Defense Procurement News

The Canadian government announced today that they are taking steps to improve the aviation assets for their troops in Afghanistan. See a story here. Up to now the Canadian ground forces relied on either Allied lift or use ground transportation. Now they are leasing Russian Mi-17 and buying CH-47D and F aircraft. The CH-47D will be used immediately, but the CH-47F will be new construction and available in 2013. The country is also leasing and buying UAV assets to support intelligence and surveillance operations.

The House Appropriations Committee marked the FY09 budget before taking their August recess.  See a story here. The Army’s struggling Armed Reconnaissance Helicopter (ARH) program was marked to delete 13 aircraft, and the Navy’s Presidential Helo was also decremented. The House also ordered that consideration of jobs would be a criteria for the source selection of the KC-45 tanker. Boeing won its protest of the award to Northrop-Grumman and EADS and forced DoD to reconsider the contract. The Senate needs to also mark the bill and then there will be a Conference mark up as well.

Boeing won a contract to develop the bankrupt Iridium communication satellites for DoD. See an article here. Iridium is a network of low earth orbit satellites that were to be used to provide telephonic communication. Motorola had led the original consortium that put the satellites in orbit, but they company went bankrupt. The Navy Research Lab awarded Boeing a contract to exploit the Iridium satellites to support the GPS network already deployed. DoD has been using the satellites for communications purposes, along with commercial customers.

This article describes the economic effect of the Army decision to begin pushing components of the multi-system Future Combat System (FCS) out-the-door faster. Due to this decision several hundred million dollars are flowing to Arizona companies earlier then originally planned by the Army. The two systems with the most effect are the non-line of sight missile system that uses a box launcher with integrated fire control and several unmanned systems. The Army benefits two ways by this type of decision; first, they get needed technology upgrades into the field earlier; and secondly they get testing under real world conditions.

Picture by Derek Farr

India canceled a contract with Boeing for P-8 maritime patrol aircraft due to disagreements over end-user limits on the US technology involved. See an article here. The $2.2 B contract was ready to go for final approval when talks broke down over how to review equipment to prevent technology transfer. India objected to the harsh provisions. This does not mean that the contract could not be renegotiated, but it may be India turns to another provider.

Boeing will continue the C-17 production line for a few more years. See a press release here. No details of how many aircraft or contract value were provided. Boeing is on contract for 190 C-17s for the USAF, of which 175 have been delivered. 15 more were just placed on contract as part of the FY08 Defense Supplemental bill. Boeing had been seeing the end of the production line with the finishing of USAF and foreign orders. Depending on the size of the Qatar order it may extend the line for some time.

In light of the GAO report the USAF and DoD decided to recompete the new tanker contract. See an article here. This, like the CSAR-X, means that a whole new competition will be held. The Air Force will rewrite the RFP and Boeing and Northrop Grumman will resubmit proposals. Much of the work preparing these will be already done which will speed up the process for the bidders.

The GAO released a summary of why they upheld the protest by Boeing over the KC-45 award. See an article here. The chief reason was due to the Air Force’s failure to properly apply the criteria for source selection. Of the several reasons listed two ones that stand out is that they gave EADS credit for exceeding a requirement when they should not have, and rather than just noting the risk associated with the Boeing bid the Air Force calculated a dollar figure to overcome that risk. This alone drove up the cost proposal of the Boeing K-767 aircraft. The Air Force technically still does not have to withdraw the award to Northrop Grumman and EADS, but they would be best off reopening the competition.

EADS shares are down in Europe, and I am sure Northrop Grumman’s will also drop today. See this article. The market is assuming that the Air Force will follow the GAO’s recommendation and reopen the competition. EADS performance has been heavily affected by the delays to the A380 and the scandals with their management. Also they have labor issues as they try to sort out the French-German split and make themselves more efficient. There is still a good chance that EADS will win the new competition.

In this article entitled Boeing Wins Tanker Protest, But Drama Is Far From Over, the Seattle Times states:

The saga of the Air Force refueling tanker contract is not over by a long shot, though Boeing won a huge victory Wednesday when the Government Accountability Office (GAO) comprehensively backed the company’s protest of the initial contract award.

Read the original article here.

The GAO ruled today in Boeing’s favor on the KC-45 protest.  They decided that the Air Force failed to properly apply its source selection criteria and did not calculate some of Boeing’s costs correctly.  See a story here.  The GAO recommended that the competition be reopened.  This is what happened with the CSAR-X contract, ironically enough won by Boeing but now back in source selection.  The Air Force is not required to follow the GAO’s recommendation, but if it does not Boeing is sure to go to the Court of Appeals and Congress could make it very difficult for the Air Force to execute the contract.

This article describes a belief that Boeing will move to the next protest step, the Federal Court of Appeals, if the GAO doesn’t rule in its favor. This is not unprecedented, many protests have moved on to this final step. The idea that the Court would continue to put a hold on the contract may not be so true. The Court of Appeals still will most likely rule the way the GAO did, it is very rare that they overturn such a decision. Anyway it seems that this contract fight will continue, the loser being the US Air Force as they wait for a new tanker.

Boeing has been building a modified B737 aircraft to act as an Airborne Early Warning and Control (AEW&C) aircraft. Delivery of the first has now slipped four months according to this report. Any issues Boeing has with these types of contract only serves to reinforce the US Air Force’s belief that they could not meet the KC-45 timeline as well as Northrop-Grumman and EADS will. The contract is a fixed price one so a delay will eat into Boeing’s profits as well. The company is also building a similar aircraft for Turkey.

