Framework Seems To Have Been Reached To Allow A400M Resolution

Late last week it was announced that EADS and the customers for the A400M transport seemed to have reached a framework to allow talks to proceed that may resolve the funding issues with the program. Due to about two years of development and integration problems the aircraft only achieved first flight in December, 2009 and now will not deliver the first aircraft until 2012. These have caused EADS and its subsidiary Airbus to spend billions beyond the money planned.

The company is trying to work a deal where the customers pay a large portion of the overruns as the initial contract was a Fixed Price one that did not provide enough funding to cover the delays. EADS has spent over five billion Euros of its own money on the program and is hoping that either through price increases or direct investment the seven major European buyers will cover these costs. Recently EADS had threatened to just go ahead and end work on the program and eat the losses rather then continuing it and losing more money.

After a recent meeting it became clear that most of the countries involved are willing to work out some financial deal with EADS and that company will agree to continue talking. There will be a meeting in early February to begin these discussions. The compromise being discussed would see increased production prices and lower quantities for a few years with EADS absorbing some of the cost overruns internally. Then there would have to be a decision point in the future whether to complete the program’s planned total quantity. One of the two FMS customers, South Africa, already canceled their order due to the price increases proposed by EADS.

The A400M is the premier military aerospace program in Europe and it suffered from the optimistic plan to use a fixed price development contract. Not completing it would be seen as a blow to EADS and European defense integration. At the same time all of the customers are facing financial pressure due to the global downturn and increased social spending. At the same time building only a few of the aircraft solves nobody’s problems.

A400M first flight video from signatoryvideos. http://www.youtube.com/watch?v=oX-kIUYRyDk

U.S. Army Moves Out on Future Combat Systems (FCS) Replacement

One of the major budget decisions of the Obama Administration was to end the U.S. Army’s Future Combat Systems (FCS) program. This overarching system-of-systems was to provide new vehicles, weapons, unmanned vehicles and data links to provide a rapid, hard hitting replacement for the heavy armored force built around the M1 tank and the M2 Bradley fighting vehicles. The FCS had seen major growth in cost and schedule and it’s requirements pre-dated operations in Iraq and Afghanistan. The administration decided to end the program. Boeing (BA) and SAIC (SAIC) were the prime contractors on it.

To replace FCS the Army stood up a Brigade Modernization Program that would take parts of the old program and also begin development of new requirements and vehicles. With the passage of the 2010 defense budget last week the Army took the first step by awarding Boeing a contract for initialization of Increment 1 of the new program. This contract is to provide the soldier on the ground enhanced surveillance, reconnaissance and intelligence capabilities. Increment 1 will include some unmanned ground and air vehicles as well as sensors and a network to integrate them.

Further increments of the program will see further investment in new vehicles and weapons designed to the new requirements.

F-35 Program Has Issues DCMA Says

The F-35 Joint Strike Fighter (JSF) has become the aviation program in the Obama defense budget. This multi-variant, multi-service aircraft will be the only new tactical aircraft built in the United States for several years now that the F-22 Raptor was canceled in the 2010 budget. In fact Secretary of Defense Robert Gates wanted to speed up production and testing of the aircraft in order to replace the aging F-15 and F-16 fleet more quickly.

Earlier this summer there were reports that a review panel had found the potential for delays and cost growth in the program that would seriously affect the plans for the aircraft. Yesterday there were reports that the Defense Contract Management Agency (DCMA) has been reporting that the program is facing production and test delays as well as having cost issues. DCMA monitors contractors for performance and delivery and reportedly Lockheed Martin and its supporting contractors are already behind on the latest schedule established in May, 2008.

When the budget was announced with the decision to cancel the F-22 and focus on the F-35 some doubts were raised that the plan would work out. The schedule was not firm enough and cost was still being worked out for the three different aircraft being developed for the U.S. and its Allies. The F-35 if unit costs do rise significantly could see lower annual buy quantities which stretches out production and extends the time the older aircraft must be flying. While it is certainly possible that the schedule problems may be overcome delays and cost increases will undermine the reasoning behind the whole proposed Obama aviation modernization budget. This report may give Congress pause and interest in re-starting the F-22 production.

Industry-Leading Linux-Based Cluster Computing Company Rebrands, Relaunches as Sabalcore Computing, Inc. — Press Release

Industry-Leading Linux-Based Cluster Computing Company Rebrands, Relaunches as Sabalcore Computing, Inc.

