Navy Awards Contracts for New Ship Components

The building of a modern warship requires not only the initial large contract with the builder but numerous other ones to buy components and support for the actual ships. Other systems are purchased with separate contracts and then items are provided to the builder for installation on the ships as they are assembled. The U.S. Navy is currently building new aircraft carriers, missile destroyers, Littoral Combats Ships (LCS), amphibious warfare ships as well as support vessels.

The LCS is being built by 2 different yards under 2 separate contracts. The LCS-1 design are made in Wisconsin by Marinette Marine and Lockheed Martin (LMT). The LCS-2 in Mobile, AL by Austal America and General Dynamics (GD). While they have dissimilar hull designs the basic weapon fit remains the same and both will carry mission modules. Up to 20 LCS are on contract to be built with the Navy periodically issuing contracts for 2 from each builder.

2 related contracts were recently awarded to support U.S. Navy ship construction. First General Dynamics (GD) received one for 8 MK 46 Naval Weapon Systems. The MK 46 is a 30mm cannon mounted in a stabilized turret. These will be installed on LPD-12 amphibious assault ships and the LCS. The contract is worth $26 million and is a follow on to previous contracts under which 30 systems have been delivered.

Then ATK (ATK), the ammunition and explosive manufacturer, received a contract for 30mm ammo. This $12 million contract is for incendiary rounds for the MK 46. It is a 5 year Indefinite Delivery / Indefinite Quantity (ID/IQ) contract with 1 base and 4 option years. As an ID/IQ the Navy will order off of the contract what is required to outfit ships with the Mk 46 weapon.

With Sequestration and the budget reductions recently passed by Congress and agreed to by the Obama Administration FY13 will probably not see many more major contracts awarded. There may be many though like these to support bigger programs already underway.

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More Missile Defense Work for Raytheon

As the Fiscal Year 2012 comes to an end contracts continue to be awarded although they should dry up as the government moves to begin closing out the books on this year and begin executing next year’s budget. FY 2013 looks to start with an extended Continuing Resolution Authority (CRA) which could limit what can be done with available funds.

One program that has had steady awards is Raytheon’s (RTN) work producing the SM-3 missile for the U.S. Missile Defense Agency (MDA). The SM-3 is part of the ship based AEGIS system and is optimized to engage enemy ballistic missiles. Further versions are being developed to deal with more complicated and longer range threats but the SM-3 has been tested several times in Hawaii and is equipping the U.S. and Japanese AEGIS ships.

The most recent award was for 19 missiles and has a value of over $200 million. This follows a contract awarded in July worth almost a billion dollars for development effort for a new version of the missile.

Raytheon is building a new facility in Huntsville, AL to produce the SM-3 missiles.

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Exclusive Article at Seeking Alpha on EADS Move to Alabama And Spirit Aerosystems

This is an article I wrote for Seeking Alpha discussing the decision by EADS to build a facility in Mobile, AL and its potential affect on Spirit AeroSystems.

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U.S. Continues Investment in AEGIS Ashore

The AEGIS system is the primary ship based anti-air warfare weapon used by the U.S. Navy and some allied Navies. It consists of radars, fire control software, vertical and rail launchers and version of Raytheon’s (RTN) STANDARD missile. It has been in use since the 1970’s and consistently upgraded.

Using modified software and the SM-3 missile it provides ballistic missile defense. The SM-3 has the ability to engage targets at high altitude. More advanced models of the SM-3 are being developed with a new plant being constructed in Huntsville, AL at Redstone Arsenal.

A few years ago the Obama Administration decided to end deployment of the Ground Based Mid-course system in Europe. That Army operated ballistic missile defense program now has interceptors based in Alaska and sensors across the globe. A similar installation of interceptors was planned for Eastern Europe but it was decided to pursue other ways to provide the defense for NATO allies.

Part of this is to take an AEGIS system and base it on the land. This “AEGIS Ashore” will make the majority of the ship installed components and make them transportable. This includes radars, fire control installations, the SM-3 and a version of the Mk 41 Vertical Launch System.

BAE Systems (BAE:LSE) is the manufacturer of the Mk 41 through the acquisition of a U.S. defense contractor several years ago. The just received a further contract for Mk 41 components for both AEGIS ashore and new DDG-51 class destroyers. This contract has a value of about $23 million.

