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Indian Aviation Modernization Moving in Fits and Starts

The Indian government has been trying for several years to procure new helicopters for its Army and Air Force. Some of the attempts have failed due to contract issues including problems with corruption. The supplier base has also been expanded as India has changed its offset laws and made it easier for U.S. companies to participate. This has allowed contracts to be awarded beyond the traditional U.K. and Russian contractors.

Recently it was announced that Boeing (BA) would receive a contract for 15 CH-47 cargo helicopters and 22 AH-64 attack helicopters. This could be worth up to $2.4 billion for the Chicago based aerospace and defense contractor. The CH-47 have seen a great deal of use in Afghanistan due to its capability at high altitude. The addition of the CH-47 and Apache attack helicopters represents a significant improvement to current capabilities.

At the same time a contract for a new utility helicopter is facing cancellation. Augusta Westland, a Finmeccanica subsidiary was awarded a contract for 12 AW101 helicopters for VIP transports. Now this contract award is under investigation in Italy. As part of this it came out that an officer involved in the new tender which is now reaching the point of near award intervened on Augusta’s behalf to make the requirements more palatable. AW was eventually eliminated. Currently a Eurocopter and Kamov aircraft are in contention.

Because of the potential corruption in the process India might be forced to abandon it and try again. Augusta Westland also faces a ban on bidding on future contracts. This will lead to a delay in the delivery of the aircraft as well as limit those vendors. The VIP aircraft contract is currently planned to continue.

Corruption has historically been a problem with arm sales, especially those overseas. The U.S. has very strict laws governing it but not all country’s do.

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Contract Fraud is Universal as Mitsubishi Electric Hit with Ban

The issue of fraud, waste and abuse has been a constant in defense contracting since the first piece of equipment was sold to a soldier. It could be rotten food in the Civil War, poorly made weapons or just simple overcharging or substituting inferior work for what the contract requires. Even in this day of lawyers, strong contracts, inspections and high technology these issues still occur as people look for ways to get more money out of their customers. In Japan the second largest defense contractor, Mitsubishi Electric (TSE) is now facing a ban for falsely inflating contract costs.

Reportedly not only the defense ministry has suspended the company but also the Japan Aerospace Exploration Agency (JAXA) and the Cabinet Satellite Intelligence Center will also stop doing business with Mitsubishi Electric. The company is making different things related to the country’s space program for JAXA and developing a intelligence satellite for the Intelligence Center.

The company has been found artificially increasing the number of workers and hours billed for on a contract to produce the Type 03 surface-to-air missile. This is a vehicle mounted system that uses IR and radar guidance and reportedly has a range of about 50,000 meters.

In 2010 Mitsubishi Electric was working on over $1.5 billion in contracts for Japan making missiles, electronics and other equipment. The suspension currently means that it cannot get new work. A further inspection of other contracts is expected to begin in the near term.

The suspension is it last a significant length of time will affect the company as it will limit opportunities for new work. The company may also see it paying money back to the government and fines and charges that could affect the bottom line. Long term it will have to remain as a viable contractor for Japan due to the type of work it does and the requirements of the armed forces. Unfortunately in this time of very few defense contractors it is hard to ban or suspend permanently any one company.

Japan has not been immune to these problems. In 2010 the Japanese Air Self-Defense Force who most likely contracted for the Type 03 was investigated and many officers and officials charged with bid rigging and bribery. Bribes were being used to steer contracts for office equipment and supplies to preferred vendors.

These cases illustrate that when large amounts of money are involved there is a great deal of temptation to try and make profit and get rich off of it in ways that short change the customer, tax payer and the user.

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Army’s Plans to Halt M1 Abrams Refits Portend Fights Ahead

The U.S. Army has proposed to halt work on M1 Abrams tank refits in 2013 for a period of three years. This means that rather then spending about $500 million a year in the Warren, Michigan area it will use the money for other means. The local government and members of Congress are not happy about the decision. The major contractor involved, General Dynamics (GD), is also ramping up their lobbying to protect the work.

The M1 has been in production for the U.S. Army, Marine Corps and Allies since the 1980’s. Now the major work for the U.S. is upgrading, modifying and refitting the vehicles as they return from the fighting in Iraq and Afghanistan. GD is also building the system for several foreign customers. Much of the work is managed from Michigan and done in various places including Anniston Army Depot in Alabama.

The Army has proposed a three year stop to production and work as they feel the current fleet of tanks meets their needs. The goal is to save over a billion dollars in the proposed FY12 budget which would be reprogrammed for other uses. This proposal has met with criticism as a blow to the U.S. industrial base as it would be the first gap in U.S. production of such systems since the 1930’s.

Congress of course has the final say in the proposal being able to write into the Defense Budget money to keep the line open and work continuing. The House has kept about $250 million in the budget for sixty tanks which is less then the current average funding but it would keep the line open. A three year stop would require layoffs by GD and also may require work to re-certify the line and the ability to bring back workers to meet the needs in 2016 when the Army plans to restart production.

It would not just be GD that would be affected but also all of their various sub-contractors and suppliers. The gap may require GD to find new suppliers able to build the parts as some companies may stop making or keeping the ability to produce the parts needed as they turn to other markets. In today’s economy it is hard to just stop work for three years and then be expected to start it up again. There would be an economic cost to all of this some of which would be paid for by the Army offsetting the savings to the budget due to the halt.

All this portends many other battles if and when the U.S. military begins to make similar cuts across their budgets. Every program cancelled or scaled back will have an economic effect on some Congressional district, companies and employees. All three groups will fight to keep it even if the Defense Department and Obama Administration claim there is no need for it. This small battle – and $1 to 2 billion is a small part of a $700 billion budget – will occur again-and-again as the U.S. tries to deal with its budget crisis and the winding down of Iraq and Afghan operations.

Photo from Michigan Municipal League Flickr photostream.

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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.

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Congressman Murtha Makes Inefficient Recommendation for KC-X

Congressman Murtha, the powerful Democratic head of the House Appropriations Subcommittee for defense, was visiting Mobile, AL and made a rather stupid recommendation for the KC-X program. The Seattle Post-Intelligencer reports that he said the Air Force should split the work between Boeing and the EADS-Northrop Grumman team. Unless the military is going to buy large numbers of a system — and 150 odd tankers does not count — the costs associated with having two training, support and parts systems are unjustifiable. The aircraft would also end up more expensive as there is less economy of scale available with small lot buys. Murtha is just trying to split the knot but the suggestion is not practical.

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US Air Force bans Alliant Techsystems from bidding on contracts

According to the Minneapolis Star-Tribune, the Air Force has temporarily banned Alliant Techsystems from bidding on contracts due to a lawsuit filed by a former employee related to the company’s flares. See the article here. Alliant is appealing this decision, but in the short term will not be able to bid on any contract until the case is resolved. Because it is a whistleblower case the US Department of Justice is involved.

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