ORLANDO, Fla., — Tsunamic Technologies, Inc. is rebranding itself and relaunching as Sabalcore Computing, Inc.

Located in East Orange County, the company, which provides Linux-based cluster computing power to large-scale users such as the U.S. Naval Air Systems Command, secured the Sabalcore.com web domain and recently relaunched itself as Sabalcore, Inc.

Sabalcore’s cluster computing networks link hundreds of Linux-based computers to provide enormous online computing power to large-scale users at a fraction of the cost of in-house solutions, explained John Van Workum, president and chief executive officer.

“We chose to rename our company to more accurately reflect the Company’s current growth, mission and vision for future growth and to clearly communicate our commitment to our customers. The name ‘Sabalcore’ is derived from the CPU ‘core’ found in modern processors and the ‘Sabal’ Palm tree which is indigenous to Florida and is remarkably steadfast, resistant to fire, floods, cold, high winds and drought. By aligning our corporate name with our core business offering, we are communicating to the investment community and customers the Company’s ongoing focus of quality service and performance,” Van Workum explained.

Recently, Sabalcore won a major contract from the U.S. Naval Air Warfare Center Weapons Division (NAWCWD) Geophysics Branch at China Lake, located in the northeast of California’s Mojave Desert, to provide computing time that powers weather modeling and analysis in support of the Navy’s global battlefield operations.

“Sabalcore’s cluster computing networks were specifically designed to provide the enormous volume of computing power such complex calculations require,” Van Workum said.

Sabalcore’s high performance computing networks have played a key role in weather prediction, computer aided engineering, oil exploration, market analysis, genomics, helping communities predict the spread of infectious diseases, and modeling the benefits and effects of experimental pharmaceuticals.

Sabalcore Computing Inc. is a client company of the University of Central Florida’s Business Incubation Program in the Central Florida Research Park in east Orlando.

* * *

For more information contact:

John D. Van Workum, President Sabalcore Computing, Inc. 877-492-8027; john@sabalcore.com

Carol Ann Dykes, Site Manager, UCF Business Incubator – Central Florida Research Park, 407-882-0211, cdykes@mail.ucf.edu

Larry Vershel or Beth Payan, Larry Vershel Communications, 407-644-4142 or LVershelCo@aol.com

About the UCF Incubation Program:

Since its founding in 1999, the UCF Business Incubation Program has helped more than 130 emerging companies (including nearly 80 current clients) create over $500 million in annual revenue and more than 1600 new jobs with an average salary of $59,000. With six facilities across the Greater Orlando community, the Incubation Program is a collaboration in economic development between the University of Central Florida, Orange County, the City of Orlando, Seminole County, the City of Winter Springs, The City of Sanford, Lake County, the City of Leesburg, and the Florida High Tech Corridor Council. For more information, please visit www.incubator.ucf.edu.

South Africa May Be The First A400M Casualty

The A400M is one of EADS most ambitious military programs. The new tactical transport would be developed and built in Europe for several different nations and provide a possible counterweight to the C-130 for overseas sales. The aircraft has faced development struggles that has led to a two year delay in the delivery of the test vehicles and caused the customers to rethink whether to continue. This would have been harsh for EADS as they would have to pay penalties to the countries that invested in them.

In July it was decided to renegotiate the contract to allow EADS time to restructure it and meet its obligations. The A400M has also attracted some foriegn customers and now South Africa is considering canceling their order for eight aircraft due to a price increase of over 150 percent. If the contract was not canceled by the end of the month the nation must continue on with the program and pay the new price. This would be about $6.4 billion compared to the original estimate of $2.6 billion in current exchange rates.

Defense acquisition programs that run late or over budget are nothing new. Normally when an overseas sale occurs of this kind of system it is after it has been in production for a few years and the price stablized. In this case South Africa gambled that the A400M would be completed on time and cost without any serious issues. This has turned out not to be true and they are facing a price increase of starting over. The aircraft are considered key to their peace keeping capability.

O

Reflecting Change In Focus SAIC Moving Headquarters To Northern Virginia

One of the top ten defense contractors, SAIC, is moving its corporate headquarters from San Diego, CA to outside Washington, DC to Fairfax, VA. The company obviously has a large presence outside Washington, DC where many of its contracts are executed. The move to Fairfax, VA is not completely unexpected and the company is using the excuse of the better business climate in that state to support the move.