The contract will see Mk 41 components for DDG-116 and parts of the AEGIS Ashore installation. The use of the Navy’s missile system to provide land based missile defense is rather innovative and combined with ship based systems as well as the Army’s shorter ranged PATRIOT and THAAD provide some layer of defense for an area.

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Austal Gets Their 2 Littoral Combat Ships As Well

Following up on this mornings post about Lockheed Martin (LMT) getting a contract for two more Littoral Combat Ships (LCS) is an announcement that Austal USA, Austal’s American subsidiary, received a contract for two of their design as well.

The option for LCS-10 and LCS-12 was announced today. This is the third and fourth ship under the 10 ship contract the company received a little over a year ago. The ships will be built at Austal USA’s Mobile, AL yard.

LCS-10 will be named for Representative Gabrielle Giffords (D-AZ) who is recovering from an attempted assassination attempt.

Photo from Official U.S. Navy Imagery flickr photostream.

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Two More Littoral Combat Ships for Lockheed and Marinette Marine

The U.S. Navy in late 2010 awarded contracts to the two teams building the new Littoral Combat Ships (LCS) for ten platforms each. These were Lockheed Martin (LMT) whose mono-hull design will be built at the Marinette Marine yard in Wisconsin and Austal America in Mobile, AL. Austal America is the U.S. subsidy of Austal (ASB) the Australian manufacturer of fast ferries. The Austal design utilizes a catamaran hull.

Prior to these contracts each team was building two of the small warships. They have received orders under the new contract for two more and last week the Navy issued Lockheed a contract worth about $700 million for two more. This brings the total of LCS under order from Lockheed to six.

The Navy ultimately plans to operate 30 or more of the ships. They are designed to be equipped with different mission packages depending on the requirements. This includes anti-air, anti-ship and mind warfare among others. Like their name implies they are optimized for in-shore activities such as anti-piracy operations in the Indian Ocean and special warfare.

Even though the defense budget is being cut the Navy remains committed to building substantial numbers of the ship. The fact that it is built in smaller yards allows such construction.

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Recriminations in Kansas for Boeing

As can be expected with Boeing’s (BA) decision to close their Wichita, KS facility and move work to Washington and Texas the politicians who represent the state are not happy. Many Congressman and Senators who provided support to Boeing to win the KC-46A contract from the U.S. Air Force feel betrayed.

They cite the fact that Boeing executives basically promised the work would be done in Kansas if the contract was one creating thousands of jobs in that state.

The Mayor of Wichita, Carl Brewer, feels the same way. He claims Boeing has betrayed the city by their decision. Wichita has invested millions of the taxpayers money in the plant which has been open since the 1930′s and built bombers during World War II and the Cold War. Now in about 24 months it will stop work and the jobs will be eliminated or moved.

The decision by Boeing based the company claims on cost considerations alone highlight what may happen across the U.S. as the defense budget shrinks and programs are cut or eliminated. Similar scenes have happened before in the 70′s and 90′s as military spending has been reduced. Wichita may be the first of many cities this time around.

That, of course, does not make those who supported Boeing feel better but now they may join the Florida and Alabama representatives who tried to aid Northrop Grumman (NOC) and EADS North America, part of EADS (EADS:P) who worked for those companies to win the KC-X contract. The goal for them of course was investment and jobs in a time when manufacturing ones are hard to find.

As government spending is cut back there will be many other politicians crying foul.

GD to Begin Design of Mine Warfare System for Littoral Combat Ships (LCS)

The Navy’s new Littoral Combat Ships (LCS) are small combatants that are optimized for missions in-shore. They are being designed to operate different modules depending on the missions that will add to and expand the capabilities of their standard gun and helicopter armament. One primary mission for them will be reconnaissance and clearing of minefields.

Currently there are over 20 LCS on order from two different builders who are offering two different designs. Lockheed Martin (LMT) and Willamette Marine are building a more traditional hull design while Austal USA, part of the Australian shipbuilder Austal, is offering a trimaran hull based on fast ferries they have previously built. Lockheed’s ships are being built in Wisconsin and Austal in Alabama. The decision to use two suppliers means that the LCS will be built and in service rather quickly.

