boeing to build an assembly plant for the originally European aircraft in the U.S. Now Bloomberg is reporting that Boeing is dropping out of the program due to the current world economic downturn. The plan is still to build a plant and assemble the aircraft in the U.S. but a new partner will have to be found or L-3 will have to spearhead the work. The JCA has had its issues mainly due to the Army and Air Force having different priorities for the aircraft but it had settled down with Low Rate Initial Production starting.

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India seen as future large weapons buyer

Lockheed Martin has expressed their belief that India will be one of the largest, future weapon markets. See Reuters for a story from the Singapore Airshow. With a projected market of $20 Billion over the next decades Lockheed plans to bid on whatever work it thinks it can get. It recently won an award for C-130 aircraft. See this previous post.

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