Defense Procurement News

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.

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.

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.

According to this article the Indian Navy is canceling its procurement of Druhz helicopters. This light aircraft made indigenously by HAL is failing to meet the operational requirements. The Navy will now look to buy a new, most likely foreign aircraft, to meet its needs. The Indian Army and Air Force are also planning to buy new aircraft, and the original plan was to make a joint Indian-Eurocopter aircraft but that deal fell apart due to corruption issues. For more on that see this.

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.

This article describes how EADS is moving forward on a development contract for UAV for Germany, Spain, and France. They have finished the study phase and are now working on risk reduction. Ultimately, if all things go well they will move into production of a UAV for all three nations. There is no discussion as to how they will integrate the requirements of the different countries, or perhaps they will all accept the same solution. As in most programs EADS will have to produce a certain number of aircraft to make back some of the money sunk into the development.

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.

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.

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.

As part of the beginning of the mark-up of the FY09 President’s budget by the various House and Senate committees Congress is beginning to debate the future of the KC-45. According to this article, Congressman Young from Florida has suggested that the US Air Force split award the tanker contract. This would mean half goes to EADS, the winner, and half to Boeing. While this may be a politically judicious solution it has many impracticable aspects. First the cost increase to the total program would be significant as there would now be two sources of parts and two training systems set-up for the different aircraft. Second the Air Force would have to revisit the whole concept of basing and deployment as you would now have a mix of larger and smaller aircraft. The basis for the whole program is a capability requirement that feeds from larger OSD requirements to support the actual warfight. The split might mean more then the current planned buy would be necessary - another cost increase. The DoD and USAF are taking a position of waiting for the GAO ruling in about 40 days before anything is decided. Congress would be advised to do the same.

Northrop Grumman released a press release on the efficiency of their aircraft, strategically called the KC-45, versus the Boeing 767 tanker. It states that using the formula the USAF developed their aircraft more efficiently delivers fuel then the 767. Boeing, claims Northrop Grumman, had to create their own formula to get a favorable result. If you think about it, the ability to carry more fuel to a certain distance will make up for the fact that you burn more gas to get there. If the requirement is 50K of fuel at 1000 nm range then starting with more fuel will give you more fuel at that range, assuming your airplane has similarly efficient engines. The GAO ruling on the protest should be interesting, and cannot come too soon.

This article explains why some feel that Democratic candidate for President, Hillary Clinton, has been accused of double standards on the KC-45 contract. The basic argument is that she is very supportive of the VH-71 contract for the new Presidential helicopter. This is also a foreign aircraft teamed with a US integrator, here Lockheed Martin. The fact that the final assembly is done in Oswego, NY as compared to Alabama has nothing to do with it she says. On the KC-45, like many Democrats, she has taken a protective stance. While not as outspoken as Barack Obama, she has made noises of disapproval of the selection of EADS over Boeing. Senator McCain, due to his rather role in the whole matter, supports the Air Force’s position. More to come, I am sure.

In this story it is clear that the Democratic members of Congress will interfere with the KC-45 award, no matter what the GAO says. The House is moving to defund the program if the GAO opens up the contract. Mr. Murtha misspoke when he said that the GAO would overturn the award. They cannot do that, just direct, as with the CSAR-X award, that the source selection be reopened. It is also clear that members from states that Boeing is in will move to conduct an investigation no matter what that will delay the program. It is also interesting that they are now blaming John McCain, the Republican presidential candidate, for throwing out the lease with Boeing. They weren’t supporting Boeing when their executives and USAF acquisition people were going to jail over the deal. As previously reported any attempt by Congress to muddle up the deal purely on political and nativist grounds will only make it difficult in the future to get competition on other contracts.

According to this story, Boeing has decided not to bid for the next Swiss fighter. This means the only bidders are SAAB, EADS and Daussault. Switzerland already operates F/A-18 aircraft and Boeing will continue to upgrade them. The new fighter market is heating up as countries move to upgrade their late 80 technology aircraft. Norway, India, and Switzerland are now moving for new contracts. These are the countries not committed to JSF, or using Russian technology. Once these aircraft are delivered in 2010-2015 there will be another lull in acquisitions until the next group of aircraft age and need replacement.

At the bottom of this article about the leak of a US Air Force meeting that determined Boeing is not likely to win the protest former DoD Acquisition Head Jacques Gansler is described as saying overturning the KC-45 award on purely political grounds would be a disaster. I would have to agree. Not only does it set a terrible precedent for future contracts, but it would dissuade European companies from bidding on future work. Due to the integration and consolidation in the defense industry future contracts will only see more bids by non-US companies. EADS, BAE, Augusta Westland and so on provide in many cases the only competition for some hardware, and it gets even more difficult with the mingling of these companies and their American subsidiaries.

There has been rumors that EADS would move to acquire a North American company soon, with CAE being the most talked about. EADS did buy a company, PlantCML, that manufactures communications systems primarily for emergency services. It does have some ties with their existing products, but primarily EADS will use PlantCML to market their products in the US. Previously PlantCML had been owned by a investment company.

In this story Mr. Young, the Assistant Secretary of Defense of Acquisition, Technology and Logistics expresses concern over the recent amount of protests with large systems. Part of the story is letting Boeing know not to focus on the recent lost KC-45 award, but to look to future competitions. He also generally agreed with the recent GAO report that systems are over cost and behind schedule, but that is to be expected.   Read the rest of this entry »

As reported here in the Atlanta Journal Constitution, Northrop Grumman continues to point out that the KC-45 contract if it survives the Boeing protest will bring lots of jobs to the US. Especially to the South. Not only is the main plant going to be at Mobile, AL; but this article shows that parts and components will be made at various Northrop plants in Georgia. A lot of the work will also be accomplished in Florida.   Read the rest of this entry »

According to this article at DefenseNews.com, EADS is looking at aggressively growing their North American division. Ideally they would like to become a company that builds complete systems in the US and then provides them to the Department of Defense. Currently their two biggest contracts, the UH-72A and KC-45, will see final assembly in the US while the majority of components are made in Europe or overseas. In a related story, here, EADS is complaining about the high exchange rate of the dollar to the Euro. EADS sells things mainly in dollars, but pays their European suppliers and employees in Euros. Any movement of production and labor to the US will allow them to utilize dollars for these costs.   Read the rest of this entry »

According to The Hill Boeing is using its lobbyists to push Members of Congress to receive a briefing from the CIA on “foreign companies” using questionable means in their attempts to win contracts. See the article here. Of note the only two Congressman to talk on the record about this were Tiahart from Kansas, a vocal opponent of the deal and a former Boeing employee and Dicks from Washington. Both have been very supportive of Boeing in their attempt to throw out the KC-45 award to Northrop Grumman and EADS. Obviously Northrop Grumman is upset that Boeing would be stooping to this. The protest result will be announced in early June by the GAO. Congress cannot do anything but de-fund the program, something they are hesitant to do as it is important to the modernization of the Air Force.