buglerbilly
21-03-11, 11:12 PM
Mar 21, 2011
By Amy Butler, Robert Wall
Washington, London
A string of procurement choices by the Pentagon*—including an American KC-X platform, a stunted buy of Italian airlifters and a defunct Italian Marine One airframe*—exemplify how difficult it can be for foreign designs to earn the right to fly in U.S. livery.
Foreign contractors may be quietly chagrined, but still appear resolved not to walk away from the potential of selling goods to the largest single buyer of military hardware on the globe. The Pentagon’s fitful buying practices and procurement missteps have, however, taken their toll on what appeared a few years ago to be an imminent push by European contractors onto U.S. soil after EADS won the Army Light Utility Helicopter, the EH-101 was chosen to transport the president, and the C-27J tactical transport was selected.
But, the landscape has drastically changed. Several opportunities were lost*—or some say derailed: the C-27J has been truncated, the EH-101 contract annulled and the EADS win in the KC-X refueler overturned. Some Europeans see a pattern, arguing the U.S. has resorted to protectionism.
For foreign executives, the huge U.S. market remains attractive. But they face a new reality challenging their goals amid flattening Pentagon budgets and against the political backdrop of high unemployment numbers in America.
“There is no policy line connecting these dots,” Ashton Carter, Pentagon procurement chief, tells Aviation Week. “We have had to make tough decisions to cancel a lot of poorly performing programs. And, there have been just as many or more that had an American company as its prime contractor as had a non-heritage company as its prime.” David Berteau, director of the Defense-Industrial Initiatives Group for the Center for Strategic and International Studies, agrees. “You’d be hard-pressed to say that there is a conspiracy theory,” he says. “The results [of these decisions] may look like a pattern, but the process that you use to get to these results isn’t a pattern at all.”
The U.S. procurement process has fallen under greater public scrutiny in recent years, diminishing the chance that politics can influence source selections. “You can’t really hide those kinds of shenanigans in the kind of environment we operate in,” he says. Air Force Chief of Staff Gen. Norton Schwartz notes that any bias toward or against a particular company cannot weave its way into a “pristine” process.
The Pentagon’s latest decision to end its refueler relationship with EADS and select, instead, a rival KC-135 replacement from Boeing (the 767-based KC‑46A) is the largest such failed attempt by a contractor pushing a European design for the U.S. military. The KC-X contract is valued at more than $30 billion, according to EADS, which proposed an A330-based design. Also at stake was a strategic goal by EADS to establish a final assembly facility for A330s and potentially other commercial airliners, in Boeing’s back yard, on U.S. soil, if it won KC-X.
Schwartz rejects the suggestion that EADS was simply a foil that forced Boeing to sharpen its pencil and lower its price. “This is about the best deal, pure an simple,” he says of Boeing’s win. He acknowledges that the final selection of the 767-based tanker grew out of an environment where “we maybe didn’t have all of the cost discipline that we should have had. That is going to become an increasingly distant memory.”
“The basis on which the tanker decision was made was spelled out in the [request for proposals] last year,” Carter says. “We followed the rules and the decision process described in that RFP, which was released and written before we knew who the bidders would be.”
EADS CEO Louis Gallois is putting a brave face on the turn of events after the recompete that some say favored Boeing from the outset. The bidding has led to a positive relationship with the Pentagon and Congress, he notes, adding that the company was treated fairly.
EADS North America Chairman of the Board Ralph Crosby notes the company accepted that the most recent KC-X RFP did not allow for evaluating the attributes of its larger tanker offering. “We accepted those rules. And by accepting the rules to opt to compete, we did so with the full knowledge of understanding that it was not optimum from our standpoint,” Crosby says. “We understood exactly what the parameters were [and]*—from a process standpoint —the Defense Department did precisely what they said they were going to do” by selecting the KC-46A.
