EADS Gains By Losing KC-X Contract
As part of the cancellation of the KC-X contract originally awarded to Northrop Grumman and EADS last years EADS received a payment for the first...Orbital Earnings Take A Hit
Filed under: Boeing, Business Line, Companies, Department of Defense, Earnings, Events, Federal Budget Process, IT, Military Aviation, Orbital Systems, S&T, SAIC, Satellites, Services, development program, logistics, missile defense, production program, space
Due to some restructuring of its work due to the Obama Administration’s efforts to reorient defense spending Orbital Sciences Corporation reported a downturn in revenue and operating income in its most recent quarterly results. The company saw a missile defense contract ended and some delays in satellite work leading it to reduce its estimates for the full year.
Of the major defense companies reporting so far results have been mixed. Some have seen better quarters then others. The effects of the major changes planned by Obama and Secretary of Defense Gates may take some months to have effect. The large programs they have ended will still be paying termination costs to the companies as they figure out what fees are needed and what work will be paid for. There are also chances that new contracts will be awarded in the next year or so.
Several programs will be continued in another form it may take two or three years for the next iteration to start. The Army’s Future Combat System (FCS) contract with Boeing and SAIC ended but the technology and work has been inserted into a new program. The contracts for the new program have not been fully awarded, so Boeing and SAIC may end of with revenue from that effort. In the end despite the cancellation the companies may not end up losing much revenue.
FCS Cancellation Fallout
Filed under: Boeing, Business Line, Companies, Congress, Events, Federal Budget Process, IT, Restructuring, SAIC, Services, U.S. Army, development program, logistics, production program
The cancellation of the current Future Combat Systems (FCS) development contract was one of the cornerstones of the Obama Administrations 2010 defense budget. The program of new vehicles, unmanned aerial and ground systems, and the data links connecting them was estimated at over $160 billion. The Army still has a requirement for a upgrade to their combat brigades currently using the Eighties produced M1/M2 vehicles and the Styker Interim system. As such a new program was set up to replace FCS almost immediately after the contract with Boeing and SAIC was canceled.
Now the Army is concerned that the money planned for in the budget may not be available for this new program. At a minimum some of it will be needed to pay the termination fees related to the various contracts ended prematurely. They were ended at the convenience of the government so the contractors are entitled to payment for whatever work they had done and what it takes to close out the contracts. If the money doesn’t remain in the FCS line then the Army will be forced to fund it from other programs.
Congress in their mark up of the 2010 budget cut most of the money budgeted for this as they felt there were sufficient current funds to cover this. This may be a little too much penny save pound foolish. The Army knows fairly well what is needed and probably budgeted appropriately. The cost to other parts of the Army including the new modernization program may be quite high.
JASM Under Threat
Filed under: Business Line, Companies, Events, Lockheed Martin, Military Aviation, Restructuring, Services, U.S. Air Force, U.S. Navy, production program
The Joint Air-to-Surface Missile (JASM) is an air launched cruise missile used by the U.S. Air Force and Navy. It has been in production for several years and has been deployed for use in Iraq and Afghanistan. Despite this the Air Force is planning anew series of test the results of which may lead to the cancellation of the program.
In recent testing the missile achieved only a sixty percent success rate well below the goals set for it. The system is manufactured by Lockheed Martin and canceling would be a loss of significant work. There have already been over 600 of the missiles made.
There have been issues with the wiring and fuses and Lockheed is working on these. The fact that the system seems to be in steady rate production indicates that it successfully completed all testing required to move to that phase. The recent failures may be due to storage or problems in the manufacturing process or maybe with some suppliers.
The fact that the Air Force is threa
UK Budget Woes Affecting Eurofighter
Filed under: BAE Systems, Business Line, Companies, Contract Additions, Contract Awards, Countries, EADS, England, Events, Germany, Italy, Military Aviation, Restructuring, Spain, development program, production program
The Eurofighter program is coming up for the next production buy. England, Germany, Italy and Spain are all planning to buy new aircraft with this batch. The original plan was to buy just over one hundred aircraft for about $180 billion. England was expected to buy sixteen. Now England’s budget problems is leading the Brown government to consider not participating in this purchase.
This decision is being fought by the other nations as a reduction in the quantity will increase the price for all of the them. England wants to negotiate a cheaper price for the aircraft. It doesn’t help that a great deal of high quality manufacturing jobs are based on this program across Europe. Few countries can face more unemployment in the current world economic situation.
The Eurofighter TYphoon is facing much of the same opposition that the F-22 is with some saying it is not the type of aircraft needed for today’s war on terror. The fact that it is the most expensive aircraft in Europe also is not helping. The European aviation industry is struggling right now with the A400M program and a possible cancellation of that. For England to back out of its Eurofighter commitment would only add to the problems.
Fixed Price for DDG-1000
Filed under: Business Line, Companies, Congress, Contract Awards, Department of Defense, Events, General Dynamics, Maine, Northrop Grumman Corp., Restructuring, Services, States, U.S. Navy, production program
As part of the reforms announced by Secretary Gates’ a few weeks ago one was to end the DDG-1000 program at three ships and restart the DDG-51 production line. General Dynamics will build the last two as the first is under construction by Northrop Grumman. Northrop will get the DDG-51 work to make up for the cancellation. The New York Times is reporting that GD agreed to a fixed price contract for hulls numbers two and three.
Normally fixed price contracts are used for when full rate production gets underway. The first few batches of a product are made as part of the cost plus development contract. This spreads the risk to the Government. Obama has said he wants more fixed price contracts to save money on defense programs that tend to go over schedule and cost. Of course a lot of that is due to issues with requirements or testing or just making the thing that add time and money.
