Defense Procurement News

The former Undersecretary of Defense for Acquisition, Technology and Logistics was quoted in a newspaper article criticizing Boeing for wanting a delay in submitting their proposal for the KC-45 recompete. Jacques Gansler who worked in the second Clinton administration said that because of the critical need for the new aircraft if Boeing cannot support the schedule, perhaps they should just not bid. He feels that it would not be proper for the government to give the delay in this situation.

For more see The Guardian.

Boeing is negotiating with the machinists union who make up the core of its workforce on both military and commercial aircraft. Today they sent their best and last offer. This includes the employees who will build the tanker for the US Air Force. So in the middle of trying to write and cost a proposal to the Air Force for a program that is seen as key to the company holding onto a market they are trying to prevent work stoppages. Strikes are the kind of thing that can kill a program’s schedule.

See Excite News for more.

Two Air Force personnel and three Afghan nationals were arrested over charges that bribes were paid to win contracts for military construction in Afghanistan. Two of the Afghans also resided in the United States. Supposedly a bribe of $30,000 was paid to the US Air Force officials to win a $1 M construction contract in 2004. Another bribe was paid later to win a road contract. Several US military and civilian personnel have been arrested and charged with contract related corruption in Kuwait, Iraq and the United States. With the amount of money going to the efforts in Afghanistan and Iraq there is always a chance for such crime.

There is more at The Wall Street Journal’s MarketWatch.com site.

The US Air Force has begun talks with Lockheed Martin on executing a multi-year procurement contract for C-130J aircraft. These would replace the Air Forces and other Service’s current inventory of C-130E Hercules. The contract could be for up to 110 aircraft and have a value over time of $6 B. Multi-year procurements must be authorized by Congress and they are typically done for aircraft and other large systems in order to save money over time.

For more see The Guardian’s Business Feed.

U.S. Rep. Joseph D. Courtney, from Connecticut, has written to Secretary of Defense Robert Gates to ask him to delay the renewed bidding for the $35 billion aerial refueling tanker contract. “It is important to get this decision right,” Courtney said, because it is “one of the most critical components of our national security.” Courtney is particularly concerned that there be adequate time for the RFP “to be vetted by the competitors and evaluated by Congress.”

The Pentagon is committed to a quick timetable, but Courtney argues that such an “unnecessarily aggressive timeline for a final decision, will once again tilt the outcome” in favor of EADS. Courtney is very interested in the process, because the Boeing tanker’s engines would be made by East Hartford-based Pratt & Whitney.

More details on Courtney’s letter can be found at Hartford Business.

After meeting with DoD and the US Air Force to discuss the new tanker RFP due to the GAO upholding their protest, Boeing is now saying that without significantly more time to prepare a proposal they may have to drop out. The new schedule is for the Boeing and Northrop Grumman teams to submit by the end of October with a decision before the new calendar year. Boeing is saying that they may need to bid a larger aircraft then the KC-767 proposed last time due to the fuel capacity and range requirements. A variant of the 777 would have to be used. Boeing supposedly is asking for a more then 180 day delay in the submissions. EADS and Northrop Grumman will most likely submit a tweaked version of their original winning proposal.

For more see The Wichita Business Journal and WashingtonPost.com.

In a contract that has fallen to the back burner recently due to KC-45 events, the Air Force announced that they would complete the recompete for the CSAR-X by September. Contract award would be soon after. The CSAR-X contract to replace the HH-60 PaveHawk aircraft was originally awarded to Boeing with a variant of the CH-47. Sikorsky and Lockheed Martin protested and won with the GAO ruling that the Air Force did not apply the selection criteria properly. The whole contract was recompeted with Boeing, Sikorsky and Lockheed resubmitting bids.

For more see this article at www.pressconnects.com for the Binghamton area.

This article in the Deutsche Welle provides a good round up of the current on goings of the KC-45 recompete. It reiterates that despite rumors on not participating in this round Boeing went ahead and had their meeting with OSD and the Air Force to discuss the RFP. Obviously there is a great deal of interest in Germany, and Europe as a whole, for EADS to win the contract. It would be the largest to date for a primarily European based company.

Despite reports earlier in the week, it seems that Boeing will pursue the KC-45 re-proposal. See a story here. The two possible contenders met with US Air Force and DoD representatives to talk through the new RFP. The goal of OSD is to award a contract by the end of the year. The tanker replacement process started 7 years ago with the new delays a KC-145 replacement may not be available until 2012-2014.

Rumors are swirling that Boeing may not bid on the new contract for the KC-45. See an article here. Supposedly Boeing is piqued that the new requirements supposedly favor Northrop Grumman and EADS and will not submit a bid. If there is only one bid it may require the whole process to start over again, of course if DoD and the Air Force change the requirements EADS could claim the same thing and the whole program will get stuck. Unfortunately DoD and the Air Force have to do the new process as GAO upheld the Boeing protest. More to come on this very complicated story.

AAR RECEIVES 10-YEAR CONTRACT TO SUPPORT
HONEYWELL TECHNOLOGY SOLUTIONS INC. AT HILL AIR FORCE BASE

WOOD DALE, ILLINOIS (July 31, 2008) - AAR CORP. (NYSE: AIR) announced today that it has
been awarded a 10-year contract to provide logistics support services to Honeywell Technology
Solutions, Inc. (HTSI). HTSI provides logistics services and depot maintenance support for the
B-2 Spirit stealth bomber and C-130 Hercules aircraft at Hill Air Force Base.
“AAR is very proud to support Honeywell Technology Solutions, Inc. and the U.S. Air Force,”
said Timothy J. Romenesko, AAR’s President and Chief Operating Officer. “This adds to the
growing list of strategic Air Force assets supported by AAR and is a testament to the flexibility
and scalability of AAR’s supply chain management capabilities.”
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-thecustomer
business model to serve aviation and defense customers through four operating
segments: Aviation Supply Chain; Maintenance, Repair & Overhaul; Structures & Systems and
Aircraft Sales & 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 publicly release the result of any revisions that may be made to 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.