EADS is now faced with the challenge of trying to meet growth targets in the U.S. without the tanker contract and a U.S. final assembly facility that would have benefited its commercial business. EADS is looking to reach €10 billion ($14 billion) in revenue from the U.S. market by 2020. Doing so with a tanker win was not considered easy. With the loss, it is an even greater challenge, especially as the company has opted to forego bidding on the future presidential helicopter.
EADS is now focused on other U.S. work, such as the Army’s Armed Aerial Scout program, and potential acquisitions that have proved difficult to execute.
A similar—though less extreme—obstacle was encountered by Alenia North America, the U.S. arm of Italy’s Finmeccanica, which won a competition in 2007 with prime contractor L-3 Communications to sell C-27Js to the Pentagon. The deal was quickly truncated from 78 to 24 after program control shifted from a very supportive Army to the Air Force, which favors buys of more Lockheed Martin C-130Js. Company officials projected sales as high as 145 of the small airlifters, providing the justification for building a stateside final assembly facility at Cecil Field in Jacksonville, Fla. With the truncated order, however, Alenia’s plans for a U.S. industrial presence have waned.
The C-27J and KC-X examples raise a question of whether foreign companies should rely on large numbers of Pentagon sales as the basis for establishing stateside assembly plants, though it is unlikely that commercial business alone will justify the cost to move stateside.
Italian executives overseeing a bid with Lockheed Martin to sell EH-101s modified for the Marine One mission were also peeved by requirements disputes between the White House and Navy. These spats led to contract cancellation in 2009. A new competition for that mission has yet to get under way. Talks with the Pentagon on the Marine One termination settlement are still ongoing.
Finally, Air Force Gen. Mark Welsh, who oversees U.S. Air Forces in Europe, acknowledges that the Pentagon’s recent decision to walk away from the project with Germany and Italy for a common Medium Extended Air Defense System (Meads) will “frustrate” European allies. “It is not something they will be excited about,” he tells Aviation Week. Washington has decided not to buy the system, leaving Italy and Germany to fund procurement if they can find the money. The partners would do so, however, knowing that the interoperability desired by jointly procuring with the U.S. is compromised.
MBDA CEO Antoine Bouvier acknowledges he was surprised by the turn of events. However, he says the decision does not undermine his desire to grow his market share in the U.S.
Taken in their totality, these decisions paint a harsh view of the landscape faced by European companies eager to sell to the Pentagon and willing to invest in U.S. infrastructure. Though some executives privately question whether politics—such as adverse perceptions of buying a foreign platform, formidable lobbying efforts by traditional U.S. contractors on Capitol Hill or flat-out protectionism—are at play, not everyone shares that view. Others acknowledge that fitful Pentagon management is equally perilous to top U.S. companies.
During a speech last month for investors, Carter noted that Pentagon officials “are committed to continue opening our markets” while also being attentive to security concerns. “Globalization of our market is not an option—it is a reality. Our utilization of . , , ‘non-heritage’ firms is essential for nearly all of the systems upon which we rely,” he said.
European firms will have future opportunities to test what the lay of the land really is. In addition to the Armed Aerial Scout program, the U.S. Air Force is likely to compete the Common Vertical Lift Support Program (CVLSP) helicopter for the executive lift and nuclear convoy support mission and a new high-performance jet trainer will include international designs.
Though CVLSP was going in the direction of a sole-source to U.S.-based Sikorsky for a modified UH-60 only one month ago, Air Force officials said last week they are now inclined to compete the work. Several offshore designs, including an AgustaWestland AW139 and models from EADS, are expected to compete.
A forthcoming competition for a T-38 replacement will likely exclusively include designs from foreign bidders—the Aermacchi M-346, BAE Hawk and Lockheed Martin/Korea Aerospace Industries T-50. Though Boeing is eyeing a clean-sheet design, the Pentagon will be hard pressed in a tough budget environment to justify a costly development program with available off-the-shelf designs.
Despite the changing landscape of the Pentagon’s recent decisions, a single U.S. win for a European firm outweighs several other export or domestic successes. The bottom line is that regardless of how slim the chances for foreign supplier may appear to be or may actually be, not bidding is not an option.