The company will still stay in California as it has many customers there not least the Navy’s SPAWAR in San Diego. The cost to California will be several hundred of the company’s highest paid employees who will now be moving to Virginia and spending their earnings and paying taxes there. The cost of living even in Northern Virginia will be much less for their employees just in housing and income taxes alone.

The move also comes at a time when the Washington, DC area is going to experience solid growth in the Federal Government work force due to some of the initiatives of the Obama Administration. Having their leadership in the DC area will facilitate business development and cultivating relationships with politicians and bureaucrats alike.

Greece Loses Submarine Contracts

Normally it is the government customer who ends a contract for non-performance or because they cannot afford it anymore. Today it was announced by ThyssenKrupp that the shipbuilder was ending a contract with Greece for new construction as well as upgrading existing ships and submarines. The company claims that the Greece Ministry of Defense has failed to pay them for the work done.

The original contract was for the construction of four advanced diesel electric submarines as well as modifying and upgrading three older ones already in use by Greece. In 2007 the first new submarine was ready but Greece didn’t take delivery and refused payment. ThyssenKrupp has been trying to go into arbitration over the deal but has now decided to go ahead and cancel the contract. The company has seen major contraction and loss of business due to the global economic downturn.

The Greek government is blamed for failing to negotiate or move out on the contract. There is an election upcoming and the opposition is expected win and has used this issue as part of their campaigning.

Selling Overseas To Make Up For Coming U.S. Defense Cuts

Arizona is a top beneficiary of defense dollars. This is primarily due to Raytheon and Bell activities in the state. Raytheon makes missile defense systems and Bell helicopters. Now with the possibility that Obama’s cuts to the defense budgets starting in 2010 and out the companies there are looking overseas for work.

Unfortunately this will be the business plan for all defense contractors if their is a significant contraction in U.S. defense spending. The focus will be on selling systems and support to Asian, South American and Middle Eastern companies. India, Brazil, the U.A.E. and Qatar have already made major investments in U.S. and European equipment and there are several major contracts coming. In 2008 the U.S. already captured two-thirds of the market but overall purchases were the lowest they had been since 2005. If this trend continues due to the global downturn in the economy there may be less opportunity for these sort of sales.

These trends may lead to further consolidation of the defense industry in the U.S. and abroad as domestic and foriegn markets may not be able to support the amount of business built up since 2001 primarily by the United States. This will be the most important factor facing the industry which has not seen this situation since the early Nineties and the end of the Reagan arms build-up.

BRAC Contracts For Fort Sam Houston Keep Adding Up

As part of the last round of Base Realignment And Closure (BRAC) the U.S. Department of Defense decided to consolidate service wide training at various locations. One of these plans is to move all medical training to Fort Sam Houston in San Antonio, TX. Much of the Air Force and Army training was already located there so the move is primarily of the Navy centers. Part of the consolidation will require construction of new barracks and facilities.

It was announced yesterday that Lockheed Martin was awarded a $200 million contract to provide logistics support for the movement of the Air Force and Navy’s training centers. The contract calls for the company to do purchasing, warehousing and training on new and moved equipment. Lockheed Martin will also actively manage the movement and transfer of the schools.

The goal of this consolidation is to save money in the long run through economies of scale. This is being done for a variety of specialized training such as moving electronics and missile maintenance to FT Lee, Virginia. Many of the facilities losing the training commands are not closing but gaining other organizations and commands.

This round of BRAC began a whole sale shuffle of training and testing and development organizations that should allow some synergy across the three services.

A400M Contract To Be Restructured

The A400M transport program is the premier new aerospace defense effort in Europe. Seven separate countries had teamed together to develop and buy the aircraft from EADS. The program has had major delays due to engine and software issues and the customers have been delaying action for most of this year. Under the original contract EADS would have had to pay back money due to schedule targets not being met. This deadline has been pushed back until 30 July.

Now the customers have announced that a new contract will be negotiated by December of this year. Under the current schedule the first flight of the aircraft should occur by the end of the year with production deliveries in 2012. Britain had been pushing back on the contract due to their budget problems and the need for support for operations in Afghanistan.

The new contract is not technically a done deal as there could still be issues with some of the countries involved. The terms are obviously not clear now but will clearly revolve around the schedule and payments. EADS will probably see some relief from the schedule penalties. Military development programs are not new to such schedule issues and often if the program is important enough these kind of concessions will be made by the customers. The program is looking at a minimum three year delay and this will be reflected in the new contract.

