Sikorsky Completes Initial Tests of First Rotor Blades for CH-53K Helicopter — Press Release

STRATFORD, Conn., Oct. 31, 2013 /PRNewswire/ – Sikorsky Aircraft has successfully completed the initial phase of testing for the first-ever main and tail rotor blades manufactured for the U.S. Marine Corps’ CH-53K heavy lift helicopter program. Designed specially to help meet the Marine Corps requirement to lift the aircraft’s maximum gross weight of 88,000 pounds, the all-composite blades are the largest and most technologically advanced ever produced by Sikorsky, a subsidiary of United Technologies Corp. (NYSE: UTX).

“These new blades are an important feature of the CH-53K helicopter’s ability to lift almost three times the payload compared to the CH-53E Super Stallion™ aircraft it will replace later this decade,” said Mike Torok Sikorsky’s CH-53K Program Vice President. “Advanced geometric shaping, high strength composite materials and a flaw tolerant design all come into play to provide unmatched performance, reliability, and survivability.”

At 35 feet span length, and almost three feet chord width, the CH-53K main rotor blade has 12 percent more surface area than the CH-53E blade. A 4^th generation aerodynamic design developed by Sikorsky adds unique airfoils, twist and taper to the new blade so as to accommodate 71 percent greater power generated by the CH-53K aircraft’s three 7,500-shaft-horsepower GE38-1B engines.

Included in the span length is an advanced blade tip to improve hover performance, and a composite cuff attachment feature that will allow maintainers to quickly attach each of the seven CH-53K blades directly to an elastomerically-articulated titanium rotor head without the need for specialized tools or multiple redundant fasteners. When attached to the nearly nine-foot-diameter main rotor hub, the blade radius extends to 39.5 feet.

The four 10 ft. long CH-53K tail rotor blades have 15 percent more surface area compared to the same tail rotor blades on the CH-53E helicopter. On the CH-53K aircraft, the tail rotor blades collectively produce as much thrust as the main rotor blades on Sikorsky’s 11,000-pound S-76™ helicopter.

Both main rotor blades and tail rotor blades are now undergoing qualification testing at Sikorsky’s Stratford, Conn., headquarters. Tests completed to date include spinning of the blades on whirl towers to measure balance, and initial fatigue tests to determine structural strength. Blade qualification testing will continue over several years to include stress and fatigue tests, and additional whirl tower testing to validate aerodynamic stability, tip deflection, and rotational twist along each blade’s length.

This first set of blades will be attached to the CH-53K Ground Test Vehicle at Sikorsky’s Developmental Flight Center in West Palm Beach, Fla. Marine Corps pilots and Sikorsky test engineers will spin the blades on the GTV as part of the Shakedown Light-Off, a term used to describe the test of engines, transmissions, and blades running together for the first time.

Sikorsky began fabricating composite rotor blades in the early 1970s for the UH-60 BLACK HAWK helicopter. Composite blades made by Sikorsky are flaw tolerant to ensure that any small anomalies present in the blade during its initial fabrication will not grow into larger problematic anomalies.

The 4^th generation blade design is part of a long chain of Sikorsky rotor systems innovations and investment to improve blade aerodynamics.

Sikorsky Aircraft Corp., based in Stratford, Conn., is a world leader in helicopter design, manufacture, and service. United Technologies Corp., based in Hartford, Conn., provides a broad range of high technology products and support services to the aerospace and building systems industries.

SOURCE Sikorsky Aircraft Corporation (SAC)

Photo courtesy of SAC

P&W Receives JSF Engine Contract

The Joint Strike Fighter (JSF) is produced by Lockheed Martin (LMT) but the engine for the advanced tactical aircraft comes from United Technologies (UTX) Pratt & Whitney. As with many other aircraft programs the engine is procured under a separate contract and then provided to the aircraft manufacturer. This means as aircraft options are executed another contract action must take place for the engines.

P&W received their contract recently to support the most recent JSF order. This contract will be for 32 more F135 engines and is the 5th order so far to match the first 5 Low Rate buys of the F-35. No value was given but earlier estimates were of a cost that was close to $40 million per unit.

For several years Congress funded against DoD wishes another engine development program as risk reduction. This was with General Electric (GE) and Rolls-Royce (RR) and several hundred million dollars was given to them for the F136 engine. The idea was to have enough production capability or maintain schedule if there were issues with the primary F135 engine. In the first Obama administration this was a program that was terminated.

The JSF program continues to gain momentum as more are produced, more training conducted and development continues. It still is several years behind its original schedule and has had significant cost growth. This has led to some of the original international partners to re-consider how many aircraft they will buy and the terms of their contracts.

As the largest part of the Pentagon’s budget it would face cuts of several hundred million dollars if the required reductions are spread evenly. This would affect this years operations and perhaps cause further delays in the overall program.

Pratt & Whitney Delivers First 10 Engines to Boeing for India’s C-17 Aircraft — Press Release

EAST HARTFORD, Conn., Feb. 4, 2013 /PRNewswire/ — Pratt & Whitney, a unit of United Technologies Corp. (NYSE: UTX), has delivered the first 10 F117 engines to Boeing to power a fleet of C-17 Globemaster III transport aircraft for the Indian Air Force. India’s Ministry of Defence signed a Letter of Offer and Acceptance with the U.S. government in 2011 to acquire 10 C-17s. The first of these C-17 aircraft is now going through a U.S. Air Force flight test program at Edwards Air Force Base in Palmdale, Calif. The Indian Air Force is scheduled to take delivery of its first five C-17s this year and five in 2014.

“Pratt & Whitney is delighted to be delivering the first batch of engines that will power the Indian Air Force’s C-17 fleet and we’re pleased to have them join the growing international fleet that flies this premium airlifter,” said Bev Deachin, vice president, Military Programs and Customer Support, Pratt & Whitney.

The C-17 Globemaster III – the world’s premier heavy airlifter – is powered by four F117 engines, each rated at 40,440 pounds of thrust. The C-17 transport, exclusively powered by Pratt & Whitney engines, is capable of taking off from a 7,600-foot airfield, carrying a payload of 160,600 pounds, and completing a flight of 2,400 nautical miles without refueling. The F117-PW-100 first entered service in 1993 and is a derivative of Pratt & Whitney’s PW2040 commercial engine. With nearly 10 million hours of proven military service and 50 million hours in commercial use, the F117/PW2040 has consistently proven itself as a world-class dependable engine. Through Pratt & Whitney’s ongoing investment in product improvements, the engine continuously surpasses established goals of time on wing and support turnaround time.