Even though the two designs are very dissimilar they will operate the same weapons and combat modules. These will include ones that provide capabilities for the anti-air mission, to attack ships and mine warfare. The modules will be designed to plug into the ships.

Now General Dynamics (GD) has been awarded a contract to begin developing one of the mine warfare systems for the LCS. This is the Surface Mine Countermeasure Unmanned Underwater Vehicle (SMCUUV) which is an autonomous system that will be used to search and classify mines. It will also collect environmental data to support operations. The contract has an initial value of $87 million.

More details about the SMCUUV may be found at the U.S. Navy’s website here.

The key to the LCS will be the ability to develop these modules and make sure that they work efficiently with the two different designs of ships.

Photo of the Austal design from Surfaces Forces’ Flickr Photostream.

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SAAB to Provide Training Targets for U.S. Army

The U.S. defense budget encompasses spending on all different types of products and services. The increase in spending after 9/11 required a ramp up of suppliers for all of the things the Pentagon wanted to buy. Due to the shrinking of the U.S. industrial base in the Nineties after the “Peace Dividend” was executed by President Clinton and Congress this meant for some items the U.S. had to turn to foreign suppliers. Many of these defense contractors also expanded their U.S. operations through mergers & acquisitions of U.S. based corporations.

That did not mean, though, that some suppliers had already entered the market. Swedish aerospace company SAAB (SAAB:Stockholm) has been delivering training targets to the U.S. Army since the 1970’s. They continue this work with qualification on a recent Indefinite Quantity/Indefinite Delivery (ID/IQ) contract to supply these targets. SAAB is one of five contractors qualifying and they could win up to $475 million in orders if all parts of the contract is executed.

SAAB has been providing similar systems since 2002 for the Army and Marine Corps. The targets will be used on different ranges to support weapon qualification and training.

SAAB recently won a major contract to install their Sea Giraffe radar system on U.S. Navy Littoral Combat Ships (LCS). The radar will be used by the Austal America version of the LCS built in Mobile, AL. The shipbuilder’s parent company is Austal in Australia so the program has a definite international flare.

Even though the U.S. defense budget is expected to decline significantly over the next decade that does not mean international providers will be forced out. Many of them have a substantial U.S. presence now and some provide products necessary for the U.S. There will also be contracts that they will win because they have the best bid but it will become harder for them to do this.

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Waste, Fraud and the Federal Budget

Some of the issues that are going to be faced by Congress and its “Super Committee” when it comes to reforming Federal spending are those of waste and corruption. Governments spend a lot of money each year on everything from salaries, aircraft, social programs and even muffins. This leads to those who want a piece of the money without necessarily working for it or providing what is required. It also means that without layers of expensive audits and review which do exist there is always a chance the money is not spent correctly or properly. As The Washington Post once said (perhaps apocryphally) “The Government doesn’t buy things efficiently but ethically.”

Some recent cases only highlight the issues faced by procurement and contracting officials. One that got a great deal of publicity was an Inspector General’s investigation of conference costs from the Department of Justice. Their analysis found hotels charging the agency $16 for a muffin. Now of course it turns out the hotel invoiced improperly but it still looks bad that the government at this time of large deficits would be spending money on such items. The result, predictably, is another layer of review and approval for conferences.

Another issue that is more important due to the amount was that the Government is unable to track its retired work force properly and this has led to payments of over $120 million a year to deceased persons. Sometimes this is due to fraud by the relatives of employees but most of the time it is because they don’t know that person is dead. Now $120 million in a budget of $3.5 trillion is a small amount but again it illustrates how hard tracking all of the expenditures is.

Then there is just outright contractor greed and crime. There are lots of ways for corrupt companies and Federal employees to take advantage of the procurement business.

Two recent examples illustrate this problem. In the first a small defense contractor has been charged with paying bribes to two contracting officials to get them to award his company a contract for a security vehicle to be used in Afghanistan. The bribes only totaled $20,000.00 and the contract was for $200,000.00. Reportedly they all knew each other from service together in the Army. Then to make it worse he didn’t deliver the product. Direct bribes like this are not common and the Federal government has been cracking down on this in the last few years. In 2010 the Justice Department got a settlement from the British defense contractor BAE Systems (BAE:LSE) for bribes to gain a major Saudi contract. There have been other recent cases involving KBR (KBR) and the Dutch company Siemens as well.

