Centurion 2 engine
(click to view full)

On the face of it, Thielert AG of Hamburg appeared to be a well-positioned company, leveraging respected German engineering to modify a Daimler diesel engine for use in aircraft. The ability to use “heavy” fuel offers light civilian aircraft a convenient, less-expensive option, and can also be an important asset for armies who want a single fuel supply chain for land vehicles and UAVs. That commonality offers lifetime cost savings of its own, less operational risk, and more operational flexibility – which is why the US Army’s flagship MQ-1C SkyWarrior UAV uses Thielert’s 135 hp Centurion engine. By many accounts, the engine itself performs well, though some reports say the engines have some reliability issues and suffer from poor field support. The aero-diesel niche has few competitors at the moment, but several new competitors are expected to unveil products over the next year.

Those alternative options have now become a more urgent matter, given recent developments in Germany. In brief, Thielert is facing advanced stage criminal investigations for serious accounting fraud, providing false evidence, and more. The alternative explanation is that a long list of firms including General Atomics, Northrop Grumman, and Lockheed Martin each left millions of dollars in supplier invoices unpaid for over a year.

Regardless of which explanation is true, Thielert faced financing needs that the firm’s own April 10/08 release described as “an urgent liquidity crisis.” As a first step, the founder tried to sell his entire stake to a Russian hedge fund. Even so, the firm’s own statements confirm that much more cash will be needed, and shareholder lawsuits enabled by German court rulings that have voided their financial reports could drive that figure higher.

The latest developments are three-fold: the dismissal of the CEO and CFO for cause in light of criminal investigations, the collapse of the new investors consortium, and the firm’s filing for bankruptcy. Meanwhile, the US Army says it was unaware of the situation at Thielert, which raises questions concerning its contractor General Atomics’ communications and program risk transparency with the US military….

• Situation Summary
• American Defense Contractors: Unpaid Bills?
• Timeline: Key Events [updated]
• Additional Readings & Sources
  
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LPD 14 Trenton,
now INS Jalashava
(click to view full)

Rumors are flying that India is set to sign a $2.2 billion deal with Boeing for 8 P-8I maritime patrol aircraft, and American companies are competing like never before in critical defense competitions like the $10+ billion medium multi-role fighter bid. The process of working through foreign defense sales is far more complex than simply winning competitions, or even establishing an industrial network within your target market. In societies with accountable governments, the arms trade comes under a number of key regulations, and government to government agreements that lay out key terms are critical in order to lay the framework for industrial cooperation and sales.

One aspect of arms sales regulations that’s quite common at present is restrictions on what a country may do with the equipment it buys. Prohibitions on second-hand sales without approval of the exporting country are routine inclusions, even by regimes that have no political compunctions about selling weapons to anyone. After all, as tech firms like Cisco and Sun found out during the dot-com crash, having your high-end hardware sold on eBay does terrible things to the bottom line. Many accountable governments have also been pushed into offering a second kind of restriction, however: restrictions on what the purchasing country can do with the equipment, even within its own borders. Any machine needs maintenance, which provides sufficient leverage to ensure cooperation. Even so, many countries like Indonesia and Chad are becoming restive. As international equipment options continue to broaden, some countries like Indonesia are even switching suppliers to ensure non-interference.

Indian Navy chief Admiral Sureesh Mehta recently expressed similar sentiments with respect to side agreements the USA is requesting, and whose absence is slowing down the growing military relationship between the 2 countries…

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FSTA Concept
(click to view full)

Back in March 2005, “British AirTanker Deal May Go Private” discussed the deal for a potential public-private partnership to buy, equip, and operate the RAF’s future aerial tanker fleet, and noted the selection of a preferred consortium. The RAF would fly the 14 Airbus A330-MRTT aircraft on operational missions and receive absolute preferential access to the planes, while the contractor handled maintenance, received payment from the RAF on a per-use basis, and operated them as passenger or transport aircraft when the RAF didn’t need them. The deal became politically controversial; though it was based on a practice that has been successful in Britain, it had surface similarities with the USA’s controversial and canceled KC-767 lease deal. Negotiations on the multi-billion pound, 27-year deal, meanwhile, charted new territory for both the government and private industry.