Boeing has delivered 250 C-17s featuring F117 engines worldwide, including 32 to international customers. The U.S. Air Force – including active duty National Guard and Reserve units – has taken delivery of 218 C-17s. Other customers include the United Kingdom’s Royal Air Force, the Qatar Emiri Air Force, the Royal Canadian Air Force, the Royal Australian Air Force, the 12-member Strategic Airlift Capability initiative of NATO and Partnership for Peace nations, and the United Arab Emirates Air Force and Air Defence.

Pratt & Whitney is a world leader in the design, manufacture and service of aircraft engines, space propulsion systems and industrial gas turbines. United Technologies, based in Hartford, Conn., is a diversified company providing high technology products and services to the global aerospace and building industries.

This press release contains forward-looking statements concerning anticipated business opportunities. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in the Globemaster III funding related to the C-17 aircraft and F117 engines, changes in government procurement priorities and practices or in the number of aircraft to be built; challenges in the design, development, production and support of technologies; as well as other risks and uncertainties, including but not limited to those detailed from time to time in United Technologies Corporation’s Securities and Exchange Commission filings.

Pratt & Whitney Delivers Final Production F119 Engine to the U.S. Air Force — Press Release

EAST HARTFORD, Conn., Jan. 17, 2013 /PRNewswire/ — Pratt & Whitney Military Engines today delivered the 507th and last production F119 engine to the U.S. Air Force for its F-22 Raptor fleet. The F119 Final Engine Delivery ceremony at the Middletown, Conn. Engine Center was held with representatives from the Air Force, Lockheed Martin and Boeing in attendance. Pratt & Whitney is a United Technologies Corp. (NYSE:UTX) company.

“This is a bittersweet occasion for those of us who have played a part in 12 years of successful production deliveries,” said Bennett Croswell, president of Military Engines at Pratt & Whitney. “The F119 production engine program might be ending but we look forward to a 30-40 year sustainment period in partnership with the Air Force to keep the fleet flying.”

The F119-PW-100 turbofan is the world’s first operational fifth-generation fighter engine in service and is providing dependable power for the F-22 Raptor, an aircraft known for its unparalleled maneuverability and its ability to “supercruise.” The engine, considered one of the Air Force’s most successful, is the forefather of the F135 propulsion system powering the F-35 Lightning II.

As Pratt & Whitney shifts from production to sustainment, the company has partnered with the U.S. Air Force at the Oklahoma City Air Logistics Center to manage scheduled overhauls of the F119 engine fleet.

“We accept this last production engine today, but are looking forward to our partnership with Pratt &Whitney in sustaining the F119 in the F-22 Raptor for decades to come,” said Colonel Gregory M. Gutterman, F-22 Program Director, Fighters and Bombers Directorate, Air Force Materiel Command, during today’s ceremony.

Pratt & Whitney is a world leader in the design, manufacture and service of aircraft engines, space propulsion systems and industrial gas turbines. United Technologies, based in Hartford, Conn., is a diversified company providing high technology products and services to the global aerospace and building industries.

This release includes “forward looking statements” concerning anticipated business opportunities that are subject to risks and uncertainties, including with regard to the programs described in this release. Important factors that could cause actual results to differ materially from those anticipated or implied in forward looking statements include changes in government procurement priorities and practices, budget plans, availability of funding and in the type and number of aircraft in flight operations and hours flown; decisions to award contracts to competing suppliers; and challenges in the design, development, production and support of advanced technologies and services. For information identifying other important economic, political, regulatory, legal, technological, competitive and other uncertainties, see UTC’s 10-K, 10-Q and other reports filed with the SEC.

For more information on the Pratt & Whitney F119 engine, visit http://www.pratt-whitney.com/F119_Engine

To view a video of Pratt & Whitney employees’ reflections on the F119 program, visit http://www.pw.utc.com/Videos/Story/f119-retrospective

For more information about Pratt & Whitney, visit http://www.pratt-whitney.com

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Air Force Cost Goals Restrict Competition for New Rescue Helicopter

The U.S. Air Force is once again trying to attempt to buy a new aircraft to replace their MH-60 rescue helicopter fleet from the Eighties. The original CSAR-X program faltered twice earlier this century due to protests. Boeing (BA) had one the last contest with a version of the CH-47 but after protests from the losing bidders it was decided to start over.

The current Combat Rescue Helicopter program had put out a RFP for new proposals due in January. The goal is to buy just over 100 aircraft at a cost of $6.4 billion.

Unfortunately it was announced this past week that the only company interested in bidding on the contract is Sikosrky, part of United Technologies (UTX), teamed with Lockheed Martin (LMT). Sikorsky made the current HH-60 fleet. Other potential bidders including Augusta Westland, Eurocopter, Bell and Boeing believe that the cost goals will be too hard to meet for their products. Some have basically said the contract requirements were written in such as way so only a version of the UH-60 Black Hawk could meet them.

The Pentagon is obviously trying to reduce cost but at also at the same time promoting competition. Sometimes, as here, the two things don’t always work together as to attract bidders there must be some profit in it for them.

The Air Force has struggled with large acquisitions for a few years now. The new aerial tanker, KC-X, took 3 tries before Boeing won. The CSAR-X has already been discussed. They are currently redoing the Light Air Support aircraft contest after Embraer and Sierra Nevada’s win of the original contract was overturned on protest.

Whether they want to continue the current contest with limited bidders or try to re-do the requirements to attract more will be the next decision. They could just wait and see if more then one bid in January as originally intended.

Contenders for New Presidential Helicopter Lining Up

Earlier this century the Pentagon started a program managed by the Navy and Marine Corps to replace the existing helicopters used to transport the President. Currently a mix of Sikorsky, part of United Technologies (UTX), made VH-3 and VH-60 aircraft are used. Some of them are now over 40 years old. It was felt that a new system was needed that was more efficient, capable and equipped with modern communication equipment. This was the VH-71 program.

The VH-71 planned to use an aircraft from Augusta Westland modified by prime contractor Lockheed Martin (LMT). The program was to proceed in two stages with a few aircraft bought early to test and integrate modifications. This proceeded with several aircraft purchased and modified. The problems arose as the requirements for the second effort changed considerably over time leading to schedule and cost growth. By 2009 the program was several billion dollars over budget and was cancelled by the Obama Administration as part of their defense reforms.

A draft RFP was released this week for the new program. It plans to save money and manage schedule by requiring the use of an existing, in production aircraft which will be modified. It is requesting that the bidders plan to minimize changes to expensive parts of the aircraft such as the power train, transmission, structure and rotor system. A communication system is being developed separately that will be integrated onto the new aircraft.

The VH-71 suffered as the requirements meant new major systems had to be developed and integrated to meet power, range and hovering capability requirements. The RFP is for 23 aircraft at a cost of just under $1 billion with the first ones entering service in 2020.

