The Hidden Costs of Social Engineering
President Obama's Administration has discussed favoring companies that provide better wages and benefits in Federal contracting. This is proving...Senator Shelby Freezes Obama Nominees Over KC-X
Filed under: Alabama, Congress, EADS, KC-X, KC-X Tanker News, Northrop Grumman Corp.
It has been reported that Senator Shelby (R-AL) has placed a hold on every nomination made by President Obama that must be confirmed by the Senate. This means that without a vote of over 60 Senators the nominations cannot be considered. Putting a hold on specific individuals is not uncommon but the use of the “blanket hold” is. Reportedly Shelby is upset about progress on the KC-X RFP as well as plans to build a new national Explosive Ordnance Disposal (EOD) school at Redstone Arsenal in Huntsville, AL.
Shelby had been a Democrat until the election of Bill Clinton when he switched parties. It would be hard to believe that this broad attack will force any changes to the RFP to make it more attractive to Northrop Grumman (NOC) and EADS (EADS:P). It will also be hard for Shelby to sustain this kind of action for long.
KC-X Fully Funded In 2011 Budget
Filed under: Boeing, Congress, EADS, KC-X, KC-X Tanker News, Northrop Grumman Corp.
President Obama sent his 2011 budget to Congress yesterday. It contains as part of its record defense spending $12 billion for the development and initial production of the new KC-X tanker. The Administration and the Air Force have a goal of awarding a contract this Summer and beginning the development of the new aircraft fairly fast.
This plan is fraught with difficulties based on the history of the program. The two main competitors, Boeing (BA) and the Northrop Grumman (NOC) team, have their own supporters in Congress and their own issues with the approach the Air Force is taking. It can be expected that the source selection will be difficult and the chances for a protest fairly high if both groups do submit bids.
Sterner OCI Rules Strike At SAIC
As part of their contract reform items the Obama Administration is taking a sterner view of Organizational Conflict of Interest (OCI) rules. SAIC...Defense And The State Of The Union
President Obama's State of the Union speech last night reinforced his budget plans for defense. This will see slight growth in the near term as...C-17 Continues To Provide For Boeing
With the passage of the 2010 defense budget Boeing (BA) is assured of further production of the C-17 transport. Despite the wishes of the Obama...2010 Defense Budget Full Of Adds And Add Ons
President Obama signed the defense budget this past weekend which includes about $630 billion in funding. Much of this is for Congressional...Starting Over With Or Without The VH-71
The Pentagon discussed starting a new program to buy the President a helicopter. The last attempt was the VH-71 but this was canceled by the Obama...Obama’s Defense Budget Plan Falling Apart Before First One Passed
President Obama's plans for defense reform are being held up by the lack of the 2010 defense appropriations bill. Now it is coming out that a...Broadband Stimulus Attracting A Great Deal Of Attention As Echostar Sets Record
As part of the “Stimulus” bill or the American Recovery and Reinvestment Act (ARRA) signed by President Obama in March was a provision...Latin America moving toward more pragmatic policies: IISS
LONDON, Sept. 15 (UPI) -- Despite recent moves toward rearmament and anti-U.S. rhetoric from longtime critics like Venezuela, Latin America is moving towards more pragmatic policies that will facilitate the Obama administration's re-engagement with the continent, the annual strategic survey from the International Institute for Strategic Studies said Tuesday.
Selling Overseas To Make Up For Coming U.S. Defense Cuts
Filed under: Arizona, Bell, Brazil, Business Line, Companies, Congress, Countries, Department of Defense, Events, Federal Budget Process, India, Qatar, Raytheon, Restructuring, Services, States, UAE, development program, logistics, missile defense, production program
Arizona is a top beneficiary of defense dollars. This is primarily due to Raytheon and Bell activities in the state. Raytheon makes missile defense systems and Bell helicopters. Now with the possibility that Obama’s cuts to the defense budgets starting in 2010 and out the companies there are looking overseas for work.
Unfortunately this will be the business plan for all defense contractors if their is a significant contraction in U.S. defense spending. The focus will be on selling systems and support to Asian, South American and Middle Eastern companies. India, Brazil, the U.A.E. and Qatar have already made major investments in U.S. and European equipment and there are several major contracts coming. In 2008 the U.S. already captured two-thirds of the market but overall purchases were the lowest they had been since 2005. If this trend continues due to the global downturn in the economy there may be less opportunity for these sort of sales.
