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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India’s Order Extends Boeing’s C-17 Production

Boeing (BA) is facing the end of production for the C-17 strategic transport as the United States decided to not buy anymore of the aircraft despite its heavy use in supporting the fighting in Iraq and Afghanistan. Over the last few years Congress had increased the total number of aircraft being bought for the U.S. Air Force despite its and the Defense Department requests to stop procurement.

The C-17 has seen sales to overseas customers with Australia, the United Kingdom and some Gulf States purchasing the system. Even so Boeing could see the end of production and had begun to shut down its production line in Long Beach, CA. This facility gained when McDonnell-Douglas merged with Boeing in the Nineties was destined to close when the C-17 was finished as Boeing had no other work for it.

The company and its workers received good news today as it was announced that India had agreed to sign a contract for ten of the aircraft. Not only is the deal worth over $4 billion it will keep the production line open for one more year. This buys even more time for Boeing to find other customers for the aircraft or even convince the U.S. to procure more.

India has in the last few years turned to Western defense contractors for different systems including buying the P-8 maritime patrol aircraft from Boeing in two recent contracts. This is in a bid to upgrade their capabilities beyond what their domestic suppliers and the more traditional Russian and UK companies have been providing.

India currently has a new fighter in competition but recently down selected to just two offerings – France’s Rafael and Eurofighter’s Typhoon. The two American bidders along with MiG and SAAB did not make it through to the final round of the contest. Some saw this as a deliberate snub of America possibly related to policy towards Pakistan and the potentiality that if there was a conflict between India and its neighbor the U.S. might boycott of supplying either nation.

Boeing, though, may get a trifecta of contracts as India is still considering the AH-64 Apache as a contender for a new attack helicopter. The Defense Department has notified Congress of a potential $1.4 billion worth of helicopters, support and training.

India remains a market of great potential for the U.S. defense contractors as they face the possibility of cuts to the U.S. budget and the end of fighting in Iraq and Afghanistan with all the potential for reduced revenue and earnings. So far deals with India have been few-and-far between but today’s contract announcement is a step in the right direction.

Photo from kingair42’s Flickr photostream.

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Oshkosh Looks North for More Military Vehicle Work

The market for new military support vehicles has been doing well lately. Nations like the U.S., the United Kingdom and other Allies who have sent troops to Iraq and Afghanistan have needed to invest in improving their fleets as well as restoring and upgrading existing systems. There has also been the growth of the Mine Resistant Ambush Protected (MRAP) market to protect troops against IED and mines.

One company that has been able to take advantage of this market has been Oshkosh (OSK) of Wisconsin. They have made heavy transport trucks for the U.S. military for several years but since 2008 they have won two major new contracts. First they were the victors in the contest to build new, lighter MRAP for use in Afghanistan with their MRAP-AT vehicle. The U.S. has purchased several billion worth of the vehicles and support. They also won the right to make the U.S. Army’s Family of Medium Tactical Vehicles (FMTV) which had been produced by BAE Systems (BAE:LSE) in Texas. The U.S. needs to build thousands of those to replace ones lost in combat or through hard use.

Oshkosh has been able to offset declines in their commercial business due to the overall world economic picture with these military sales. Unfortunately the MRAP business is winding down and the FMTV is not as profitable for the company as the Army chose them due to their very competitive price. This has led to reduction in profit as the commercial business has not yet fully picked up. So like many defense contractors Oshkosh is looking at overseas customers for more business.

One contract they are aggressively going after is a requirement for Canada’s new light tactical vehicles and trucks. Oshkosh owns a production facility in Canada and this will aid them if they do win the almost two billion dollar contract. One end result is that factory will be expanded and upgraded so that at the end of the military contract it will be better prepared to support production of other commercial and military vehicles.

As the U.S. and its Allies reduce or cap their defense spending Oshkosh if it wants to remain a major defense contractor for these types of systems will have to find other customers. If not once production goals have been met for the FMTV and MRAP-AT then they will be reduced to just supporting the vehicles with parts and modifications which will require a much smaller work force and generate less revenue.

Photo from abdallahh’s flickr photostream.

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All Good Things Must Come to An End: Boeing Begins Winding Down C-17 Workforce

The Boeing (BA) C-17 Globemaster III has been one of the most successful military transport aircraft of recent time. Originally designed and manufactured by McDonnell Douglas in the early Nineties as a replacement for the C-141 Cold War era aircraft when Boeing merged with the California aerospace giant they took over production of this key aircraft. The U.S. Air Force has taken delivery of over 200 C-17 and there are several more in production at the Long Beach facility.

Unfortunately one of the areas that the Obama Administration targeted for cuts as part of their defense spending reforms was the C-17 program. They were not the first to do this as the Air Force had an acquisition objective of less then 200. Congress against the wishes of different defense secretaries consistently added C-17 aircraft production and support to the budget to get to the current planned quantity of around 220. Critics said this was only due to the fact that up to 50,000 people worked on the program across the United States and the additional aircraft were pure pork. Supporters countered that strategic airlift was critical to support U.S. operations in Iraq, Afghanistan and world wide.