Currently teams made up of Sikorsky and Lockheed and Augusta Westland and Northrop Grumman (NOC) are interested. Boeing (BA) may propose after doing analysis as to whether their large CH-47 or V-22 tilt rotor aircraft may meet the requirements.

The VXX program is aggressive in that it hopes to contain cost, schedule and technical creep. As the VH-71 program indicated it may be hard to do this. With the expected defense cuts coming up the contract is very attractive not only due to its size but also the prestige. As with other large aviation programs the winner may also expect several decades worth of support contracts which could be worth billions.

Photo from dailymatador’s flickr photostream.

Pratt & Whitney to Develop Advanced Variable Speed Turbine for Army Rotorcraft — Press Release

EAST HARTFORD, Conn., Nov. 27, 2012 /PRNewswire/ – Pratt & Whitney, a unit of United Technologies Corp. (NYSE: UTX), has been awarded a contract by the U.S. Army to research and develop an Advanced Variable-Speed Power Turbine (AVSPOT) to meet the range and lift requirements for current and future force rotorcraft. The AVSPOT program is an initiative by the U.S. Army’s Aviation Applied Technology Directorate, in collaboration with NASA, to develop turbine technology that improves performance, efficiency, and affordability of rotorcraft engines, and to validate that technology in a laboratory environment by 2016.

Although future mission requirements are still being considered, the program aims to develop a power turbine that would allow future medium as well as large rotorcraft to hover at up to 10,000 ft and cruise at up to 25,000 ft altitude while maintaining high operating efficiency. Whereas current state of the art power turbines operate in the 95-105 percent speed range, AVSPOT is intended to allow rotorcraft to optimize power turbine speed in the range of 55-105 percent while optimizing fuel consumption, cost, weight and durability.

There are significant challenges to enabling the higher power and rotor speed needed for takeoff and climb, as well as slower optimized rotor speed at cruise.  To address these challenges, Pratt & Whitney is pursuing a technological approach that reduces the speed of the power turbine while optimizing its efficiency.

“Pratt & Whitney looks forward to participating in the AVSPOT program, and we’re confident we will be able to meet the mission profile requirements needed for future rotorcraft engines,” said Annette Jussaume, general manager, Small Military Engines. “We have the technology know-how that will allow us to develop an efficient high-power turbine that can operate over a wide range of engine speeds.”

Pratt & Whitney is a world leader in the design, manufacture and service of aircraft engines, space propulsion systems and industrial gas turbines. United Technologies, based in Hartford, Conn., is a diversified company providing high technology products and services to the global aerospace and building industries.

Trying Again for the U.S. Air Force as Request for Proposals Released for New Rescue Helicopter

The U.S. Air Force has had its struggles over the last decades conducting competitions for new aircraft. The KC-X tanker program took 3 tries before Boeing (BA) ended up the winner with their modified 767 aircraft. Another program was a new Combat Search & Rescue (CSAR) helicopter to replacing aging MH-60 helicopters originally built by Sikorsky, part of United Technologies (UTX).

That program saw two attempts which ended up going nowhere due to protests and reviews. The last one in 2008 did see Boeing win the contest with a version of the CH-47 Chinook heavy lift helicopter but after the GAO upheld protests by the losers, Sikorsky and Augusta Westland, the Air Force decided not to pursue a 3rd attempt at that time.

Now reportedly a Request for Proposals for a new program, Combat Rescue Helicopter (CRH), was put out recently. This gives vendors 90 days to submit their proposals with source selection planned for most of next year and a contract award in late Fiscal Year 2013.

The program is for 112 aircraft and has a cost goal of under $6.8 billion.

Potential bidders will include Boeing, Sikorsky, Augusta Westland, and presumably EADS North America could participate with a Eurocopter aircraft.

Based on past history with recent Air Force acquisitions the service will have to do a very thorough and documented source selection process as a protest is very likely due to the upcoming budgetary situations and lack of new helicopter programs.

The FedBizOpps page for this procurement may be found here.

UTC Reports Third Quarter EPS From Continuing Operations of $1.37; Affirms 2012 EPS Outlook of $5.25 to $5.35 and Increases Restructuring to $600 Million — Press Release

HARTFORD, Conn., Oct. 23, 2012 /PRNewswire/ — United Technologies Corp. (NYSE: UTX) today reported third quarter 2012 results. All results in this release reflect continuing operations unless otherwise noted.

Earnings per share of $1.37 and net income attributable to common shareowners of $1.2 billion were down 4 percent and 3 percent, respectively, over the year ago quarter. Results for the current quarter include $0.09 per share of restructuring costs, offset by $0.09 of favorable one-time items. Earnings per share in the year ago quarter included $0.06 of restructuring costs, partially offset by $0.04 per share of net favorable one-time items. Before these items, earnings per share decreased 6 percent year over year. The effective tax rate for the quarter was 26.6 percent. Foreign currency translation, and hedges at Pratt & Whitney Canada, had an adverse impact of $0.07.

The acquisition of Rolls-Royce’s share of the International Aero Engines joint venture closed on June 29 and provided $0.03 of EPS accretion in the quarter. Net of transaction and financing costs, the acquisition of Goodrich Corporation, which closed on July 26, did not have an impact on EPS.

“The integration of Goodrich and IAE is off to a good start with solid underlying performance at both businesses,” said Louis Chenevert, UTC Chairman & Chief Executive Officer. “We now expect just $0.10 of EPS dilution from the Goodrich acquisition in 2012 versus our prior estimate of $0.20.”

Sales for the quarter of $15.0 billion were 6 percent above prior year. Net acquisitions provided 11 points of growth. Organic sales decreased 2 percent over the year ago quarter and foreign currency translation also had an adverse impact of 3 points. Third quarter segment operating margin at 14.2 percent was 160 basis points lower than prior year. Adjusted for restructuring costs and net one-time items, segment operating margin at 15.0 percent was 100 basis points lower than prior year, including the impact from the Goodrich acquisition. Research and development costs increased $125 million in the quarter to $590 million, including $101 million at Goodrich. Cash flow from operations was $1.6 billion and, less capital expenditures of $317 million, exceeded net income attributable to common shareowners.

“We expect earnings per share of $5.25 to $5.35 for 2012. Faced with a challenging economic environment, we are increasing our investment in restructuring this year to $600 million, up from our prior plan of $500 million, and continue to expect net one-time gains of $600 million,” Chenevert added. “Strong cash flow is a hallmark of UTC, and we now expect free cash flow to exceed net income for the full year.”

New equipment orders at Otis were up 7 percent over the year ago third quarter, including unfavorable foreign exchange of 4 percentage points. North American Residential HVAC new equipment orders at UTC Climate, Controls & Security grew 3 percent. Commercial spares orders were up 14 percent at Pratt & Whitney’s large engine business including the impact from the incremental IAE share. Organically, commercial spares orders were down 21 percent at Pratt & Whitney and down 6 percent at UTC Aerospace Systems.