Photo: EADS
By Amy Butler, Robert Wall
Washington, London
A string of procurement choices by the Pentagon*—including an American KC-X platform, a stunted buy of Italian airlifters and a defunct Italian Marine One airframe*—exemplify how difficult it can be for foreign designs to earn the right to fly in U.S. livery.
Foreign contractors may be quietly chagrined, but still appear resolved not to walk away from the potential of selling goods to the largest single buyer of military hardware on the globe. The Pentagon’s fitful buying practices and procurement missteps have, however, taken their toll on what appeared a few years ago to be an imminent push by European contractors onto U.S. soil after EADS won the Army Light Utility Helicopter, the EH-101 was chosen to transport the president, and the C-27J tactical transport was selected.
But, the landscape has drastically changed. Several opportunities were lost*—or some say derailed: the C-27J has been truncated, the EH-101 contract annulled and the EADS win in the KC-X refueler overturned. Some Europeans see a pattern, arguing the U.S. has resorted to protectionism.
For foreign executives, the huge U.S. market remains attractive. But they face a new reality challenging their goals amid flattening Pentagon budgets and against the political backdrop of high unemployment numbers in America.
“There is no policy line connecting these dots,” Ashton Carter, Pentagon procurement chief, tells Aviation Week. “We have had to make tough decisions to cancel a lot of poorly performing programs. And, there have been just as many or more that had an American company as its prime contractor as had a non-heritage company as its prime.” David Berteau, director of the Defense-Industrial Initiatives Group for the Center for Strategic and International Studies, agrees. “You’d be hard-pressed to say that there is a conspiracy theory,” he says. “The results [of these decisions] may look like a pattern, but the process that you use to get to these results isn’t a pattern at all.”
The U.S. procurement process has fallen under greater public scrutiny in recent years, diminishing the chance that politics can influence source selections. “You can’t really hide those kinds of shenanigans in the kind of environment we operate in,” he says. Air Force Chief of Staff Gen. Norton Schwartz notes that any bias toward or against a particular company cannot weave its way into a “pristine” process.
The Pentagon’s latest decision to end its refueler relationship with EADS and select, instead, a rival KC-135 replacement from Boeing (the 767-based KC‑46A) is the largest such failed attempt by a contractor pushing a European design for the U.S. military. The KC-X contract is valued at more than $30 billion, according to EADS, which proposed an A330-based design. Also at stake was a strategic goal by EADS to establish a final assembly facility for A330s and potentially other commercial airliners, in Boeing’s back yard, on U.S. soil, if it won KC-X.
Schwartz rejects the suggestion that EADS was simply a foil that forced Boeing to sharpen its pencil and lower its price. “This is about the best deal, pure an simple,” he says of Boeing’s win. He acknowledges that the final selection of the 767-based tanker grew out of an environment where “we maybe didn’t have all of the cost discipline that we should have had. That is going to become an increasingly distant memory.”
“The basis on which the tanker decision was made was spelled out in the [request for proposals] last year,” Carter says. “We followed the rules and the decision process described in that RFP, which was released and written before we knew who the bidders would be.”
EADS CEO Louis Gallois is putting a brave face on the turn of events after the recompete that some say favored Boeing from the outset. The bidding has led to a positive relationship with the Pentagon and Congress, he notes, adding that the company was treated fairly.
EADS North America Chairman of the Board Ralph Crosby notes the company accepted that the most recent KC-X RFP did not allow for evaluating the attributes of its larger tanker offering. “We accepted those rules. And by accepting the rules to opt to compete, we did so with the full knowledge of understanding that it was not optimum from our standpoint,” Crosby says. “We understood exactly what the parameters were [and]*—from a process standpoint —the Defense Department did precisely what they said they were going to do” by selecting the KC-46A.
EADS is now faced with the challenge of trying to meet growth targets in the U.S. without the tanker contract and a U.S. final assembly facility that would have benefited its commercial business. EADS is looking to reach €10 billion ($14 billion) in revenue from the U.S. market by 2020. Doing so with a tanker win was not considered easy. With the loss, it is an even greater challenge, especially as the company has opted to forego bidding on the future presidential helicopter.