In another example a company in Alabama paid a settlement with the Justice Department over charges that it pretended to be located in a Historically Underutilized Business Zone (HUBZONE) when it was not to gain a competitive advantage. HUBZONE’s are for areas, predominantly minority, that haven’t received a great deal of Federal contracts. To spur investment in these areas the Government weights contract evaluations or sets aside contracts for these companies to help them gain work. The company here said its offices were in the HUBZONE when they were actually located in a nearby major office park. The company was able to win a set aside contract through this deceit.

The Federal and State Governments have a great deal of programs like this to help disadvantaged groups and companies. These include special programs for businesses owned by Native Americans, minorities and women. There is a temptation to take advantage of these to gain work by companies that shouldn’t qualify. For smaller business one or two contract may make a big difference in their bottom line and the compensation of their executives which leads to temptation. The chance of audit and review seem low leading to these cases.

When you are spending billions each year it can sometimes be hard to keep track of the little things. This is one of the reason there is fraud and waste with government spending. The Government needs to do a better job of following their spending and the contractors they use. At the same time layers of review and regulation may not fix the problems. Another way would be to reduce the number of special and set aside programs to limit temptation. This would also improve the ability to award contracts in a timely fashion. Every layer of review and audits delays processing of the contract and payment of the contractor.

As the Federal Government shrinks spending there will be more cases of fraud and crime as the temptation for contractors to keep the work they have and fight over the smaller pie of contracts will increase. That means companies will potentially use bribes, falsified status or other means to win them. The Government will also have to do a better job of eliminating problems to maximize the value of their remaining dollars. There will be a whole sale shift in some practices in theory such as eliminating things like conferences and travel in order to economize. Changes such as this will take time and to be honest may never happen leading to more deficit spending and waste.

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Missile Defense Agency Buys a Billion Dollars Worth of Interceptors

Even with the current budgetary situation in the United States where the Defense Department and the rest of the Federal government is operating without a budget and faces a possible shutdown in a week’s time the U.S. continues its operations in Afghanistan, Iraq and Libya as well as working on existing defense programs. Part of this is the Missile Defense Agency (MDA) keeping its different programs going with the announcement of two major contracts in the last few days.

First Raytheon (RTN) received an order for 24 STANDARD Missile-3 (SM-3) Block IB missiles for use on Navy cruisers and destroyers to intercept ballistic missiles. This contract is worth about $312 million. The SM-3 is an evolutionary design based on the SM-2 air defense missile in use by the United States and some Allies since the early Seventies. In the SM-3 configuration it carries an exo-atmospheric kinetic kill vehicle that will engage the target at high altitude. The MDA and Navy have been developing and testing the AEGIS weapon system based program since the mid-Nineties.

Raytheon is also investing several million dollars in a new facility at Redstone Arsenal, Huntsville, AL to manufacture the SM-3 and its replacement the SM-6. It is expected that ground breaking on the complex will happen fairly soon.

Lockheed Martin (LMT) who manufactures missiles for the Army’s PATRIOT PAC-3 and THAAD systems also received a production order. This was for 48 THAAD missiles, launchers and support equipment. That contract has a value of almost $800 million. The Terminal High Altitude Area Defense (THAAD) is the longer ranged of the Army’s ground based programs. This contract represents a major expansion of the number of THAAD units for the Army. The United Arab Emirates (U.A.E.) has also looked at buying the THAAD system to provide protection for itself.

If you are doing the math that is over a billion dollars for 72 missiles and related support equipment and services. Missile defense is neither cheap nor easy and indicates the U.S. intent to continue development and deployment of their layered defensive system.

Photo from the U.S. Missile Defense Agency flickr photostream.

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And the Winner is Boeing!

The U.S. Defense Department and Air Force announced that Boeing (BA) has been selected to provide the new KC-X aerial tanker. The design submitted by EADS NA (EADS:P) was not chosen.

The new KC-46A will be based on Boeing’s 767 airliner design.