Which may help to explain why the final decision to move ahead on a “Private Financing Initiative” basis had yet to be issued, and procurement had yet to begin, over 2 years after a preferred bidder was selected. That hurdle is now clear, and Britain has just issued the world’s largest-ever Defence Private Finance Initiative (PFI) contract. This FOCUS Article describes the current British fleet, the aircraft they chose and how the new fleet will compare, the innovative deal structure they’ve chosen, and the project’s key events. The most recent events include the big PFI agreement, and Rolls Royce’s detailing of the award’s value to them…

• RAF Tankers: The Current Fleet
• A330-200 MRTT: The RAF’s Future Strategic Tanker Aircraft [updated]
• FSTA Program Details [updated]
• PFI: The Art of the Deal
• UK FSTA: Contracts & Key Events [updated]
• Additional Readings
  
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Nowhere to run?
(click to view full)

Force Protection’s CFO Michaek Durski resigned recently, after management “discovered significant accounting errors during its year end review.” The firm has also seen American MRAP vehicle orders for its Force Dynamics joint venture tail off, even as competitors like BAE Systems and Navistar continue to receive large orders. A March 15/08 Bloomberg report claims that the firm has has enough orders to last 8 more months in production, plus ongoing maintenance and support business. Which explains why their new manufacturing facility in Roxboro, NC designed to enhance manufacturing capacity, may shut down before it ever ramps up.

With at least 4 shareholder lawsuits underway, the latest news raises questions concerning the company’s survival, as talk of buyouts and even collapse floats in the air. Force Protection’s management says the firm has the resources to continue. A look at the firm’s difficulties and its resources, however, show a challenging set of business problems ahead…

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KC-767: In the dark?
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Our FOCUS Article “The USAF’s KC-X Aerial Tanker RFP” has covered the lead-up to Boeing’s protest, in the wake of the Airbus/NGC win. Today, Boeing issued a release that discussed its claims in the coming GAO protest. Boeing claims that the USAF:

Arbitrarily discounted the KC-767’s strengths, compromising on the ability to refuel a wider range of aircraft such as the V-22 and on “the survivability of the tanker during the most dangerous missions.”

DID has asked Boeing for clarification re: which aircraft were left out, and what factors would allow the KC-767 to refuel them where the A330 MRTT could not. We have also requested elaboration on what would make the KC-767 more survivable, given that both aircraft would be equipped with the same defensive systems. The release continues…

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(click to view larger)

DID’s new “Sharpen Yourself” category aims to supplement our ongoing procurement and defense coverage with articles like “Preparing More Powerful Presentations,” which are equally valuable to professional readers of an industry magazine. One aspect that often gets neglected in this industry is career management, especially among engineers. The defense industry is widely seen as stable and recession-proof, and to some extent that’s true, but long-time veterans know that from a personal perspective it’s a partial truth at best. Programs get canceled, firms move or consolidate, the politician a Hill staffer works retires or is defeated, or it becomes clear that a change of scenery and/or role is in order. When those shocks hit, the difference between a managed and an unmanaged career is like the difference between a managed and an unmanaged defense program.

This article addresses a growing trend in business, and a topic that’s coming up more and more frequently to a Human Resources consultant of our acquaintance: the use of social networking sites like Facebook, MySpace, Ning, Friendster, LinkedIn, et. al. in the hiring process. For those in the active military, these sites also have a security dimension.

Social networking sites are distinguished by a keystone combination. A personal profile, which any job board also has, is part one. Part two is a central mechanism that leverages the voluntary connection of these profiles to each other – a major shift that can be “6 degrees of separation” powerful. These sites can and are used for many purposes, including entirely personal uses like sharing family photos. For dedicated professional business networking, however, LinkedIn has become the clear leader, and is now a key platform for executive recruiters (DID has no business affiliation with LinkedIn). If you’ve never seen these sites, you’ll need to see an example to understand. The Watershed Publishing team have all built free LinkedIn memberships and profiles – here’s mine:

LinkedIn carries few risks, but there are features you’ll want to pay careful attention to as part of good career management. Other social networking sites like MySpace carry more risks – for candidates, for employers, and for military members…

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KC-135 & RNoAF
F-16, Afghanistan
(click to view full)

While Team Boeing and EADS Airbus/Northrop Grumman duke it out for the USA’s $20-30 billion KC-X order of about 175 aerial tankers with secondary cargo capacity, the existing KC-135 fleet still needs to be maintained. Based on the 707 airliner’s initial designs, the KC-135s first entered service in 1954, and they were delivered until 1965. Despite their age, they remain the mainstay of the USA’s aerial tanker fleet as it helps fighters make long-distance flights, keeps US and foreign combat air patrols on station, refuels transports on their way to remote destinations, and generally makes long-range force projection possible.