EADS is now focused on other U.S. work, such as the Army’s Armed Aerial Scout program, and potential acquisitions that have proved difficult to execute.
A similar—though less extreme—obstacle was encountered by Alenia North America, the U.S. arm of Italy’s Finmeccanica, which won a competition in 2007 with prime contractor L-3 Communications to sell C-27Js to the Pentagon. The deal was quickly truncated from 78 to 24 after program control shifted from a very supportive Army to the Air Force, which favors buys of more Lockheed Martin C-130Js. Company officials projected sales as high as 145 of the small airlifters, providing the justification for building a stateside final assembly facility at Cecil Field in Jacksonville, Fla. With the truncated order, however, Alenia’s plans for a U.S. industrial presence have waned.
The C-27J and KC-X examples raise a question of whether foreign companies should rely on large numbers of Pentagon sales as the basis for establishing stateside assembly plants, though it is unlikely that commercial business alone will justify the cost to move stateside.
Italian executives overseeing a bid with Lockheed Martin to sell EH-101s modified for the Marine One mission were also peeved by requirements disputes between the White House and Navy. These spats led to contract cancellation in 2009. A new competition for that mission has yet to get under way. Talks with the Pentagon on the Marine One termination settlement are still ongoing.
Finally, Air Force Gen. Mark Welsh, who oversees U.S. Air Forces in Europe, acknowledges that the Pentagon’s recent decision to walk away from the project with Germany and Italy for a common Medium Extended Air Defense System (Meads) will “frustrate” European allies. “It is not something they will be excited about,” he tells Aviation Week. Washington has decided not to buy the system, leaving Italy and Germany to fund procurement if they can find the money. The partners would do so, however, knowing that the interoperability desired by jointly procuring with the U.S. is compromised.
MBDA CEO Antoine Bouvier acknowledges he was surprised by the turn of events. However, he says the decision does not undermine his desire to grow his market share in the U.S.
Taken in their totality, these decisions paint a harsh view of the landscape faced by European companies eager to sell to the Pentagon and willing to invest in U.S. infrastructure. Though some executives privately question whether politics—such as adverse perceptions of buying a foreign platform, formidable lobbying efforts by traditional U.S. contractors on Capitol Hill or flat-out protectionism—are at play, not everyone shares that view. Others acknowledge that fitful Pentagon management is equally perilous to top U.S. companies.
During a speech last month for investors, Carter noted that Pentagon officials “are committed to continue opening our markets” while also being attentive to security concerns. “Globalization of our market is not an option—it is a reality. Our utilization of . , , ‘non-heritage’ firms is essential for nearly all of the systems upon which we rely,” he said.
European firms will have future opportunities to test what the lay of the land really is. In addition to the Armed Aerial Scout program, the U.S. Air Force is likely to compete the Common Vertical Lift Support Program (CVLSP) helicopter for the executive lift and nuclear convoy support mission and a new high-performance jet trainer will include international designs.
Though CVLSP was going in the direction of a sole-source to U.S.-based Sikorsky for a modified UH-60 only one month ago, Air Force officials said last week they are now inclined to compete the work. Several offshore designs, including an AgustaWestland AW139 and models from EADS, are expected to compete.
A forthcoming competition for a T-38 replacement will likely exclusively include designs from foreign bidders—the Aermacchi M-346, BAE Hawk and Lockheed Martin/Korea Aerospace Industries T-50. Though Boeing is eyeing a clean-sheet design, the Pentagon will be hard pressed in a tough budget environment to justify a costly development program with available off-the-shelf designs.
Despite the changing landscape of the Pentagon’s recent decisions, a single U.S. win for a European firm outweighs several other export or domestic successes. The bottom line is that regardless of how slim the chances for foreign supplier may appear to be or may actually be, not bidding is not an option.
Photo: EADS