“Due to the lack of recovery in the commercial aerospace aftermarket and continued uncertainty in the global economy, we now expect 2012 sales of $58 billion,” Chenevert added. “The portfolio transformation is substantially complete, and we are focused on integration and execution.”

As previously announced, the company does not anticipate share repurchase in 2012 due to the Goodrich transaction. UTC expects a full year effective tax rate of 29 percent excluding one-time items, down from the prior estimate of 29.5 percent.

Earnings per share from discontinued operations were $0.19 in the quarter. Results included $127 million of positive income tax adjustments associated with the legacy Hamilton Sundstrand Industrials businesses.
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United Technologies obtains regulatory approvals for Goodrich acquisition — Press Release

HARTFORD, Conn., July 26, 2012 /PRNewswire/ — United Technologies Corp. (NYSE: UTX) today announced that all remaining regulatory approvals related to the proposed acquisition of Goodrich Corporation (NYSE: GR) have been obtained.

Today’s conclusion of the regulatory review by the U.S. Department of Justice and the European Commission clears the way for United Technologies to proceed with the proposed acquisition announced on Sept. 21, 2011. The acquisition is expected to close by the end of the week.

In line with previous expectations, the regulatory clearances require that UTC sell Goodrich’s Electric Power Systems business and Goodrich’s Connecticut-based Pumps and Engine Controls business. Also as expected, UTC will sell Goodrich’s interest in Aero Engine Controls (AEC), a joint venture with Rolls-Royce. The AEC aftermarket business will remain with UTC, but Rolls-Royce will have ability to purchase this aftermarket business in the future.

United Technologies Corp., based in Hartford, Connecticut, is a diversified company providing high technology products and services to the building and aerospace industries.

This release includes “forward looking statements” concerning anticipated transactions, potential future transactions and management’s beliefs and objectives with respect thereto, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “confident” and other words of similar meaning in connection with a discussion of future operating or financial performance. It is uncertain whether the events anticipated will transpire, or if they do occur what impact they will have on the results of operations and financial condition of UTC and of the combined companies. These forward looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those anticipated, including but not limited to the ability of the parties to satisfy the remaining conditions precedent and consummate the proposed acquisition, the timing or consummation of the proposed acquisition, the ability of the parties to complete the anticipated divestitures in a timely manner or on the terms desired or anticipated, the ability of UTC to integrate the acquired operations, the ability to implement the anticipated business plans following closing and achieve anticipated benefits and savings, and the ability to realize opportunities for growth and innovation. Other important economic, political, regulatory, legal, technological, competitive and other uncertainties are identified in the SEC filings submitted by UTC and Goodrich from time to time, including their respective Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K. The forward looking statements included in this press release are made only as of the date hereof. UTC undertakes no obligation to update the forward looking statements to reflect subsequent events or circumstances.

FMS of Apache to Persian Gulf States to Grow

The United States has over the last decades sold billions to the various Gulf States to counter threats first from Iraq and now Iran. This has included increasingly sophisticated systems such as the PATRIOT and THAAD missile defense systems, C-17 transports and large amounts of helicopters. One aircraft that has proven popular is the AH-64D Apache attack helicopter made by Boeing (BA).

This is in use with countries like Saudi Arabia, Israel, Egypt, the U.A.E. and others. Now it is being reported that Qatar has made a request for up to 24 of the helicopters. The deal if fully executed would be worth about $3 billion. This includes not only the new aircraft but also spares, support equipment, training and weaponry.

Qatar has also proposed buying Black Hawk helicopters from the U.S. made by United Technology’s (UTX) Sikorsky Aircraft Corporation.

The addition of the Apache increases commonality with the U.S. military as well as providing significant capability for the Qatar military. These aircraft have seen heavy use in Iraq and Afghanistan providing fire support for ground troops as well as carrying out strike missions.

United Technologies to sell Rocketdyne unit to GenCorp Inc. — Press Release

HARTFORD, Conn., July 23, 2012 /PRNewswire/ — United Technologies Corp. (NYSE: UTX) today announced it has reached agreement to sell its Rocketdyne unit, currently part of Pratt & Whitney, to GenCorp Inc. for $550 million. The transaction is expected to close in the first half of 2013.

As previously announced, proceeds from the sale will be used to repay a portion of the short-term debt incurred to finance the proposed acquisition of Goodrich Corporation. The transaction is subject to customary closing conditions, including regulatory approvals.

“We are pleased to announce GenCorp’s agreement to purchase Rocketdyne. It is a significant step in our ongoing portfolio transformation,” said UTC Chairman & Chief Executive Officer Louis Chenevert. “While it is not core to UTC’s commercial building systems and aerospace businesses, Rocketdyne is a solid company and a national asset with many talented employees. Leading up to the closing with GenCorp, we will remain focused on operational excellence and 100 percent mission success.”

United Technologies Corp., based in Hartford, Connecticut, is a diversified company providing high technology products and services to the building and aerospace industries.

This release includes “forward looking statements” concerning a proposed transaction, its financial and business impact, management’s beliefs and objectives with respect thereto, and management’s current expectations for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “confident” and other words of similar meaning in connection with a discussion of future operating or financial performance. It is uncertain whether the events anticipated will transpire, or if they do occur what impact they will have on the results of operations and financial condition of UTC and of the combined companies. These forward looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those anticipated, including but not limited to the ability of the parties to satisfy the conditions precedent and consummate the proposed transaction, the timing or consummation of the proposed transaction, the ability of the parties to secure regulatory approvals in a timely manner or on the terms desired or anticipated, and the ability to realize opportunities for growth and innovation. Other important economic, political, regulatory, legal, technological, competitive and other uncertainties are identified in the SEC filings submitted by UTC and Goodrich from time to time, including their respective Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K. The forward looking statements included in this press release are made only as of the date hereof. UTC does not undertake any obligation to update the forward looking statements to reflect subsequent events or circumstances.

UTC Names Mick Maurer as President, Sikorsky Aircraft; Jeffrey P. Pino to Retire — Press Release

HARTFORD, Conn., May 7, 2012 /PRNewswire/ — United Technologies Corp. (NYSE: UTX) today announced the appointment of Mick Maurer as President of its Sikorsky Aircraft Corp. subsidiary, effective July 1. Maurer will report to UTC Chairman & Chief Executive Louis Chenevert, succeeding Jeffrey P. Pino, who will retire July 1. To ensure a seamless succession, Pino and Maurer will collaborate closely during the next two months, after which Pino will serve as a consultant to Sikorsky.