The Secretary of the Air Force, Mr. Michael Donley, stated that the decision was based on “mission effectiveness in wartime and life cycle costs as embodied in fuel efficiency and military construction costs”. This might be a hint that the larger KC-30 aircraft from EADS might have required more investment in new and bigger facilities then the smaller 767 tanker.

The contract has been very political with states that stand to gain thousands of jobs from the program using their Senators and Representatives to push for the respective bidders.

EADS does have the right to protest the decision as Boeing did in 2008 when the contract was awarded to Northrop Grumman (NOC) and EADS. They will have to wait until their debrief by the Air Force before making any decision about that.

Even an unsuccessful protest may delay the start of the program for several weeks and the Air Force plans on receiving the first 18 aircraft in 2017. The new KC-46A will replace Cold War era KC-135R tankers some of which have been flying for fifty years.

Cross posted at Defense Procurement News.

Air Force Plans Award Before April 1st

Despite the current issues with defense funding the Defense Department and Air Force reportedly said that they hope to award the KC-X aerial tanker contract within a month. The budget sent forward for 2012 on Monday stated that the planned contract was valued at around $35 billion.

It sounds like that even with the Pentagon acting under a continuing resolution rather then an official budget that at least the winner will be announced. There is some concern that without a 2011 budget resolution from Congress a new contract of this magnitude might not be able to be awarded. This means that the Air Force will have to wait until October 2011 to have initial funding for the purchase of the new tanker.

The KC-X saga is heavy with political overtones as supporters of both Boeing (BA) and EADS (EADS:P) in Congress continue to lobby OSD and threaten problems if their preferred source is not chosen.

The Air Force has been trying since early in this decade to buy a new tanker and this award may be the last step towards doing that. Although the chances of a protest by the loser remain high and the current budget situation between President Obama and Congress may make it difficult to get the funding resolved anytime soon.

Reports Final Proposals Due Next Week for KC-X

Both Boeing (BA) and EADS NA (EADS:P) have met with the U.S. Air Force reportedly to discuss final changes to the KC-X RFP. The companies have until 11 February to submit their final revisions to their proposed solutions to the new aerial tanking requirement.

Boeing has said that they will update their proposal although EADS NA has said they may not. Swirling around all of this final burst of activity is the concerns by some in Congress, the media and at the bidders about the accidental release of information by the U.S. Air Force to each team as well as the two World Trade Organizations (WTO) rulings on both companies receiving illegal subsidies.

Some Boeing supporters in Congress are now saying that the data release gives EADS an advantage and that there should be deeper investigations. The Air Force “reassigned” two personnel as punishment and Congress did have hearings last week about the matter. Washington state, Illinois and Kansas legislators all from states that stand to gain work if Boeing wins sent a letter to the DOD IG asking them to look to see if the data released skewed the contest in EADS’ favor.

All of these conditions make it seem inevitable that there will be a protest to the contract award no matter who wins it. There will also be political pressure from supporters of both companies to review the contract and make sure that there favored winner was not treated unfairly.

All this adds up to further delays in replacing the KC-135 systems made during the Cold War. Once again this problem has been created by the disappearance from the U.S. industrial base of multiple suppliers of large aircraft. Currently only Boeing and EADS make aircraft acceptable to the Air Force to meet this requirement. If there is to be even a modicum of competition the two have to be involved which leads us to the current ugly situation of charges and counter charges of favoritism, jingoism and bias.

This will probably be the biggest contract awarded for the next decade by the Defense Department and is critical to both companies maintaining a foothold in the large military aircraft business worldwide which is leading us to the current situation which does not seem like it will end well.

LCS Spin Off Contracts Begin to be Awarded

At the end of last year the U.S. Navy announced that it would go ahead and use two sources for the new Littoral Combat Ship (LCS). This was a reversion to the original plan for the small warship designed to fight inshore. Contracts were quickly awarded to Lockheed Martin (LMT) and Austal America (ASB:AUS) for ten ships each.

Now a variety of support and sub-contracts are beginning to be announced by suppliers for components to help assemble the new ships. While the two designs have very different hull forms the basic combat systems and weapons will be the same.

BAE Systems (BAE:LSE) has announced that they will fabricate 57-millimeter cannons for the Lockheed ships. These guns will be made at their plant in Minnesota. This is part of Lockheed’s almost $4 billion order for ships.

