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Looking for a Mission and a Buyer: The A400M in America

The European defense conglomerate EADS (EADS:P) has been working for several years to develop the A400M “Grizzly” transport aircraft. This advanced turboprop transport falls in between the two Western standard aerial transports Lockheed Martin’s (LMT) C-130J and Boeing’s (BA) C-17 in terms of size and capacity. EADS is also advertising its ability to fly from short, unimproved airfields when compared to the two U.S. Air Force basic aircraft. In this way the A400M is more like traditional Soviet transports where this capability was emphasized over other characteristics. EADS would like to sell the A400M to the U.S. military as well as other foriegn customers to help with the total cost of the program and perhaps even make a profit.

The problem they face is that the United States has invested over the last twenty years in a fleet of C-17 and C-130 to augment their heavy lift C-5 which is about to be upgraded. There is little requirement for a new transport even if it is offers advantages over the current aircraft. In fact the U.S. believes it has too many C-17 due to Congress’ adding buys over the Air Force’s acquisition objective for the last several years. It looks like the 2011 budget will not contain any more C-17 aircraft when it is finally completed. This means that EADS is looking for an uphill climb to sell the aircraft in the U.S. just from a requirement stand point.

The A400M has had a troubled development history ending up being two years late and much more expensive then planned. EADS has renegotiated the contract it had with its European customers to try and adjust for these issues. The problem they face is that to try and make the money up they will need to sell much more then originally planned. This means they must look for overseas customers in a crowded market. Only two countries had planned to place Foreign Military Sales (FMS) orders for the aircraft: Malaysia and South Africa. South Africa canceled theirs due to the cost increases. While the domestic customers state commitment to the program they also could readjust their quantities putting even more cost pressure on the aircraft program.

Unfortunately the delays in the A400M means it missed some potential orders that it might have been able to bid on if the original schedule had been met. The demands of fighting in Afghanistan have increased the need for tactical transports like the A400M but the C-130J has been able to win a great deal of contracts that the A400M might have. Lockheed has a hot production line in steady state that provides availability and cost stability. The A400M was several years in the future with some unknowns when it came to cost.

Another problem that EADS must face is the U.S. political opposition to buying non-domestic aircraft. While they are bidding on the KC-X against Boeing there is a lot of criticism of the Air Force for even allowing their bid. Partly this is due to concerns about “U.S. jobs” and just the normal chauvinism present in any large arms deal. Due to declining industrial base issues the U.S. has to consider an EADS bid if they want any competition on the KC-X. The transport market is a little more diverse and EADS could face competition from more then one U.S. manufacturer making it hard to make the KC-X argument for any new airlift mission.

Another cautionary tale for the A400M is the U.S Army’s planned Joint Cargo Aircraft (JCA) program. The Army originally wanted to purchase an aircraft smaller then a C-130 to provide lift in Iraq and Afghanistan between bases. As the name implies it became a shared program with the Air Force partly because they buy fixed wing aircraft and the Army has a very limited fleet of tactical transports and ISR assets. The program ended up purchasing the C-27 Spartan an Italian made aircraft through a contract with L-3 Communications (LLL). In the 2010 budget reforms the program was transferred to Air Force management and the plans to buy aircraft significantly scaled back. The JCA faced issues as it didn’t fit with the Air Force plans even if the Army wanted it. The A400M will face the same issues.

Once the A400M enters service it may prove to be a very capable, effective aircraft. Unfortunately to break into the U.S. market it may be too late as the defense budget declines and the C-5, C-17 and C-130 fleet soldiers on.

Photo from Ronnie Macdonald’s Flickr photostream.

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Criticism In Malaysia Of Sole Source Submarine Contract

In 2002 the Malaysian Government signed a contract to purchase two advanced diesel electric submarines from European manufacturers. The contract was worth about $1.5 billion. The first vessel has already been delivered and the second will be next year.

The opposition parties are criticizing the government for not doing the contract through competitive bids but rather sole sourcing it to France’s Aramis and Spain’s Navantia. The normal practice in Malaysia is to competitively bid large contracts but the Government defended the contract as protecting defense information. The argument must be that since no public RFP was put out only the builder learned about the requirements and capabilities needed. It is rather a strange argument unless there is an acceptance that only domestic suppliers can be trusted and as in this case there were none.

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