Maurer joined UTC in 1989 at the corporation’s Otis Elevator Co. unit, where he worked in positions of increasing responsibility until 2000, when he joined Sikorsky as Vice President, Enterprise Planning & Development. Most recently, Maurer served as President of the Sikorsky Military Systems unit, responsible for U.S. and International Military program and product line management, customer relationships and military aircraft delivery. He is a graduate of the U.S. Naval Academy and holds a master’s degree in engineering from Johns Hopkins University and a Master of Business Administration degree from Stanford University.

“I am confident that under Mick’s leadership, Sikorsky will continue to deliver unmatched value to customers and UTC shareholders,” Chenevert said. “Mick is exceptionally well qualified to lead Sikorsky, given his demonstrated leadership capabilities, strong customer relationships and deep industry knowledge.”

Pino is completing a career in aerospace that spans nearly four decades. He is a retired Master Army Aviator and served in the U.S. Army for 26 years in the active duty, Guard and Reserve components. Prior to joining Sikorsky in 2002, he spent 17 years with Textron’s Bell Helicopter unit.

Pino became Sikorsky’s president in 2006 after previously serving as the company’s Senior Vice President for corporate strategy, marketing and commercial programs. During his years at Sikorsky, the company achieved significant growth, increased productivity and expanded margins, while continuing to invest in game-changing technology.

“Jeff Pino has done a remarkable job leading Sikorsky,” Chenevert said. “Under his leadership, Sikorsky has become more competitive while doubling its production rates to become the world’s largest helicopter manufacturer, and has expanded into new markets with the S-70i international version of the iconic BLACK HAWK helicopter.

“Jeff has positioned Sikorsky well for the future, overseeing the successful development of the CH-53K heavy-lift helicopter and Sikorsky’s X2 technology, which was recognized with the 2010 Collier Trophy and is now being incorporated into the S-97 RAIDER,” Chenevert said. “We congratulate Jeff on an outstanding career and wish him all the best in retirement.”

United Technologies Corp., based in Hartford, Connecticut, is a diversified company providing high technology products and services to the building and aerospace industries. For more information, visit www.utc.com.

Telephonics to Make Radars for Navy Helicopters

The Navy recently awarded Lockheed Martin (LMT) a contract to provide avionics and instruments for their Sikorsky, part of United Technologies (UTX), made MH-60 Sea Hawk helicopters. Lockheed in turn has awarded Telephonics a contract to build a radar for the aircraft.

The AN/APS-153 radar performs surface search functions to locate and identify submarine periscopes. The total value of the contract for 160 radars is about $330 million.

The MH-60R is designed to perform a variety of missions and be based on carriers, destroyers and other U.S. and Allied ships. It replaces the previously used SH-60, SH-2 and SH-3 helicopters previously used for ship based Anti-Submarine Warfare (ASW).

The contract also illustrates how expensive not only the base aircraft is but also the sub-systems hat go into it. Capability and performance is expensive.

Lockheed Martin to Supply Navy Helicopter Cockpits

The U.S Navy’s standard helicopter is versions of the Army’s UH-60 Black Hawk made by Sikorsky, part of United Technologies (UTX). They operate the MH-60R and MH-60S for different missions including anti-submarine warfare, surveillance, cargo and passenger transfer as well as attack. While the MH-60 and SH-60 are similar to the UH-60 the Navy installs its own unique equipment and electronics.

This includes a digital cockpit made by Lockheed Martin (LMT) for both models of helicopter. As such this week the Navy signed a contract with Lockheed to provide over 200 cockpits and other mission equipment for their MH-60 aircraft. The total value of the contract for 224 sets is just over $1 billion.

Military aircraft are expensive and this contract illustrates one of the reasons why. The cost of the avionics, radios and other systems is quite substantial. Add this to the cost of the airframe, engines, defensive systems and weapons the total become quite high.

This contract is a multi-year one which allows the Navy to place orders across 5 years rather then the normal one year contract. The Black Hawk one is as well. This is normally done with mature systems in full rate production and allows better use of economies of scale and a static supplier base.

Update on Boeing’s (BA) Military Programs — Seeking Alpha

This is an exclusive post I wrote for Seeking Alpha on the current state of Boeing’s military aircraft programs.

Boeing and United Technologies Earning Reports

I wrote an exclusive post on Boeing’s (BA) and United Technologies (UTX) recent earnings report for Seeking Alpha which may be found here.

F-35 Continued Production Lands P&W Engine Contract

The F-35 will continue production in FY12 and FY13. The Pentagon has gone ahead and ordered the FY12 buy from Lockheed Martin (LMT) for another 30 or so aircraft for the U.S. Air Force, Marines and Navy as well as various foreign partners. This contract was awarded in December. The full production buy follows the advance procurement purchase made last year to support the long lead items for the latest production batch of the advanced fighter. The future of the program may get more interesting depending on how big a cut the Pentagon needs to make in the FY13 and out. The F-35 Joint Strike Fighter is the biggest acquisition program in history if all parts of it are executed coming in at well over a trillion dollars for production and support over the program’s lifetime. In order to save funding cuts to this total investment might become easy.

As part of the F-35 production there has to be engines and now that the fight between the F-135 manufactured by Pratt & Whitney, part of United Technologies (UTX), and the alternate engine from General Electric (GE) and Rolls-Royce (RR:LSE) is over those orders need to go to Pratt.

This means that last week as part of the upcoming advanced procurement for future aircraft P&W received a contract worth almost $200 million to support the engine production for 37 F-35 for the U.S., Italy and Australia.

The F-35 despite the fact that the budget wars about to affect the Pentagon may seriously change the program has had a few good weeks. First, Japan decided to buy it to replace some of their F-15 aircraft. Turkey also decided to buy two of the aircraft from a potential order of 100.

The contracts could be worth billions to Lockheed Martin and its supporting contractors as well aid the U.S. by decreasing the price of their aircraft. Every F-35 sold to another country will help keep production quantities up and prices down.

Overall the F-35 forms the core of the U.S. plans to modernize its aircraft fleets. Cuts in its quantities will only mean a requirement for older aircraft to fly longer at greater cost or reduced capability for the United States. This means despite the potential for reductions in U.S. defense spending the F-35 will remain a large part of the budget for the next several years.

CH-53K Helicopter Systems Engineering Team Receives DoD Top 5 Programs Award — Press Release

CH-53K Helicopter Systems Engineering Team Receives DoD Top 5 Programs Award

STRATFORD, Conn., Oct. 26, 2011 /PRNewswire/ — The CH-53K Helicopter Systems Engineering Team won the Department of Defense Systems Engineering Top 5 Programs Award today at the annual NDIA Systems Engineering Conference Award Luncheon in San Diego, Calif.