General Dynamics (GD) received a contract from Austal to build their ship’s combat and seaframe control systems. This is an open architecture system that supports the Navy’s plan to have different combat modules that are interchangeable on the ships.

One of the companies that may stand to gain the most from the contracts is Alcoa (AA). They not only provide engineering support to the Navy for the use of aluminum and other metals in ship construction including the LCS but also make the metal that Austal will use to assemble their LCS in Mobile, AL. If the Navy builds upwards of thirty or forty ships the amount of aluminum required will be quite substantial.

Lockheed also has awarded Rolls-Royce (RR:LSE) a contract for the power plants and propulsion systems. The Lockheed ships will be built at Marinette Marine’s yard in Wisconsin. Rolls-Royce makes the MT30 gas turbine which then uses water jets to propel the LCS.

As the two LCS programs continue more-and-more of these large sub-contracts will be announced as the money and work flows to different parts of the United States and many different companies. This continues to illustrate the economic effects of large defense procurement programs.

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Loren Thompson Predicts EADS Win

The well known aerospace analyst writes that based on discussions he has had it looks good for EADS North America to win the current KC-X new aerial tanker competition. He believes that the information accidentally shared by the U.S. Air Force with EADS and its U.S. competitor, Boeing (BA), indicate that the analysis by the source selection board favors EADS A330 MTT based bid.

EADS did win the contest two years ago teamed with Northrop Grumman (NOC) only to have it overturned on protest by Boeing. The Government Accountability Office (GAO) ruled that the Air Force had not applied its own criteria properly in evaluating those bids.

This time around EADS bid by itself and proposed basically the same aircraft. Boeing bid a modified version of their 767 tanker incorporating parts of the new 787 cockpit and other improvements.

Last month the Air Force had to admit it sent information to the two bidders about the others after mixing up the CD’s with data.

In Thompson’s analysis the data showed the Air Force favoring the EADS aircraft. Of course Boeing will have a chance to protest if they really do lose this contract.

In another piece of this very complicated puzzle this latest development may have serious affects on the latest attempt to replace the KC-135 Cold War era tankers.

Austal USA Continues Work on JHSV

The U.S. Department of Defense awarded Austal USA (ASB:AU), the U.S. subsidiary of Australia’s Austal, a contract for two more Joint High Speed Vessels (JHSV). These represent the fourth and fifth ships of the class being built for the U.S. Navy and Army. The JHSV will be used to move supplies and equipment to an area where they are needed. As there name implies they are much faster then traditional merchant shipping.

This order follows one for the advanced procurement items issued four months ago worth $100 million. This contract has a value of about twice that. Austal is building as many as ten under the contract but ultimately the U.S. would like to buy over fifty. Austal would be one of the sources considered for the follow on contracts.

Austal is known for making high speed ferries but their U.S. subsidiary based in Mobile, AL has branched out into military projects. They have teamed with General Dynamics (GD) to build one of the designs accepted for the original Littoral Combat Ship (LCS) program. The Navy was going to have this team along with Lockheed Martin (LMT) build the ships but has now changed their minds after the first three were started to have a competition for the remaining ships. Austal will most likely be one of the bidders for that contract.

The first JHSV will be delivered at the end of next year. The first of many ships that the company will build for the U.S. Navy Austal hopes.

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Effort to Add EADS Subsidies Consideration to Defense Authorization Bill Fails

Senator Murray (D-WA) and Senator Brownback (R-KS) attempted to attach an amendment to the Senate’s 2011 Defense Authorization Bill today that would force the Defense Department and U.S. Air Force to take into account the World Trade Organization (WTO) ruling on subsidies to EADS (EADS:P) by European governments. Due to the fact that the bill did not win enough votes to advance mainly due to the attempt by the Democratic leadership to add the repeal of “Don’t Ask/Don’t Tell” policy on gays in the military the amendment wasn’t considered.

The two whose states stand to gain several thousand jobs if Boeing (BA) wins the KC-X contract will have to wait for this bill to be re-considered or add the amendment to another one. Certainly there are Senators from Alabama and other Southern states who favor EADS who might try to work against the amendment.