These trends may lead to further consolidation of the defense industry in the U.S. and abroad as domestic and foriegn markets may not be able to support the amount of business built up since 2001 primarily by the United States. This will be the most important factor facing the industry which has not seen this situation since the early Nineties and the end of the Reagan arms build-up.
Defense Budget Moving Through Senate
The first Senate subcommittee voted out the 2010 Defense Appropriations Bill. It mainly supports Obama's priorities but does set up some conflicts...Obama Asking Government Workers To Sacrifice But Evidence Shows American Workers Already Have
President Obama is invoking emergency powers granted to the Executive Branch after 9/11 to arbitrarily reduce the planned Cost of Living Adjustment...Old Habits Die Hard With Earmarks
Despite pressure from Obama's new administration Congress keeps funding programs with earmarks that are not necessarily wanted.F-35 Completes Aeriel Refueling Test
Filed under: Business Line, Companies, Department of Defense, Events, Lockheed Martin, Military Aviation, Services, U.S. Air Force, U.S. Marine Corps, U.S. Navy, development program, production program
The F-35 Joint Strike Fighter (JSF) Short Take Off/Vertical Landing (STOVL) version completed a refueling mission form a KC-130. This was a successful first using the hose and drogue method of refueling aircraft in air. The Lockheed Martin press release is available here.
The JSF continues to make strides in its development program and is moving forward as its rapid procurement has become the focus of the Obama Administration’s attempts to modernize America’s fighter fleet.
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.
EADS Sells More A330 Tankers To Saudi Arabia
Filed under: Australia, Boeing, Business Line, Companies, Congress, Contract Additions, Countries, Department of Defense, EADS, England, Events, Japan, Military Aviation, Northrop Grumman Corp., Services, U.S. Air Force, UAE, United States, commercial aviation, development program, logistics, production program
EADS announced today that Saudi Arabia had doubled their order for aerial tankers by buying three more A330 MRT aircraft. This means that the Kingdom will now have six of the advanced tankers. They along with the U.K., Australia and the U.A.E. have ordered the aircraft. As part of the buy of the new aircraft Saudi Arabia has ordered logistic and parts support for the tankers although no contract value was announced.
The big contract for military refueling aircraft is the new tanker for the United States Air Force (USAF). EADS and Northorp Grumman had won the contract for the KC-X last year only to see it overturned on a Boeing protest. Now the new Obama Administration and the USAF will try again with a completely new RFP. That contract would be for over one hundred aircraft and would dwarf previous orders. There is still discussion of possibly splitting the contract between the two suppliers with a goal of maximizing the number of aircraft delivered in a short time. The USAF and Defense Department are against that as the two aircraft would require their own substantial support tail of parts, maintenance and training which would be quite expensive.
The A330 is a bigger aircraft then the 767 proposed by Boeing last time but requires larger airfields and more gas to fly a comparable mission. The bigger aircraft can carry more fuel for other aircraft so there has to be a balance struck there. It is definitely conceivable that the loser of the next contract will protest anyway so there may be further delays to the acquisition of the greatly needed capability.
English Defense Industry Looking Bleak
Filed under: BAE Systems, Business Line, Companies, Contract Awards, Countries, Department of Defense, England, Events, Military Aviation, Scotland, Services, VT Group, production program
It is true that the United States defense budget does dominate the world’s spending on arms and equipment but the U.K. has always had large spending plans as well. Now that the U.K. government of Gordon Brown is facing massive deficits due to social spending and attempts at stimulating their own economy since the global recession began twelve months or so ago defence spending may get a little tight. There has already been discussion of canceling some large programs as well as cutting back on general spending. Like in the U.S. ending these kind of programs will lead to more job losses on top of those already gone in the civilian economy.
That is why stories like this one about the U.S. military buying BAE Systems artillery pieces that will be made in the U.K. will become more common. When you are relying on foriegn sales to keep up jobs for six months at a time it is not a good sign. There are bigger programs at risk for the U.K. such as the Eurofighter or A400M transports. The government is scrambling to maintain the new aircraft carrier contract as the jobs at Scottish shipyards are key to that part of the nation’s economy.
There is no doubt that the U.S. will also see a fall in defense spending as the pressures of debt, health care reform and other priorities will limit the money available from the Obama Administration’s budget.