The big thing this decision does delay further the penalty deadline that EADS has been facing all year and has made it hesitant to use their cash reserves for any other action.

House Moves To Keep VH-71 Increment One Alive

The various defense appropriations and authorization bills are working their way through the House and Senate. Many items have been included not requested by the Obama Administration or Secretary of Defense Robert Gates. This really is not surprising as Gates attempted to cut a lot very quickly. He spared no service cutting Air Force F-22 and C-17 aircraft, Navy VH-71 and destroyers, and Army vehicle and missile defense systems. Congress has pushed back on certain programs.

One that they are trying to keep alive is the VH-71 helicopter for use in transporting the President. This program has not only been unfunded in the President’s 2010 budget but Lockheed Martin has been told to stop work. The company and the Pentagon are negotiating termination costs.

The House Appropriation Defense sub-committee, though, included almost half a billion dollars to try and utilize the Increment One aircraft already procured. The program was structured with two increments of aircraft, the first being basic ones to be used to support testing and development. A larger buy in five or so years would have all the required equipment. To date the U.S. has invested about $3 billion in the program. The House wants to see if some use could be derived of the aircraft already delivered.

While the current fleet of VH-2 and VH-60 aircraft have served the President well they are somewhat dated. The VH-71 would have more modern survivability and communications equipment with greater range and lift. The strenuous requirements are what led to the programs cost and schedule growth. There will be more to come on this issue to say the least.

MRAP-ATV Fallout Leads To Navistar Layoffs

Oshkosh won the MRAP-ATV contract for a new vehicle for use in Afghanistan. One of the losing bidders was Navistar who had sold several thousand MRAP vehicles for use in Iraq to the U.S. Department of Defense.

Now with the fact that they did not win the contract to build the new vehicles for use in Afghanistan the company has announced layoffs at their Mississippi plant. This illustrates one of the problems with defense contracting. If you don’t continue to win contracts to provide systems or services you will eventually wither. Defense acquisition is normally for a certain number of units or for a period of time that will end. Companies win or lose contracts and that leads to contractions or expansions in work forces.

Australia Reportedly To Buy F-35

Two days after the roll out of their first F/A-18 aircraft necessary to provide an interim air capability until the nation moves out on its fifth generation buy of either the F-35 JSF or the F-22 Raptor the Government announced that they would invest in the F-35. While the F-22 was attractive due to its longer range and greater payload up to seventy F-35 aircraft will be purchased.

Australia plans to now review their defense procurement plans every four years and readjust as necessary. Australia has been a partner in the F-35 development effort but recently had looked at buying the F-22. This would require an act of Congress as current law bans the sale of the modern aircraft. Japan and Israel have also inquired about the availability of the F-22. With the Obama Administration planning on ending procurement of the F-22 foriegn sales are now attractive to Congress as a way to keep production going.

FCS Cancellation Fallout

The cancellation of the current Future Combat Systems (FCS) development contract was one of the cornerstones of the Obama Administrations 2010 defense budget. The program of new vehicles, unmanned aerial and ground systems, and the data links connecting them was estimated at over $160 billion. The Army still has a requirement for a upgrade to their combat brigades currently using the Eighties produced M1/M2 vehicles and the Styker Interim system. As such a new program was set up to replace FCS almost immediately after the contract with Boeing and SAIC was canceled.

Now the Army is concerned that the money planned for in the budget may not be available for this new program. At a minimum some of it will be needed to pay the termination fees related to the various contracts ended prematurely. They were ended at the convenience of the government so the contractors are entitled to payment for whatever work they had done and what it takes to close out the contracts. If the money doesn’t remain in the FCS line then the Army will be forced to fund it from other programs.

Congress in their mark up of the 2010 budget cut most of the money budgeted for this as they felt there were sufficient current funds to cover this. This may be a little too much penny save pound foolish. The Army knows fairly well what is needed and probably budgeted appropriately. The cost to other parts of the Army including the new modernization program may be quite high.

JASM Under Threat

The Joint Air-to-Surface Missile (JASM) is an air launched cruise missile used by the U.S. Air Force and Navy. It has been in production for several years and has been deployed for use in Iraq and Afghanistan. Despite this the Air Force is planning anew series of test the results of which may lead to the cancellation of the program.