This article describes the economic effect of the Army decision to begin pushing components of the multi-system Future Combat System (FCS) out-the-door faster. Due to this decision several hundred million dollars are flowing to Arizona companies earlier then originally planned by the Army. The two systems with the most effect are the non-line of sight missile system that uses a box launcher with integrated fire control and several unmanned systems. The Army benefits two ways by this type of decision; first, they get needed technology upgrades into the field earlier; and secondly they get testing under real world conditions.

Picture by Derek Farr

General Dynamics as part of the Mobile User Objective System (MUOS) satellite base communication network installed the antennas for the first of four groundstations. See a press release here. MUOS will provide a cell phone like communication system through satellites. It will eventually have four ground stations with the first being in Hawaii. This system continues the US focus on upgrading communications through more use of satellites.

The US Air Force awarded an omnibus maintenance contract. Northrop Grumman was one of the twelve companies that qualified for the contract. See the press release here. If all parts of the contract are executed the value could be as much as $10 B. Normally how these contracts work the government, here the Air Force’s depots, will issue task orders which the qualified companies may bid on. There is no guarantee that any work will be awarded or any company will get work.

In light of the GAO report the USAF and DoD decided to recompete the new tanker contract. See an article here. This, like the CSAR-X, means that a whole new competition will be held. The Air Force will rewrite the RFP and Boeing and Northrop Grumman will resubmit proposals. Much of the work preparing these will be already done which will speed up the process for the bidders.

Alliant Techsystems was awarded a contract by the US Air Force to provide sounding rockets for it and NASA’s use. See a press release here. Sounding rockets tend to be small, single stage rockets that stay suborbital. They can be used to simulate targets for ballistic missile defense tests and experiments, and also support NASA activities and experiments. One common use before the Test Ban Treaty was to collect data from nuclear tests in the Pacific and the American West.

Lockheed Martin was awarded a contract by the US Air Force for production of 111 Joint Air to Surface Standoff Missile (JASSM) and related services. The contract has a value of $107 M. See the press release here. The missiles will be produced at the company’s facility in Troy, AL. The JASSM has now had over a 1000 units ordered with a production goal of 4,000. For more on the system you can read Wikipedia here.

The GAO released a summary of why they upheld the protest by Boeing over the KC-45 award. See an article here. The chief reason was due to the Air Force’s failure to properly apply the criteria for source selection. Of the several reasons listed two ones that stand out is that they gave EADS credit for exceeding a requirement when they should not have, and rather than just noting the risk associated with the Boeing bid the Air Force calculated a dollar figure to overcome that risk. This alone drove up the cost proposal of the Boeing K-767 aircraft. The Air Force technically still does not have to withdraw the award to Northrop Grumman and EADS, but they would be best off reopening the competition.

URS Corporation’s EG&G division won a contract from the US Air Force to support testing at Holloman Air Force Base. Hollaman AFB is collocated with White Sands Missile Range (WSMR) and Sandia National Labs in New Mexico near where the first atomic bomb was detonated. An article is here about the win. EG&G was a defense contractor dating back to WWII that eventually was bought by URS Co. The contract will support US Air Force radar cross section testing.

EADS shares are down in Europe, and I am sure Northrop Grumman’s will also drop today. See this article. The market is assuming that the Air Force will follow the GAO’s recommendation and reopen the competition. EADS performance has been heavily affected by the delays to the A380 and the scandals with their management. Also they have labor issues as they try to sort out the French-German split and make themselves more efficient. There is still a good chance that EADS will win the new competition.

In this article entitled Boeing Wins Tanker Protest, But Drama Is Far From Over, the Seattle Times states:

The saga of the Air Force refueling tanker contract is not over by a long shot, though Boeing won a huge victory Wednesday when the Government Accountability Office (GAO) comprehensively backed the company’s protest of the initial contract award.

Read the original article here.

Goodrich announced that they received a subcontract from Lockheed Martin to provide engine pylons and casings for the C-5 Upgrade Program. See a press release here. The contract is worth $600 M and indicates the size of the total program. As the US is now dependent on a fleet of C-5 and C-17 aircraft continued extension of the life of the C-5 is critical to supporting combat operations in Afghanistan and Iraq.

The GAO ruled today in Boeing’s favor on the KC-45 protest.  They decided that the Air Force failed to properly apply its source selection criteria and did not calculate some of Boeing’s costs correctly.  See a story here.  The GAO recommended that the competition be reopened.  This is what happened with the CSAR-X contract, ironically enough won by Boeing but now back in source selection.  The Air Force is not required to follow the GAO’s recommendation, but if it does not Boeing is sure to go to the Court of Appeals and Congress could make it very difficult for the Air Force to execute the contract.

The US Air Force placed a contract wit Lockheed Martin for six HC/MC-130J aircraft. This $470 M award was using the FY08 Advanced Procurement with the rest of the order being paid for in FY09. See a press release here. These aircraft will most likely support operations by US Special Forces Command, and are a variant of the C-130J that has been purchased by the USAF, Marines and foreign companies for the last few years.

This article describes a belief that Boeing will move to the next protest step, the Federal Court of Appeals, if the GAO doesn’t rule in its favor. This is not unprecedented, many protests have moved on to this final step. The idea that the Court would continue to put a hold on the contract may not be so true. The Court of Appeals still will most likely rule the way the GAO did, it is very rare that they overturn such a decision. Anyway it seems that this contract fight will continue, the loser being the US Air Force as they wait for a new tanker.