Currently the U.S. military cannot consider these kind of trade disputes and rulings in their source selection which is why the attempt was made to add the rule.

This continues to show that the fight for this contract will continue in Congress, the media and across the internet.

Alabama Remains Supportive of EADS North America

Governor Bob Riley (R-AL) made a speech yesterday to the Economic Development Association of Alabama at which he discussed upcoming industries moving to Alabama. He stressed his administration’s continuing efforts to move large manufacturing facilities to the state. Riley will leave office this year due to term limits.

He is hoping that EADS North America will win the KC-X contract before he does go as one of the key industrial developments for the state. Now Riley is always going to be positive about this effort right up to the time a winner is announced but it does illustrate how well EADS has built relations with leadership in Southern states that have benefited from their investment.

Riley has seen some successes with the building of a Hyundai assembly plant in the state and the ongoing construction of a steel mill by ThyssenKrupp which will open in the near future.

EADS North America Turns in Proposal Today

EADS North America, the American subsidiary of EADS (EADS:P), turned in their proposal for the KC-X aerial tanker today to the U.S. Air Force. This represents their second attempt to win the program and the Air Force’s third try.

EADS North America will base their program on a modified Airbus A330 transport aircraft. As with the previous attempt in 2008 they will assemble the aircraft at a facility in Mobile, AL. Then they will receive the necessary modifications to meet the U.S. requirements. Airbus will also assemble all of their A330 transports at this new facility if EADS does win the contract when it is awarded in November.

Boeing (BA) will also turn in their proposal by tomorrow. A third contended, U.S. Aerospace, has committed to submit a proposal by Friday if the Air Force does not grant their extension request.

EADS Ups Commitment to Alabama

In a sign that they are ramping up work on their bid for the new KC-X aerial tanker program EADS (EADS:P) announced that they are moving their proposal preparation team to new offices in Mobile, AL. If the European defense giant does win the contract they will assemble the A330 aircraft at that city and then apply the specific military modifications there or at another facility.

Reportedly EADS will concentrate about 100 workers in Mobile. They are currently based in Arlington, VA where the EADS North America headquarters is and Melbourne, FL. The Melbourne site was most likely established when EADS was working with Northorp Grumman (NOC) on their last attempt in 2008. Northrop has an aircraft modification facility there used to support the E-8 JSTARS program.

The Defense Department and Air Force expect to received proposals in July and award in the Fall. The Boeing (BA) team and their “NewGen Tanker is considered the only other potential offer.

Alabama Offers Advantages to EADS For KC-X as Boeing Workers Strike

If EADS’ (EADS:P) American subsidiary wins the contract from the U.S. Air Force for the new aerial they will assemble the basic aircraft at a new facility in Mobile, AL. When they along with Northrop Grumman (NOC) had the short lived contract two years ago to build the KC-45 derivative of the Airbus A330 the plant would have been used then. Once the contract was lost to Boeing’s (BA) protest the plans to use the plant were put on hold.

EADS has already stated that if they executed the contract all A330 transport production would be transferred to America from current European plants. There are several benefits to EADS by doing this. First the weak dollar will help lower costs of materials and production. Secondly Alabama is a right-to-work state and a non-union workforce is almost guaranteed. This will be a big change from the highly unionized and regulated workforces of the company in France, Germany and Spain.

There is currently a movement by both U.S. and foreign companies to move production and other services back to the United States. A good deal of these decisions are being driven by the dollar’s strength and to take advantage of excess capacity.

The Japanese automakers have been doing this for years driven by U.S. requirements for car assembly in the States. Honda, Toyota, Nissan and others have plants primarily in Southern States primarily due to the lack of unions as well as the desire of those states to provide economic assistance and financial incentives. Volkswagon for example has just started production of a large plant outside Chattanooga, TN to illustrate that this process is still on-going.

If a company like EADS is going to produce aircraft for the U.S. military it would make sense to try and assemble these in the U.S. As already demonstrated during the last two years of struggle over the KC-X contract it helps them get Congressional support. The advantage of a non-union workforce will not only help costs but prevent potential issues with labor relations and strikes.