In recent testing the missile achieved only a sixty percent success rate well below the goals set for it. The system is manufactured by Lockheed Martin and canceling would be a loss of significant work. There have already been over 600 of the missiles made.

There have been issues with the wiring and fuses and Lockheed is working on these. The fact that the system seems to be in steady rate production indicates that it successfully completed all testing required to move to that phase. The recent failures may be due to storage or problems in the manufacturing process or maybe with some suppliers.

The fact that the Air Force is threa

European Customers Continue To Dither On A400M

The various defense ministers and their staffs of the seven European countries buying the EADS developed A400M transport continued to punt on a decision. They now will wait another month before deciding whether to restructure, end or demand their money back on the troubled program. The orignial decision date was March. That was extended three months to the end of June and now it will be in July when the “terms of the negotiation” are to be defined. Then there will be some period of negotiation with EADS on what to do with the aircraft.

Some countries have been outspoken in support of the very late program while others have discussed ending their participation due to the cost and schedule problems. England who is in the worst position budgetary wise is reevaluating all of their defense spending and looking at areas to cut costs. They have been the most vocal about ending their participation and perhaps getting the upfront money back from EADS.

The company has been stockpiling cash in case there will be a need to give some of the money back already received for the aircraft. A decrease in the number to be purchased will also lead to higher prices for the remaining customers unless some other deal can be reached. It is obviously in the best interest of the company and perhaps the countries involved to complete the program but now these talks have been ongoing for six months or so. At some point some decision will have to be made.

Michingan Economy Losing Defense Dollars As Well

Michigan is seeing its car based economy erode quickly with the bankruptcies of Chrysler and General Motors and now word is that the defense dollars flowing to the state are down as well. Crain’s Detroit Business is reporting that defense contracts fell by almost a third compared to the same period last year. One of the problems faced seems to be that the U.S. Defense Department is putting work out to bid but then not awarding the contracts. This may be due to a reassessment of needs by the new Administration, or just changing the timing of the work.

Michigan has one of the highest unemployment rates in the country with no real changes on the horizon that will turn that around. Defense dollars were offsetting some of the losses in civil industry and the state has aggressively gone after them. It is expected that in the next few years to be some major cuts to defense spending and this may exacerbate the problems the state is experiencing.

Lockheed Plans Further Job Cuts Due To VH-71 Ending

Lockheed Martin had already cut over one hundred jobs at their Upstate New York facility in Owego. This was mainly due to the decision by Obama and Secretary of Defense Gates to end the VH-71 New Presidential Transport helicopter program. Even though the aircraft was made in Italy Lockheed did all the modifications and integration in Owego.

Despite a great deal of argument and pressure to keep the program going in some form or another the contract was recently terminated. Lockheed is now saying that another seven hundred and fifty people may lose their jobs. Right now they are looking for people to voluntarily leave or retire with a promise of severance. The plan is to begin the layoffs in July based on how many people agree to leave voluntarily.

One of the arguments against ending this and other production programs is that they will just add to the joblessness during the current recession. Of course the defense budget is not really a jobs program and that is fairly poor reasoning to continue spending billions of dollars on a system that does not meet requirements. It is still possible that Congress will pass some form of spending that will keep pieces of the program alive in the 2010 defense budget but that will not be finished until the Fall.

AAR ANNOUNCES AAR GLOBAL SOLUTIONS, LLC JOINT VENTURE — Press Release

AAR ANNOUNCES AAR GLOBAL SOLUTIONS, LLC JOINT VENTURE

WOOD DALE, ILLINOIS (June 15, 2009) — AAR CORP. (NYSE: AIR) today announced the formation of a joint venture to expand the Company’s participation in the government and defense services markets. The new business, AAR Global Solutions, LLC, combines the capabilities of AAR with the experience of a seasoned government contracting team, led by Steve Cannon, former Chief Executive Officer of DynCorp International, and other strategic partners including Johnson Global Services, LLC, an affiliate of Magic Johnson Enterprises, and Zaccanelli Investment Partners (ZIP).

“We set out, together with Zaccanelli Investment Partners, to create a unique enterprise dedicated to providing high-quality, value-added solutions in support of the U.S. and other governments’ defense/logistics and nation building initiatives,” said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. “We created an organization with an inclusive and diverse base of ownership, leadership and workforce that has a distinctive blend of skills and perspectives
that will enhance the new venture’s value proposition. I am very pleased to announce the successful launch of AAR Global Solutions and look forward to a bright future with tremendous growth.”