The National Defense Industry Association presented the prestigious award to the CH-53K Helicopter Systems Engineering Team, consisting of both Naval Air Systems Command and Sikorsky Aircraft Corporation engineers, in recognition of excellence in the application of systems engineering practices resulting in highly successful DoD programs, as exemplified by their 2010 performance.

“The evaluation team, made up of senior individuals from across the Department of Defense, felt that the CH-53K program’s efforts are clearly in keeping with the award’s intent to honor programs who ‘demonstrate successful implementation of systems engineering best practices resulting in program success,’” said Col. Donald W. Robbins, Chairman of the Top 5 Awards Evaluation Team.

“The CH-53K Systems Engineering Team worked hard over the past few years and we are seeing the benefits of a disciplined and systematic approach,” said Col. Robert Pridgen, USMC, H-53 Heavy Lift program manager. “The Systems Engineering Team set the foundation for us to deliver a marinized, heavy-lifting helicopter that meets the future war fighting requirements of the Marine Corps, sustains the expeditionary capabilities and is supportable, maintainable and reliable throughout its entire lifecycle.”

David Zack, Sikorsky’s CH-53K Helicopter Program Manager, said the recognition is extremely rewarding and validates the approach taken by the CH-53K Systems Engineering Team, including its government partners as well as its 150 industry partners, to integrate systems engineering process and principles from the program’s inception.

“It is an honor for the CH-53K helicopter program to be recognized with this award, particularly because it is the system engineering approach that has successfully established the key processes and procedures throughout each stage of the program,” Zack said. “These principles are deeply rooted within the joint Sikorsky/Navy integrated product teams. This close collaboration continues to create a solid foundation as the program moves forward and a balanced approach in bringing the best capability to the customer at the right cost.”

Dr. Michael Torok, Sikorsky Vice President and Chief Engineer for Marine Corps Programs, noted that focusing on requirements stability, functional and physical system integration, and risk management is essential to success. “We took lessons learned from other programs and existing system engineering processes and established an integrated program approach that has proven successful,” Torok said.

The CH-53K Helicopter Ground Test Vehicle, the first of five prototype aircraft to be built, is currently being built at Sikorsky’s Florida Assembly and Flight Operations facility in West Palm Beach, Fla.

The CH-53K heavy lift helicopter will replace the U.S. Marine Corps CH-53E helicopter. First flight is expected to occur during fiscal year 2014.

The CH-53K helicopter will maintain virtually the same footprint as its predecessor, the three-engine CH-53E SUPER STALLION™ helicopter, but will nearly triple the payload to 27,000 pounds over 110 nautical miles under “high hot” ambient conditions. The CH-53E helicopter is currently the largest, most powerful marinized helicopter in the world. It is deployed from Marine Corps amphibious assault ships to transport personnel and equipment and to carry external (sling) cargo loads.

The CH-53K helicopter’s maximum gross weight (MGW) with internal loads is 74,000 pounds compared to 69,750 pounds for the CH-53E aircraft. The CH-53K’s MGW with external loads is 88,000 pounds as compared to 73,500 for the CH-53E helicopter.

Features of the CH-53K helicopter include: a modern glass cockpit; fly-by-wire flight controls; fourth generation rotor blades with anhedral tips; a low-maintenance elastomeric rotor head; upgraded engines; a locking cargo rail system; external cargo handling improvements; survivability enhancements; and improved reliability, maintainability and supportability.

Sikorsky Aircraft Corp., based in Stratford, Conn., is a world leader in helicopter design, manufacture, and service. It is a subsidiary of United Technologies Corp. (NYSE: UTX). United Technologies Corp. is based in Hartford, Conn., and provides a broad range of high technology products and support services to the aerospace and building systems industries.

This press release contains forward-looking statements concerning potential production and sale of helicopters. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in government procurement priorities and practices, budget plans or availability of funding or in the number of aircraft to be built; challenges in the design, development, production and support of advanced technologies; as well as other risks and uncertainties, including but not limited to those detailed from time to time in United Technologies Corporation’s Securities and Exchange Commission filings.

SOURCE Sikorsky Aircraft Corp.

Canada Makes Big Investments In Its Defense, U.S. Industry To Benefit

Since 9/11 Canada has been one of the most supportive allies of the United States committing troops multiple times to Afghanistan. They have suffered over 150 military casualties and four civilian ones in that fighting. The Canadian government has also made efforts to modernize and equip their forces with better equipment to aid in their operations such as Boeing’s (BA) CH-47 heavy lift helicopters and Lockheed Martin’s (LMT) C-130J transport aircraft.

At the same time both the Liberal and Conservative Party government’s that have been in power since 2001 have planned to improve the nation’s basic armed forces. One of their responses to the world economic downturn since 2008 has been to spend targeted funds on selected military projects to aid the economy and counter unemployment. This has included investments in infrastructure and training capabilities. Canada has benefited from these contracts even when they award them to foreign suppliers, primarily the big U.S. defense contractors, because they have a 100% offset requirement.

This means that the foreign company must invest an amount equal to 100% of the value of the contract in the Canadian economy. This means they may hire Canadian suppliers for parts or maintenance or just do it in a completely unrelated part of the economy. For example Sikorsky Aircraft, part of United Technologies (UTX), sold helicopters to upgrade Canada Navy’s anti-submarine, search and rescue and surveillance capability. The program has seen delays and cost growth and Canada adjusted it by accepting more offsets from UTX.

In this vein the country announced two major contracts this week to continue their improvement of their military. The first is a major new armored vehicle upgrade contract that will go to General Dynamics Land Systems (GD). GD has been building wheeled military vehicles for Canada and the U.S. for several years. This $1 billion contract will allow the current LAV III fleet of vehicles to remain in service for another 20 years by improving armor, weapons as well as survivability against the IED and mine threat. GD is an American company and the contract will help it weather cuts in the U.S. defense budget but it will also help Canada as most of the work will be done in that country and it will employ significant amounts of domestic workers.

Also this week the Canadian government announced the results of a contest among its domestic shipbuilders for contracts to construct a new fleet of large naval combatants and patrol ships. This contract is worth over $32 billion total and was awarded to two shipyards, Irving Shipbuilding Inc. and Seaspan Marine Corp. Irving will build up to 15 warships and 6 patrol craft while Seaspan 8 support vessels such as icebreakers.

While the contract is a huge deal for the nation’s shipbuilders it will have spill over effects into the U.S. Most of the weapons and combat systems will have to be provided by U.S. defense contractors since Canada tends to use their guns and missiles. There is a chance that radar will come from Europe as it has in the past. Either way this is win-win for Canada as they recipients of the sub-contracts will have to invest to meet the offset requirements. This means that billions of dollars will flow back into the Canadian economy one way or another.