House Moves To Keep VH-71 Increment One Alive
Filed under: Agusta Westland, Business Line, Companies, Congress, Contract Awards, Department of Defense, Events, Federal Budget Process, Lockheed Martin, Military Aviation, Restructuring, Services, U.S. Navy, development program, production program
The various defense appropriations and authorization bills are working their way through the House and Senate. Many items have been included not requested by the Obama Administration or Secretary of Defense Robert Gates. This really is not surprising as Gates attempted to cut a lot very quickly. He spared no service cutting Air Force F-22 and C-17 aircraft, Navy VH-71 and destroyers, and Army vehicle and missile defense systems. Congress has pushed back on certain programs.
One that they are trying to keep alive is the VH-71 helicopter for use in transporting the President. This program has not only been unfunded in the President’s 2010 budget but Lockheed Martin has been told to stop work. The company and the Pentagon are negotiating termination costs.
The House Appropriation Defense sub-committee, though, included almost half a billion dollars to try and utilize the Increment One aircraft already procured. The program was structured with two increments of aircraft, the first being basic ones to be used to support testing and development. A larger buy in five or so years would have all the required equipment. To date the U.S. has invested about $3 billion in the program. The House wants to see if some use could be derived of the aircraft already delivered.
While the current fleet of VH-2 and VH-60 aircraft have served the President well they are somewhat dated. The VH-71 would have more modern survivability and communications equipment with greater range and lift. The strenuous requirements are what led to the programs cost and schedule growth. There will be more to come on this issue to say the least.
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.
HASC Wants To Continue VH-71
Filed under: Business Line, Companies, Congress, Countries, Department of Defense, Events, Federal Budget Process, Finemeccanica, Italy, Lockheed Martin, Military Aviation, Services, U.S. Navy, development program
In their markup of the 2010 Defense Appropriations Bill the House Armed Services Committee added money for continued production of the F-22. It also recommended that the Navy and Defense Department continue production of the Increment One of the VH-71 New Presidential Helicopter.
They feel that this would be the best use of the over $3 billion already spent on the program. There is obviously still a requirement for this aircraft and a new program is planned. The HASC wants the first group of VH-71 to be used as “the normal transport for the President…” with other systems looked at for the more stringent requirements. Right now the President uses VH-3 for short range, normal duties and then longer ranged CH-53 and UH-60 for other missions. One of the problems faced by the VH-71 was the attempt to buy one aircraft to do all missions.
Finemeccanica had offered to just deliver Increment One aircraft at reduced price for the total program. Of course these did not meet all of the requirements that the Navy had levied. This was a major reason the program’s cost and schedule increased so much.
So far the HASC markup does not necessarily agree with the Obama Administration’s proposals in the area of the F-22 or the VH-71. The bill still needs to go through the process of other committee markups, the full House and Senate and then the Conference. This means that this language may or not make it to the final version but it does show support for the VH-71 program.
Lockheed Plans Further Job Cuts Due To VH-71 Ending
Filed under: Business Line, Companies, Congress, Countries, Department of Defense, Events, Federal Budget Process, Finemeccanica, Italy, Lockheed Martin, Military Aviation, New York, Restructuring, Services, States, Suspensions, U.S. Marine Corps, U.S. Navy, development program, production program
Lockheed Martin had already cut over one hundred jobs at their Upstate New York facility in Owego. This was mainly due to the decision by Obama and Secretary of Defense Gates to end the VH-71 New Presidential Transport helicopter program. Even though the aircraft was made in Italy Lockheed did all the modifications and integration in Owego.
Despite a great deal of argument and pressure to keep the program going in some form or another the contract was recently terminated. Lockheed is now saying that another seven hundred and fifty people may lose their jobs. Right now they are looking for people to voluntarily leave or retire with a promise of severance. The plan is to begin the layoffs in July based on how many people agree to leave voluntarily.
One of the arguments against ending this and other production programs is that they will just add to the joblessness during the current recession. Of course the defense budget is not really a jobs program and that is fairly poor reasoning to continue spending billions of dollars on a system that does not meet requirements. It is still possible that Congress will pass some form of spending that will keep pieces of the program alive in the 2010 defense budget but that will not be finished until the Fall.