Storch continued, “The parties are committed to providing high-quality solutions to our U.S. Government and international customers by bringing discipline and solid business practices to meet the unique needs and stringent requirements of this customer base. Our partners contribute an international presence and reputation to our efforts as we build this new company.” “AAR Global Solutions will open new government and defense markets to AAR as well as strengthen our ability to compete for global government services programs as a prime contractor,” Storch concluded.

“Through this joint venture, we’re able to offer customers a solution that combines our team’s extensive experience winning and managing large-scale government programs with AAR’s diverse and field-proven capabilities,” said Steve Cannon, Chief Executive Officer, AAR Global Solutions, LLC. “The new AAR Global Solutions team is excited to work with AAR CORP. and our strategic partners to pursue new opportunities to provide world-class, quality services to the U.S. Government and foreign customers.”

“Our strategic investment in AAR Global Solutions reflects my confidence in AAR’s reputation as a highly regarded service provider and a dynamic, entrepreneurial company. I am also impressed with the experience of Steve Cannon and his team,” said Earvin “Magic” Johnson, Chairman and Chief Executive Officer of Magic Johnson Enterprises. “One of our key strategies is identifying diverse business opportunities that strengthen our ability to address emerging markets and create community-based programs that we know will make a difference.” “The formation of AAR Global Solutions represents a unique opportunity to build a worldclass government and defense services organization,” said Frank Zaccanelli, Chairman of
Zaccanelli Investment Partners. “ZIP has a distinguished, successful track record with Steve Cannon and his team and is excited to combine its resources and capabilities with those of AAR and Johnson Global Services.”

AAR is a leading provider of products and value-added services to the worldwide aerospace and defense industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve aviation and defense customers through four operating segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems and Aircraft Sales and Leasing. More information can be found at www.aarcorp.com.

# # #

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information currently available to the Company, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, including those factors discussed under Item 1A, entitled “Risk Factors”, included in the Company’s May 31, 2008 Form 10-K. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company’s control. The Company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. For additional information, see the comments included in AAR’s filings with the Securities and Exchange Commission.

A400M Talks Continue

With the Paris Airshow coming up there is a great deal of pressure on EADS to be able to announce some good news at the premier showcase for their products. The company is looking at some severe issues on the military side with their major program the A400M facing push back from its customers.

This medium transport program is at a critical juncture as the nations looking to buy it have the right to end their deals and demand several million dollars worth of payments back from the company. England has been the most negative on the project as their budget problems overall are forcing an entire re-look at military procurement. Some of the other smaller countries such as Spain and Turkey have been more positive.

Now it is reported that talks between EADS and its customers have been extended once again to try and work something out. The hope is that more defense work will be able to balance off the decline in the civil aviation market driven by the world’s recession. Unfortunately like Boeing is facing EADS may have to deal with some major cuts to plans for U.S. defense spending. The FY 2011 budget may continue the large cuts to defense programs that Obama’s first one did.

Northrop Tries To Save Kinetic Energy Interceptor

Update — On June 10th the Missile Defense Agency (MDA) terminated the Kinetic Energy Interceptor (KEI) for the convenience of the government. This meant that all of Northrop’s lobbying to continue the program to at least conducting the first key test in the program was wasted.

Moving quickly like he has on the FCS and VH-71 programs the Secretary of Defense Robert Gates had another stop work order issued for a program recommended for cancellation in the 2010 budget. MDA told Northrop Grumman to halt the KEI program. This $4 billion contract had only recently been issued and the first test flight of the propulsion system was planned for later this year.

Congress has shown a great deal of support for this program recently and the decision to end it was not well received. There was some concern expressed that the program had not been given a chance to demonstrate its capability. The total missile defense budget saw almost a twenty percent cut with this and the Ground Based Mid-Course system making up the bulk of that money. The plan is to focus on the Navy’s system as well as shorter ranged Army ones.

Northrop has proposed that even with the termination of the program they will still be able to meet schedule and complete the booster test. This may be an attempt to sway Congressional and Administration support for continuing the program beyond 30 September 2009. If they really can meet this test schedule and the history of missile defense programs is not in their favor due to the complexities of the tests and technology then it might help them carry the program over.