Unforseen mechanical issues and the accompanying fleet groundings would create a crippling bottleneck in this defining array of American airpower capabilities, which is why KC-X was designated as the USAF’s highest procurement priority. Meanwhile, the KC-135s need to be well and carefully maintained in order to avoid that bottleneck. Which is why Boeing has just received a $1.1 billion, 10-year contract to maintain the USAF’s KC-135 fleet. It doesn’t follow the advanced “we pay for flying planes” model being implemented for Britain’s 707-based E-3D Sentry AWACS fleet, its VC10 aerial tankers, et. al.

Even so, this contract’s size, the American fleet’s importance, and the convoluted contract history that has led to the current GAO ruling, all make attention to its details worthwhile. Extremely unusual language in the GAO’s decision even raised questions of potential foul play. In the wake of the decision sustainbing the contract protest, the USAF has moved to award the contract to…

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Protests, 2001-2007
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In “General bemoans glut of Air Force contract protests”, Government Executive magazine quotes Gen. Bruce Carlson, the commander of US Air Force Material Command [link added by DID]:

”[he said] that the contract for the huge airborne tanker program will be awarded by the end of this month, but he also expressed confidence that the protest against the decision already has been written. The reason… is that there are no penalties for a losing bidder to protest, even though the appeals delay vital acquisition programs and cost the military hundreds of millions of dollars. The protest of the November 2006 decision on the Air Force’s new combat search and rescue helicopter, won by the Boeing CH-47, has cost the Air Force $800 million, Carlson said…. The general told reporters at a forum sponsored by Aviation Week that there should be some form of penalty instituted for protests that are found to be unwarranted. He said that some losing bidders file protests with 20 or 30 elements when perhaps only one part has any foundation….”

The general is correct concerning the costs, and some US Government Accountability Office protests do appear to cross the line between customer and supplier in attempting to dictate the criteria as well as the process. The near-certainty of protests around major awards has also had the effect of shutting smaller firms out of the bidding altogether for key contracts. There are considerations on the other side of the ledger as well, however….

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CH-47F, Ft. Irwin
(click to view full)

On February 1/08, the Pentagon’s DefenseLINK announced “a large firm-fixed price contract [for 10] CH-47F new build production helicopters.” This new variant of the CH-47 Chinook incorporates a slew of improvements, and was declared combat-ready in August 2007. Work will be performed in Philadelphia, PA and is expected to be complete by Dec 31/12. One bid was solicited on Dec 31/03, and 1 bid was received by the U.S. Army Aviation and Missile Command in Redstone Arsenal, AL (W58RGZ-04-C-0012).

Given that the Pentagon is required by law to state dollar amounts for awards over $5 million, however, the breaking of those rules for this contract was deeply puzzling. Fortunately, the US Army has now informed DID that this is a $280.5 million contract; DefenseLINK should post the amount soon. A Feb 27/08 Boeing release gives the same dollar figure, but notes 11 helicopters. DID has also updated our CH-47F FOCUS article.

Originally posted on Feb 5/08.

“US Industry Associations Pushing to Reform Export Controls” covered a push from major players in the US defense industry to change US ITAR export controls. ITAR processes make it difficult to share information with their own international subsidiaries, to include American technology in bids for foreign contracts, or even to explore collaboration with foreign firms in allied nations. They have also led to concerted efforts abroad to design American technology out of foreign military systems, in order to avoid falling under US export regimes that many perceive as being about protectionism and hindering business competitors, as well as true security needs. American actions have sometimes fed and validated this perception, which has not helped its causes abroad.

At the same time, however, proliferation of advanced military technologies is nothing to be casual about. “Cut out” transfers via foreign subsidiaries and partnerships are more than possible, and the age of the rogue state appears imminent. What to do?

Fortunately, the answer of “nothing” no longer applies. Step one was a pair of draft treaties with close allies Britain and Australia, establishing unique arrangements with approved firms in their defense industries. If approved by the US Senate, they would have advantages that almost reach the level of Canada’s ITAR exemption. That special arrangement has existed for decades, as part of a long-standing goal of creating an integrated North American arms industry that leverages and acknowledges the two nations’ close alliance and deeply interlinked economies.

Step 2 appears to be limited reform and improvements. Did the industry get the liberalization that it wanted in those areas? Not exactly, no – even as other recent changes appear to be making it easier for China to obtain military-related items…

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