Canada has been very proactive over the last decade in their military spending. This has meant not only benefits for their economy but also the U.S. and other countries. There offset policy allows money spent on non-domestic defense goods to grow their economy as well. The U.S. and some European defense contractors also gain as they provide some key components and systems not available on the domestic Canadian market. Canada is able to take advantage of this to gain state-of-the-art, modern equipment without having to build up their defense industry.

Article first published as Canada Makes Big Investments In Its Defense, U.S. Industry To Benefit on Technorati.

UTC Reports Third Quarter EPS Growth of 13 Percent on 9 Percent Higher Sales; Increases 2011 EPS Outlook — Press Release

UTC Reports Third Quarter EPS Growth of 13 Percent on 9 Percent Higher Sales; Increases 2011 EPS Outlook

HARTFORD, Conn., Oct. 19, 2011 /PRNewswire/ — United Technologies Corp. (NYSE: UTX) today reported third quarter 2011 earnings per share of $1.47 and net income attributable to common shareowners of $1.3 billion, up 13 percent and 11 percent, respectively, over the year ago quarter. Sales of $14.8 billion for the quarter were 9 percent above prior year including 6 points of organic growth and 4 points of favorable foreign currency translation. Cash flow from operations was $2.0 billion and capital expenditures were $215 million in the quarter.

Results for the quarter included $0.06 per share of restructuring charges, partially offset by $0.04 of net one-time items. The prior year quarter included charges for restructuring and net one-time items of $0.09 per share. Before these items, earnings per share increased $0.10 or 7 percent year over year. Foreign currency translation net of currency impact at Pratt & Whitney Canada accounted for $0.04 of the earnings per share increase.

Third quarter segment operating margin was 16.0 percent. Adjusted for restructuring costs and one-time items, segment operating margin at 16.3 percent was 10 basis points lower than prior year. Research and development costs increased year over year by $62 million to $495 million.

“This was another solid quarter for UTC, with continued organic sales growth across all six of our businesses,” said Louis Chenevert, UTC Chairman & Chief Executive Officer. “Cash generation was also strong and we now expect cash flow from operations less capital expenditures to exceed net income attributable to common shareowners for the full year.

“Based on the strong year to date performance, we are raising the full year earnings per share expectation to $5.47, up from $5.35 to $5.45 previously, and up 15 percent over 2010. We continue to expect sales of $58 billion, up nearly 7 percent over 2010,” Chenevert added.

New equipment orders at Otis were up 19 percent over the year ago third quarter including favorable foreign exchange of 7 percentage points. Commercial HVAC new equipment orders at Carrier grew 11 percent including favorable foreign exchange of 4 points. Commercial spares orders at Hamilton Sundstrand were up 24 percent and at Pratt & Whitney’s large engine business grew 3 percent, after growing 35 percent in the year ago third quarter.

“We announced two transformational deals recently,” Chenevert continued. “The acquisition of Goodrich will bring complementary products of two great companies together to offer more intelligent and more integrated systems for our aerospace customers. The agreement with Rolls Royce to restructure IAE ownership and to partner on next generation mid-size aircraft engines further validates the game changing Geared Turbofan™ technology. Both transactions will yield significant value to our customers and shareholders.”

United Technologies Corp., based in Hartford, Connecticut, is a diversified company providing high technology products and services to the building and aerospace industries. Additional information, including a webcast, is available on the Internet at http://www.utc.com.

The accompanying tables include information integral to assessing the company’s financial position, operating performance, and cash flow, including a reconciliation of differences between non-GAAP measures used in this release and the comparable financial measures calculated in accordance with generally accepted accounting principles in the United States.
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U.S. Army Awards JMR Study Contracts

Currently the U.S. Army, Navy and many Allied nations rely on the Sikorsky, part of United Technologies (UTX), UH-60 Blackhawk helicopter for the medium lift mission. The Blackhawk entered service in the late Seventies as a replacement for the venerable UH-1 Huey aircraft. Since 9/11 it has been heavily used in Iraq and Afghanistan flying several hundred thousand flight hours.

The Army is working on a long range replacement program for the Blackhawk called Joint Multi Role (JMR). This will be an aircraft that not only will take on the UH-60 missions but may also form the basis for a new attack or scout helicopter like the UH-1 did with the AH-1 Cobra.

As part of this program the Army went ahead and awarded contracts to four different companies to conduct long term research and design studies for the future JMR.

Interestingly enough one of the contracts was awarded to AVX Aircraft of Texas. This is a new company started by mainly former Bell employees that has produced an interesting concept for the Army’s new scout helicopter the Armed Aerial Scout (AAS).

The AAS is a follow on to the cancelled Armed Reconnaissance Helicopter (ARH) which had been started as the Bell ARH-70 Arapahoe to replace the OH-58D Kiowa Warrior but was cancelled in 2008 due to cost and schedule issues. AVX has come up with a plan to fit the OH-58 with two rotors and ducted fans that push it to increase speed, range and payload. Similar concepts could be used to meet the JMR requirements.

The other contracts went to the more traditional Boeing (BA), Sikorsky, and Bell, part of Textron (TXT). These all have current military aircraft flying and they may offer more traditional ideas for the new aircraft. Boeing does currently make the V-22 for the Marines and Air Force which could be used as a tilt rotor basis for a new medium lift system.

The JMR when it is ready for competition would be a major contract as it may be expected to last 30-40 years and see production quantities of several hundred. Also if it did enter U.S. service it might enjoy good Foreign Military Sales (FMS) similar to the Blackhawk which could mean billions in revenue for the ultimate provider of the aircraft.

Unfortunately in the current budget situation the program probably will not move fast and it might be several years for the new system to take shape. This means that the Army and other users will soldier on with the UH-60.

Goodrich Teams with KNK to Develop Next Generation ISR Technology — Press Release

Goodrich Teams with KNK to Develop Next Generation ISR Technology

– Combined software expertise facilitates total ISR systems solutions

CHARLOTTE, N.C., Oct. 10, 2011 /PRNewswire/ — Goodrich Corporation (NYSE: GR) has signed a teaming agreement with UK-based Knowledge Network Konsulting (KNK) Ltd. This agreement will enable Goodrich’s Malvern, UK operation to collaborate with the KNK team in developing effective and comprehensive solutions to meet future intelligence, surveillance and reconnaissance (ISR) requirements.

Goodrich is a global provider of proven intelligence exploitation systems for the military while KNK is an innovative provider of intelligence management and decision support software. The integration of the two companies’ software capabilities brings together the expertise required to develop a total ISR solution that offers: requirements generation and tasking; collection and fusion of information from multiple sources; and assessed decision-support outputs. These solutions are fully compliant with both NATO and Coalition Shared Database (CSD) standards.