A Northrop Grumman video on the program is below which is kind of amusing as it is done as a fake newscast:

England Vacillating On Next Batch Of Eurofighters

Back in May we had written that England would go ahead with the full buy of the next order of Eurofighter Typhoon modern fighter aircraft. This was based on the fact that the costs associated with canceling the contract would be prohibitive. There was also some hope that part of the aircraft could be used to fulfill foriegn military sales rather then seeing service with the Royal Air Force.

Now it is reported that the deal may fall through after all. England like America is faced with economic problems that have led to massive borrowing and an attempt to spend their way out off the recession. This means that funds are limited and the cost of the new aircraft fairly prohibitive. Not only will there be the cost of breaking the contract but several thousand jobs related to building the aircraft may be lost. The government is trying to renegotiate the price or the fees in order to save some money but time is running out. Germany has restated their support for the program and an intent to go ahead and buy the latest batch.

When the original contract was signed England did not imagine that they would not have enough money. It was they who insisted on the strict and high fees if the contract was not followed through on in an attempt to keep the other countries involved from leaving. This had happened several times in the past when NATO and the U.S. joined on various development and procurement programs.

Latest JSF Order Placed

The United States government acting for itself and its Allies awarded a contract to Lockheed Martin for the next procurement of the F-35 Joint Strike Fighter (JSF). The $2.1 billion contract option restructured an existing advanced procurement contract into a Cost Plus Incentive Fee (CPIF). It was the third option to an existing Low Rate Initial Production (LRIP) contract.

As part of this option seventeen aircraft were ordered for delivery by the first quarter of Fiscal Year 2012. Seven of the JSF will be for the U.S. Air Force and seven for the U.S. Marine Corps. One was purchased for Norway and two for Britain as part of the several JSF international partners.

JSF Second Engine Fighting For Its Life

One of the programs cut by Secretary of Defense Gates’ in his proposed budget is the second source for the F-35 engine. This has been a controversial program since its inception. Now with the plan to end the program Rolls Royce and General Electric are arguing it is cheaper and more sensible to continue the program.

The Air Force and Navy have always been ambivalent about the program but Congress has kept it funded. The fact that Congress cuts aircraft production to find the funding has raised the hackles of some people. Now that the Defense Department has decided to end the program the contractors, and their allies in Congress, are arguing that most of the planned money has been spent and the program should at least complete development.

Of course if the engine did go into production and was used to power some of the JSF aircraft to be used by America and its allies the amount of revenue available to GE and Rolls Royce as well as Pratt & Whitney who make the primary engine would be quite substantial. The second source providers say that the bulk of the $3.5 billion allocated to the program has been spent so rather then terminating the program at some cost just complete it.

As with all of these programs recommended for termination it will be Congress who will have the last say in the budget. But since Gates moved quickly to halt the contracts for FCS and VH-71 it wouldn’t surprise me to see a stop work order on this one as well.

Uncertainty About The Defense Budget In Ohio

Dayton and Columbus, Ohio are near Wright-Patterson Air Force Base (WPAFB). This is the location of the U.S. Air Force’s Material Command (AFMC) which oversees all acquisition for that service. As such a large number of contractors small and large have work and facilities there as they provide support to AFMC and the various research labs at WPAFB.

Two recent articles from Dayton’s media reflect the concerns people have about Obama’s future defense plans.

First WHIO reports that MacAulay-Brown, Inc. a local company has won two more contracts and may grow so much it will no longer be considered a small business by the U.S. Department of Defense. There are benefits in being in that category when it comes to bidding on contracts but a larger company is capable of winning bigger contracts with more value and work.

Second is the Dayton Daily News which writes that many companies are concerned with the plans to reduce contractor work forces and add government employees. Nobody is usre how that will work and if the jobs will go away in Dayton and be added somewhere else. Will all the current contractors involved in acquisition the prime work at WPAFB just be absorbed into the government or lose their jobs?

This kind of situation will be faced in communities across the U.S. large and small as the policy is implemented. The direct economic effect of all this could be highly negative if contractors are replaced by government people in D.C. or another state. It might not as the contract work force may just transition to civil service. The key economic affect of these jobs is the good salaries and the spending they generate. If those go away due to program cuts or workforce restructuring the effect on a community can be devastating. Look at what Owego, NY is now facing due to the end of the VH-71 program. This could be mirrored across the country in the months to come.

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