This was continued in the 2009 defense supplemental and 2010 budget but with the 2011 budget this ended. There were no more C-17 aircraft to be ordered by the U.S. military.

Boeing has been able to sell the aircraft to some overseas customers. Currently the aircraft is operated by the United Kingdom, Australia, NATO and Qatar. The United Arab Emirates has entered into a contract to buy six aircraft and Kuwait one. India is considering the aircraft to supplement its fleet of Russian made IL-76 transports but right now that is the only major contract pending.

Because the future number of aircraft is limited right now Boeing announced yesterday that over one thousand employees would begin losing their jobs. Workers in Long Beach; St. Louis; Mesa, Arizona and Macon, Georgia will be affected.

In their press release Boeing said: “as the company moves to a new production rate of 10 C-17s per year. Boeing will reduce the production program’s work force by approximately 1,100 jobs through the end of 2012. The company delivered 14 C-17s in 2010.

The move to the new production rate, announced in February 2010, will be completed this summer and result in the elimination of the second shift at the C-17 final assembly facility in Long Beach. The lower production rate is designed to extend the line as Boeing works to capture additional international orders.”

Boeing hopes that new orders will materialize while they slow the production line down to continue it for several months. If the orders do occur they can adjust the speed of line to meet their obligations. If they do not the production rate will slow to zero and thousands more workers will lose their jobs.

Boeing has made it clear in the past that the Long Beach plant which is a legacy of McDonnell Douglas will be closed and not transferred to other Boeing aircraft projects.

All military acquisition programs have a definitive objective for how many systems will be purchased. The C-17 is no different then any other and eventually that number would be reached. Then production will stop.

Without any new major transport program on the horizon for at least the next several years there is no new system for Boeing to bid on and utilize their work force and production capacity.

The C-17 will remain a key system for the Air Force and Boeing will continue some business supporting it but large scale production is finished.

Photo from tony.evans flickr photostream

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U.S.M.C. Gives Support Contract To Force Protection

Force Protection had a heyday a few years ago as a manufacturer of Mine Resistant Ambush Protected (MRAP) vehicles. In 2005 – 2007 the U.S. military could not buy the vehicles fast enough as Congress showered them with money for them. The IED and mine threat at that time was consistently inflicting the most casualties on the U.S. and its allies. It still remains a potent threat in Afghanistan but not as much in Iraq as the U.S. slowly pulls its troops out.

Force Protection was unable to keep its sales up as more companies entered the market. There have been some recent sales to overseas customers but the main U.S. defense buys have dried up. The company was able to announce today that it had signed a contract with the U.S.M.C. for field service support to its existing vehicles. This contract is worth over $26 million.

An OEM often has the ability to sell maintenance, support and modification services to the military once production of an article is completed. Eventually the defense department may turn to other providers so that market too ends. It behooves a company to keep improving their products or make new ones that attract the market.

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Australia Awards BAE Systems Helicopter Support Contract

The Australian Government announced that they have awarded BAE Systems a three year contract with five options to support their fleet of S-70 Black Hawk utility helicopters. The contract is worth $35 million (Australian) for the fist three years. It is expected at the end of the eight years that the Sikorsky helicopters will be replaced by new aircraft.

The Black Hawk is in use with the U.S. Army, Navy and Air Force as well as enjoying strong sales to overseas customers. It was developed to replace the ubiquitous UH-1 of the Vietnam Era. The S-70 is the export version of the aircraft. Australia has been a strong ally of the U.S. in its fighting in Afghanistan and has had Black Hawks since the mid-Eighties.

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C-130J Production Looking Up

Lockheed is planning on doubling production of the C-130J transport aircraft over the next few years. Demand for the aircraft from overseas customers has increased. The U.S. Air Force and Marine Corps also buy several aircraft a year as they upgrade their fleets of C-130E and C-130H and the program has garnered strong Congressional support.

Several of the Gulf States have placed orders and others are negotiating deals. The delays to the competing A400M made by EADS has also opened up some market opportunities as countries wanting that aircraft have had to wait several more months then originally planned. South Africa has already canceled their planned buy of the European transport. There really is no other aircraft in the class as most other aircraft are smaller or much larger such as the C-27 Joint Cargo Aircraft (JCA) or the C-17. Lockheed is obviously confident that the success of the program will continue if they are willing to make a commitment such as this.

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Defense Business Remains Interanational As Boeing Subs To MB Aerospace

The British company MB Aerospace announced that it had secured a further contract from Boeing to build launch systems for the Harpoon Surface-to-Surface anti-ship missile. This award is a four year extension of an original one year contract. This original contract was for about $10 million in work and the four year extension will add another $30 million.

This contract continues to illustrate the global integration of the defense business. This is especially true for the Western NATO allied countries. Because Harpoon is a system used not just by the U.S. but a variety of their allies and foriegn customers it makes sense to build parts for it in other nations. It may be a way to secure a better price or faster production or it may help sales to a foriegn customer. The overseas customers also provide necessary competition to U.S. sub-contractors.

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