Sam Macleod, managing director Goodrich’s ISR Systems business explained, “We recently demonstrated the operational benefits gained from this teaming arrangement to the UK Ministry of Defence (MOD) at Empire Challenge (EC) – 2011. The software capability we demonstrated at EC-11 combined the open source, open standards philosophy of iNTOOL with the standards and compliance expertise of the Goodrich CSD. This was a critical demonstration of the operation of a national specialized intelligence process coherently within a coalition environment.”

Mark Nash, concepts director at KNK added, “Embracing data collection and exploitation activities within a managed and auditable process will enable commanders to make quicker decisions with increased confidence.”

Goodrich and KNK look forward to working as a team to provide enhanced ISR support to defense forces in the UK and worldwide.

KNK Ltd, based in Andover, UK, provides intelligence and decision support applications. A young and dynamic player in the world of defense, KNK brings innovative ideas and clear approaches to intelligence challenges faced by governments and militaries. KNK Ltd has delivered and supported iNTOOL, an ISR support tool, on operations in Afghanistan.

Goodrich Corporation, a Fortune 500 company, is a global supplier of systems and services to the aerospace and defense industries. With one of the most strategically diversified portfolios of products in the industry, Goodrich serves a global customer base with significant worldwide manufacturing and service facilities. For more information visit http://www.goodrich.com.

Goodrich Corporation operates through its divisions and as a parent company for its subsidiaries, one or more of which may be referred to as “Goodrich Corporation” in this press release.

Labor Woes Add to Oshkosh’s Struggles

Further Update – It has been announced the Union has accepted the latest offer from the company and a new five year contract has been signed.

Update – The Union voted on Saturday the 8th on an updated proposal from the company and again turned down the offer. The Union has offered to continue negotiations.

Oshkosh Corp. (OSK) is one of a few, recent stories of success where a company is able to expand its business into defense from its more traditional lines of work. Oshkosh is traditionally a manufacturer of construction and emergency vehicles but was able to win two major defense contracts for support vehicles in the last five years. These have generated a great deal of revenue and some profit for the Wisconsin company when its traditional work was declining due to the global economic downturn.

Oshkosh was able to win the production contract for the U.S. Army’s standard truck, the Family of Medium Tactical Vehicles (FMTV), as well as a new Mine Resistant Ambush Protected (MRAP) for Afghanistan called the MRAP-All Terrain Vehicle (ATV). This was designed to be lighter and more maneuverable for use in Afghanistan’s rougher terrain with its limited roads.

The MRAP contract, though, is winding down as the need for the vehicles declines. The U.S. is planning on leaving both Iraq and Afghanistan in the next few years and is struggling with fitting the MRAP, which is primarily a heavily armored bus, into its tactical Table of Organization and Equipment (TO&E). If the next war includes a different threat then the role of the MRAP will be limited. This means that Oshkosh needs to find new customers or new work for their rapidly built up production capability for the MRAP.

The winning of the FMTV contract from BAE Systems (BAE:LSE) who had purchased the company that had that work for over twenty years was driven by price. Oshkosh bid very aggressively and hoped to make money off of modifications and other work related to the vehicles. Even though the Army and Marine Corps are buying thousands of those vehicles the margin on them is very low.

These two issues have combined to limit Oshkosh’s profit. The company is bidding on Canada’s new contract for an armored vehicle to help its situation but budgetary pressures will probably reduce its options for new contracts and new systems.

Now Oshkosh faces labor issues. Unlike BAE’s Sealy, TX workforce its is unionized. There current contract expired last Friday and the new one was voted down by the United Autoworker’s Union (UAW). As with many current labor negotiations healthcare costs and other issues remain the primary areas of disagreement.

Right now the union workers are not on strike and Oshkosh has not locked them out and the two sides met this weekend for more discussion. If the problems are not resolved in the near term though either could happen disrupting production for the military and affecting Oshkosh’s revenue.

Strikes are uncommon in the defense world as few major contractors are unionized. Sikorsky, part of United Technologies (UTX), had an ugly strike about six years ago that caused issues with UH-60 Black Hawk and CH-53E Sea Stallion helicopter production and took several months to recover from. Oshkosh is not facing that situation but it does add pressure to the company as they are trying to negotiate limited cost growth to maximize the profit from their products.

The next few months could be critical to the company’s defense prospects as the opportunities for new contracts in the U.S. are limited and there may be cuts to existing ones if there is a big decline in defense spending. This means it would be best for the union and the company to resolve their issues quickly and avoid a long term conflict.

Pentagon Clarifies Cost Increases on the JSF Production

A few weeks ago when a funding reprogramming from the Defense Department was submitted to the Congress for their consideration it caused Senator John McCain (R-AZ) and the Senate Armed Services Committee (SASC) to question the program’s status. As part of the request it was asked by the Air Force to move over $240 million to pay cost increases on the F-35 Joint Strike Fighter (JSF) first production contracts. The total bill was actually closer to $750 million as the plan was to move internal JSF funding to make up the difference. Needless to say given the history of the program the SASC was not happy to see the further increases.

As part of their response McCain and Senator Levin (D-MI), the Chair, sent the Defense Department six questions about the reprogramming and the program’s funding status. One of the questions asked the Government to state how much of the cost increase is recoverable and most interestingly the cost to terminate the program.

The Pentagon has now responded to parts of the letter. They revealed that Lockheed Martin (LMT), the prime contractor, and Pratt & Whitney, part of United Technologies (UTX), will pay $283 million of the increase based on the cost sharing provisions of the production contracts.

One could assume this means the total bill to the Government now is below $500 million once this figure is subtracted. Unfortunately that is wrong. The total increase may ultimately be closer to $1 billion and the $283 million is the contractor share with the Pentagon picking up the rest, or just over $700 million. Pratt & Whitney estimates that their portion of the increase is about 6% of the total cost of the contracts.

The F-35 has suffered a series of production delays and cost increases due to testing issues and changes in the design of the aircraft. It had long been expected that there would be cost increases with the first three production batches. The Senate, though, has been trying to draw a hard line on future cost increases and have written into their version of the 2012 Authorization Act a requirement that Lockheed pick up all cost overruns beyond the target price and that the contract be a fixed price one. Normally at this stage in the program where much development and testing remains the contract would be cost plus and there would be some risk sharing as on the current ones.

There are many who are starting to get tired of the JSF status. The program has been re-baselined and repriced but it is not near its original schedule and cost. That is why the SASC raised the idea of terminating the program at its current state. This would be expensive, although no official estimate has been made, and would still leave the requirement for a new aircraft that would either require a new development program or a decision to buy an existing U.S. or foreign aircraft.

As with most things about the JSF there will be more to come in the near future on these latest rounds of cost increases and their ultimate effect on the program.

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