DoD uses two ways to look at unit cost when it comes to managing a program. One is the total of all procurement and R&D funding spread over the quantity of the items being bought. Another just takes the total procurement cost and divides that by the quantity. As you build more of an item the R&D is spread over more units slowly lowering that cost. If things begin to require more procurement then that cost goes up. Slowing down a program and buying the same quantity over a longer time effectively increases total program costs greatly. There is always some fixed cost applied each year if you build one, ten or a hundred of an item. The more years it takes the more those fixed costs add up.
With this program it may be OK to use a FFP contract as the costs are more known and fixed. If there are issues GD will be taking a risk as they might not get back all the money it takes them to build the ships. This is why Cost Plus contracts are used for development and ironing out production. In this case it will be an interesting experiment to see if it works out for the Government and the contractor.
AugustaWestland Work Force Worried About VH-71 Contract
Filed under: Agusta Westland, Business Line, Companies, Congress, Contract Awards, Countries, Department of Defense, England, Events, Federal Budget Process, Italy, Lockheed Martin, Military Aviation, Restructuring, Services, U.S. Navy, development program, production program
While Finmeccanica has stated that they are not worried about the pending cancellation of the VH-71 new Presidential helicopter as proposed by Secretary Gates, there is concern at AugustaWestland’s facility in Yeovil, England. The local paper reports that if the program is ended there would be major cuts to the work force at that facility. AugustaWestland is not coming out and stating anything in this regard, but much of the work going on there supports the two phases of the program. As Finmeccanica has said Phase II has not yet started and that is why their earnings would not be effected in the next few years — no money has been spent on that part of the program. AugustaWestland makes the base helicopter which is then modified by Lockheed Martin in New York. The company would also provide support to the delivered aircraft. The contract while it is only for 23 aircraft is very large due to the cost of the individual platforms and the necessary modifications. The support contract would also be significant. The cancellation is just a recommendation right now and ultimately Congress will decide whether to end the program, restructure it, or just continue the current path.
Oklahoma Congressional Delegation Not Happy with FCS Decisions
Filed under: BAE Systems, Boeing, Business Line, Companies, Congress, Department of Defense, Events, Federal Budget Process, Proposal, Restructuring, Services, U.S. Army, development program
In yet another story of Congressional reaction to the decisions by Secretary Gates in next year’s budget. The one recommending cancellation of the Army’s Future Combat Systems (FCS) manned vehicles had the Oklahoma Senators and Representatives expressing strong reservations. The Oklahoman writes that Senator Inhofe who has been a strong supporter of the Non-Line of Sight Cannon (NLOS) system blames President Obama for this plan. The system would be assembled at a BAE plant in Elgin, OK. This is yet another example of how even though the Pentagon may propose cuts or ending programs Congress will have the ability to keep them going through adding funding in the Appropriations bill. Inhofe has always supported the system which was planned to enter into limited production in the near future. The FCS vehicles are planned to be lighter, faster and more fuel efficient then the current suite of heavy, tracked vehicles used by the U.S. Army. They would make up for there lack of armor through speed and reaction time. The FCS envisioned a heavily networked system that would allow greater situational awareness that would help U.S. troops engage faster. This decision by Gates is just one of several that will end up being decided in Congress.
KC-45 fallout continues
Filed under: Boeing, Contract Awards, Department of Defense, EADS, GAO, Military Aviation, Northrop Grumman Corp., Proposal, Protest, U.S. Air Force, commercial aviation, logistics, production program
With the decision to not go ahead with the KC-45 recompete and the cancellation of the planned source selection, the Pentagon has decided that due to the decision to cancel the original contract Northrop Grumman, and EADS, will receive some termination fee. This will pay the company for any work that the did while the contract was active prior to the protest and GAO recommendation to recompete the proposal. Termination fees are common for when the Government cancels the contract for administrative reasons. If ti is canceled due to non-performance then it gets a little more difficult. Due to the high visibility of this decision, I am sure the Congress will take a look at any money payed to Northrop Grumman.
See the Los Angeles Times for more on this.
Australia cuts bait
Filed under: Australia, Boeing, Contract Awards, McDonnell Douglas, Military Aviation, production program
The Australian government decided after all to go ahead with the purchase of the F/A-18 to gap fill until the JSF is available. An article is here. The new more liberal government had discussed canceling the contract to save money. Now they claim they have been able to reduce the total cost, so it is worthwhile. See a previous article here. Read more
Not only the US has problems with C3 programs
This article in Forbes.com describes the Danish cancellation of a contract with SAAB. It was for a C3 system called DACCIS. Not only did Denmark cancel the contract they are suing the company for 143 M Danish Kronor. Read more
New Australian government realizes there is a bill associated with cancelling F/A-18 contract
Filed under: Australia, Lockheed Martin, Military Aviation, Restructuring, production program
The new liberal government in Australia has talked about canceling the contract to purchase 24 F/A-18 aircraft to be used as a gap fill until the F-35 JSF is available. See ABC News here for details. Unfortunately there is a termination fee of around $400 M (Australian) associated with cancellation. Read more
Labor government cuts defence budget, English contractors feel pain
Filed under: BAE Systems, England, Restructuring, VT Group
This analysis in The Guardian says that BAE and the VT Group will lose billions in orders from the British government if planned cuts to the defence budget go through. Because some of the contracts for hardware have cancellation clauses the government may be force to buy the systems and then sell them to other nations. This is all part of an attempt to reduce public spending.
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