This article is a good summary of the KC-45 contract. The GAO is supposed to rule on Boeing’s protest within the next two weeks. One would have to bet that they will disallow the protest. There is a chance though, that somehow the Air Force screwed up in how they applied the criteria. Then the process would be reopened again, like the CSAR-X. The article also raises the issue of the US Presidential election. John McCain was the key person that got Boeing in trouble over the attempted lease deal five years ago, and Senator Obama represents the state where Boeing now has its headquarters. Congress has also held off weighing in while the protest wound its course. It is best to think that this is not over yet.

In 2001 the British military purchased 8 CH-47 Chinooks to support special operations. Unfortunately the contract did not buy access to the aircraft source code for the software. This meant that the UK military could not certify the aircraft for any but day operations. See a story here. This has meant that the aircraft have sat for seven years not being used. At one point the UK government planned to convert them to regular cargo CH-47 aircraft but used the money for other things in the end. Obviously a clause to allow access to the technical data would have driven up the price a bit, but it would have allowed the military to certify the aircraft for night and bad weather operations. As it is there has been little gained by buying these aircraft, at really no fault of Boeing.

The Navy ordered from the Boeing-Bell team manufacturing the V-22 Osprey training devices and related equipment today. The contract is worth about $78 M. See a story here. The Osprey has just finished a successful deployment in Iraq where it carried out heavy lift missions, usually for logistics purposes. The contract will pay for the development and production of training equipment.

The EU Ambassador to the United States (Who knew?) criticizes Congress for including a provision in the FY09 House Defense Authorization Bill that bars US contracts being awarded to companies accused of receiving illegal subsidies at the World Trade Organization (WTO). Of course they mean EADS who have just won the KC-45 contract. The Ambassador points out that if it is mearly the accusation then there is nothing stopping a US company from accusing its foreign competitor of having received these subsidies, even if they have not. It would make more sense to bar those convicted of this. EADS did receive these subsidies for a variety of programs. They claim they paid them back with interest. The WTO will rule later on this. As we have said many times before the Congress was the one who overturned a sole-source contract with Boeing for the new tanker and forced a competition.

According to this article a Washington Democratic Congressman wants to introduce legislation that requires the DoD to evaluate the “green house gas” emissions when awarding defense contracts. If this had been done as part of the KC-45 award, then Boeing would have won as nominally the KC-767 emits less harmful gases then the larger A330.   Read the rest of this entry »

Secretary Wynne of the US Air Force discusses protests in this article. The gist is that the Air Force is accepting protests as a matter of course and is working to make the selection process more transparent in an attempt to limit them. The key quote is “”We’ve got so few suppliers that I’m not going to treat them badly because they protest. It’s their right,” Wynne told an aerospace industry group.”   Read the rest of this entry »

According to this story during testimony about the FY09 Defense budget Secretary of Defense Gates warned that adding a requirement to contract awards for US jobs would only provoke retaliation by US allies in Europe and Asia. Currently Federal procurement law does not have increasing or protecting US jobs as a consideration for evaluating and awarding contracts. Congress can certainly add that to the law, and some have mooted they will, but it would come at a price. The US defense industry is now dependent on non-US companies for many parts and products. US allies are also dependent on US companies for a large amount of their systems as they do not have the capability to produce them. Any attempt by the US government to prevent foreign companies from competing could backfire and reduce the market for US companies. As we have stated here many times with the consilidation in the US industry in the Nineties it is hard to get decent competition for these kind of procurements. Only Boeing, EADS and Russian companies could have bid on it; McDonald Douglas is long gone, so Congress needed to expect this kind of situation.

Bump - Boeing employee arrested for vandalizing aircraft. Story is here.

In a way this is good news. If it had been a quality issue then it might delay restarting the production line as they worked out new procedures and where they had gone wrong. The other good thing is they discovered the damage before they were fielded. The CH-47 is being used a great deal in Afghanistan and Iraq, as are all Army aviation assets, but in Afghanistan it is key due to the high altitude which limit smaller helicopters.

The Joint Dual Role Air Dominance Missile (JDRADM) is a development program by the US Air Force for the next generation air launched system that will be able to attack ground and air targets. According to this story, a Boeing led team has won the contract to develop fuzing and seeker technology as part of the program. It is only a $5.2 M contract but it will most likely lead to more work and ultimately production if the system successfully develops. For more on the JDRADM see this.

Lockheed was awarded the GPS III contract. See a story here. The contract is for two satellites with 10 options. It is worth $1.46 B. Boeing loses another major contract. Boeing is building some GPS II satellites with the first planned for launch this year. Lockheed has also built GPS satellites in the past.

According to this article the Air Force is expected to award the GPS III contract this week following a successful DAB a few weeks ago. Boeing and Lockheed Martin are in the running, and some are inevitably expecting a protest by the loser. Lockheed Martin won most of the GPS II work and Boeing did some of the original satellites. One hopes that the USAF acquisition people have their ducks in a row on this one as there last two major awards have been protested, and one, CSAR-X, successfully.

Northrop Grumman has announced that 28 June is the date when they will break ground with EADS on the KC-45 production facility in Mobile, AL. See an article here. The plant will conduct final assembly on the aircraft before they are moved to another Northrop-Grumman plant for militarization. EADS is also talking about using the plant for A-330 cargo freighter production. This means that despite the protest by Boeing the winners feel comfortable enough to continue work on the contract at some risk. It also might mean that even without the KC-45 contract EADS will do some work in Mobile.