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India Moves A Step Closer On Fighter Decision

As reported last month India’s Government announced on Friday that they have begun the final process for selecting the winner in the Medium Multi-Role Combat Aircraft (MMRCA) contract. This is to buy a modern, Western fighter aircraft to replace some aging Russian ones and supplement a modern fighter being jointly developed by India and Russia. After a lengthy contest the remaining two contenders are Eurofighter and France’s Dassault Rafael.

On the 4th the committee responsible for negotiating the price of the 126 aircraft and its life-cycle support received the final bids from the two companies. The estimated cost for the contract will be in the $10 billion range. The final review and negotiations leading to the choice of a winner should be completed by the end of 2011.

The contest began almost five years ago and proposals were received from six different companies. Two American; Lockheed Martin (LMT) and Boeing (BA); Sweden’s SAAB and Russia’s United Aircraft Corp. as well as the two Western European aircraft. Interestingly after the evaluation of the proposals and analysis of the aircraft’s capabilities all were eliminated but the Typhoon and Rafael. This was a blow to the U.S. who were hoping to be able to sell a modern fighter to India building upon two earlier contract negotiations for Boeing’s P-8 maritime patrol aircraft and Lockheed’s C-130J transport.

The U.S. after their aircraft had been eliminated had raised the idea of proposing a variant of the F-35 Joint Strike Fighter (JSF) for the contract but India did not entertain that. The JSF is currently in Low Rate Production and is the product of the U.S. and several other countries. Unlike the other six earlier bids it is a Fifth Generation aircraft.

This contract along with Brazil’s stalled contest are the only two major foriegn fighter sales currently available although Japan is planning to begin the process to buy a new aircraft. The major aerospace contractors are looking for these deals to make up for reduced spending by the U.S. and European governments due to budgetary pressures and the cut backs in Iraq and Afghanistan.

The winning of the Indian contract would be the first foreign sale of the Rafael which is only used by the French Air Force and Navy. The Eurofighter has been sold to Saudi Arabia. Both aircraft were used in the recent air campaign against Libya. Eurofighter would also like the sale as the European partners such as the U.K. and Germany are considering buying less Typhoons then they originally committed to due to funding shortfalls.

The sale to India too would mark a breakthrough as they traditionally have bought Russian or domestic aircraft or with programs like the Hawk trainer manufactured them in India. The contract has stiff offset requirements and the winner will have to invest around $5 billion in the Indian economy. India’s offset and technology transfer rules have in the past made it hard especially for American companies to bid on their military contracts. This deal along with others are the result of modifications to those rules made in recent years.

This contract will see the first 18 aircraft built overseas and then the remainder manufactured in India.

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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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Lockheed Orders C-130J Trainers from CAE

Canada has been investing over the last several years in significant upgrades to its military as equipment from the Eighties ages and the demands of the fighting in Afghanistan have caused requirements for certain systems. Due to its availability and the need for integration with the larger American forces much of the new procurements are coming from the United States.

These include Boeing’s (BA) CH-47 helicopters and Lockheed Martin (LMT) C-130J transports and in the largest contract of all advanced F-35 Joint Strike Fighters to replace their CF-18 fighters. The JSF team is headed up by Lockheed as well.

Because Canada is buying from a non-domestic source they have written into a lot of their contacts offset rules that require a percentage of the value to be spent in Canada. For example Sikosrky, a UTC company, is providing S-92 helicopters to meet a search-and-rescue mission. In recent contract negotiations to settle delays the company agreed to invest a further $80 million in the Canadian economy beyond the initial contract plan.

As part of the massive JSF contract Lockheed will use a Canadian company, Bristol Aerospace, to build components for the aircraft. One advantage of this contract is that even if Canada reduces its buy or ends the contract Bristol Aerospace will still have the opportunity to make parts of the JSF aircraft being purchased by the U.S. and other Allies.

Then there are contracts that will go to Canadian companies anyway. CAE (CAE:TSX) is a Canadian based company that manufactures flight training devices and simulators for civil and military aircraft. It has operations and facilities all over the world including a substantial presence in the United States.

In the last week they announced they had received a series of contracts for simulators and training aids. These include one from Lockheed Martin to build C-130J weapon systems trainer, a fuselage trainer and a loadmaster part-task trainer. No value for the contract was given.

Even though this contract is not a direct result of the Canadian C-130J buy it illustrates how connected that country’s defense industry is to the American and world market. Canada is not making large systems for itself or other customers anymore but it is certainly providing supporting products and is able to use the offsets and investment by larger foriegn contractors to help its domestic defense industry and economy.

Photo from Stephen Edmond’s flickr photostream.

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The GEO Group Selected for the Management of Short Term Offender Program in Indiana

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

BOCA RATON, Fla.–(BUSINESS WIRE)–The GEO Group (NYSE:GEO) (“GEO”) announced today that it has been selected by the State of Indiana, Department of Correction (the “Department”) for the management of the Short Term Offender Program at an existing state-owned facility in Plainfield, Indiana (the “Facility”) pending the completion of contract negotiations. GEO expects the Facility to initially house approximately 300 inmates and ramp up to 1,066 inmates over time. At full occupancy, the Facility



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