CAGW Advises Congress Not to Ground Presidential Chopper — Press Release
Filed under: Business Line, Companies, Congress, Countries, Department of Defense, Events, Federal Budget Process, Finemeccanica, Italy, Lockheed Martin, Military Aviation, Proposal, Services, U.S. Navy, development program, production program
CAGW Advises Congress Not to Ground Presidential Chopper
WASHINGTON–(BUSINESS WIRE)–Citizens Against Government Waste (CAGW), the nation’s premier taxpayer watchdog organization, today expressed support for the continuation of the VH-71 Presidential Helicopter Program. President Obama included the program on the list of program terminations and reductions to the fiscal year (FY) 2010 budget, which he released on May 7, 2009 in a bid to whittle $17 billion out of his overall $3.6 trillion budget. The President had stated in February, 2009 that the helicopter he currently uses “seems perfectly adequate” and added, “I think it is an example of the procurement process gone amok. And we’re going to have to fix it.”
But even in his recommendation to terminate the program, Defense Secretary Robert Gates acknowledged that a new fleet of presidential helicopters is necessary due to the advanced age and technological limitations of the current fleet. In a post-9/11 world, there is broad consensus that the President should not be flying Vietnam-era technology.
“CAGW applauds the President’s desire to cut wasteful spending, but taxpayers are between a rock and a hard place on the helicopter issue,” said CAGW President Tom Schatz. “One of the most common axioms of aviation is that every takeoff is optional, but every landing is mandatory. The same could be said now about the $13 billion program to fund the new fleet of presidential helicopters.”
It has become increasingly clear that it won’t be as cost effective as it may have appeared to terminate the VH-71 program. More than $3 billion has already been invested in the program to cover the R&D and production costs of the first phase. Navy officials estimate that program termination and liability costs will be $555 million. Factoring in costs already incurred and shut-down fees, terminating the program now would leave taxpayers with nothing to show for nearly $4 billion – even though nine new aircraft have been produced that meet performance requirements. “This program is also another example of the rampant lack of realistic budgeting and absence of fiscal discipline in the Pentagon’s procurement process,” said Schatz.
More alarming, according to a recent memo prepared by House Armed Services Committee staff, the Navy has told Congress it will require billions of dollars to extend the life of the current fleet of presidential helicopters, which are already 35 years old, in order to keep them in operation for another decade until a new program can be devised. “In light of these facts,” said Schatz, “starting a do-over program from scratch would be even more costly than completing the current program – leaving the taxpayer to foot the bill twice rather than maximizing the current investment. Given the urgent security needs of the President and the massive amount of money that would be wasted should the Pentagon and the White House terminate the program at this late stage, the prudent course would be to move forward, take possession of the helicopters we have paid for, and find a responsible solution both for the taxpayer and the Office of the President.”
Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.
England Looking At Harder Line On Typhoon Buy
Filed under: Business Line, Companies, Contract Additions, Countries, EADS, England, Events, Germany, Military Aviation, Restructuring, Saudi Arabia, Spain, production program
Update — It was reported on Monday that the expected penalties and cancellation fees related to the UK’s buy in this round for the advanced aircraft will be over two billion pounds ($3 billion or so). This amount of money may make it more feasible to purchase the aircraft. While penalties are capped at the two billion figure there would still be termination fees. The economic effect of ending the program would also be substantial as there are several thousand jobs in the UK that rely on the program. The decision on this effort will not be easy for the Brown Government already facing a dire financial situation.
As we wrote about previously England’s budget struggles are causing it to rethink the upcoming contract buy of Typhoon fighters. If England does not participate fully in the third option then either the other countries will have to renegotiate the prices most likely to a higher number. England does have the option of ending their participation in the multi-national contract but would have to pay substantial termination fees that might end up higher then the cost of buying the aircraft.
The interesting thing is that it was England worried that some of the other participants may have left the contract that worked to have the high fees put in the contract. England is trying a third option where most of there scheduled buy will go to Saudi Arabia rather then to them allowing some savings. The Brown government like Obama in the U.S. is facing trying to pay for a large economic stimulus package as well as increased social spending. This has put pressure on a military budget already suffering from the combined campaigns in Iraq and Afghanistan. Like Obama is doing one way to save money is to end large procurement programs to save defense spending. They can either be stopped in development or less units can be bought, like the F-22. Unfortunately the less you buy the more they cost so total savings may be limited.
If England does renege on this contract there will be significant future issues with their partners and for the Eurofighter consortium.
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