Strikes are one of the most disruptive events that may affect production for the military. The only worst thing is really sabotage. The Sikorsky Aircraft Corporation (SAC) strike in 2006 affected production of the UH-60 Black Hawk aircraft for the Army and the SH-60 model for the Navy. These aircraft were and continue to be critical to U.S. operations in Afghanistan and Iraq. The strike was settled after six weeks but it left bad feelings between the company, its unions and customers.

Boeing has suffered several strikes over the past few years. These have not only affected their civil aircraft production but also military products. On Sunday the union representing workers at their St. Louis, MO plants voted to authorize a strike if negotiations don’t resolve contract issues related to seniority. The threat was quickly followed by workers in Kansas where the new Boeing tanker would have some work done.

The workers at the Long Beach, CA facility where the C-17 transport is manufactured have now been on strike for two weeks due to current contract negotiations. This just further illustrates the point that despite the priority of military systems even they may be delayed by the Boeing workforce.

Boeing has moved to counter the reliance on unions by establishing a production facility in South Carolina which is also a right-to-work state. In this way they are mirroring the Japanese automakers and EADS.

At a time when one of the biggest messages in Boeing’s favor is to not delay the KC-X contract any longer by allowing time for EADS to bid or waste time with a competition. If a strike did happen that delayed 767 tanker production once Boeing won the contract it would be a serious black eye for the company and its supporters.

Boeing could try to avoid this by slowly moving production to its South Carolina facility which presumably will be non-unionized but that would antagonize its Washington based Congressional allies. There would also be a cost associated with the move that might increase the cost of the production beyond what the Air Force wants or initially awards. The hope is that the KC-X will use a fixed price contract so Boeing would have to have a good estimate going in and try to limit upfront costs.

EADS by starting out in Alabama avoids the potential issue with a unionized workforce. This should also have mean labor costs for the assembly portion of the aircraft. Score one in the foreign company’s favor.

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U.S. Army To Buy Innovative Missile M&S From Kratos

Kratos Defense and Security Solutions (KTOS) announced that it had won a contract to provide “Innovative Missile Design, Multi-Spectral Hardware-in-the-Loop (HWIL) Testing, Simulation, and Sensor Technology Development” to the U.S. Army. The contract is worth up to $25 million if all options and work is executed.

Kratos and its team members will provide support to the U.S. Army Aviation and Missile Research, Development and Engineering Center (AMRDEC) at Redstone Arsenal, Huntsville, AL. The first part of the contract to be executed will involve development of innovative missile design and simulation and test technologies. Redstone is the base for the Army’s PEO (Missile and Space) and PEO (Aviation). Anti-tank, air defense and other missile programs such as the Hellfire, Javelin and PATRIOT are developed and managed there.

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Good Summary Of The KC-X Situation

The Kansas City Star has this lengthy article that describes the whole situation and explains how we got where we are with the KC-X tanker RFP. The article by Cleon Rickle may be found here. Key takeaways are:

“”I am confident Boeing can build the best plane for the Air Force, no matter the competition,” said U.S. Sen. Pat Roberts,of Kansas. “However, I urge the Department of Defense to run a fair competition and avoid coddling EADS to the detriment of American warfighters who have waited eight years for this contest to end and decades for a new tanker.”

“We will offer a modern, more capable tanker in response to the Defense Department’s decision to encourage competition for this major taxpayer investment,” said EADS North America chairman Ralph Crosby, Jr. “Our KC-45 is the only real, flying, low-risk solution that today meets the demanding Air Force air refueling requirements and is actually in production now. ”

Analysis: EADS Participating In KC-X Contest

This is an article I wrote at BNET: Government about EADS decision to submit a proposal.

“The decade-long saga to replace the KC-X aerial tanker contract begins a new chapter. The European aerospace giant EADS (EADS: P) and Airbus, its subsidiary, announced that it will definitely submit a contract proposal to the Air Force. The program will replace the aging Cold War KC-135 tankers (pictured).

Boeing (BA) thought it had won the contract for at least 179 new aircraft earlier this year when Northrop Grumman (NOC) who had bid in partnership with EADS withdrew from the bidding. Then, earlier this month, the Pentagon agreed to extend the deadline, at EADS’ request, to allow it time to submit a new bid.”

Read the rest at BNET.

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