USAF to Boeing, NGC: “Don’t Make Us Come Back There”

Reuters reports that the USAF met last week with Boeing and Northrop Grumman’s CEOs “to voice concern about the “vitriolic” tone of public statements over a $35 billion refueling aircraft program.” Particular concern was expressed regarding Boeing’s allegations of irregularities in the USAF’s KC-X competition process. Defense analyst Loren Thompson, of the Virginia-based Lexington Institute went so far as to say that: “The tone of the tanker debate has turned so negative that Air Force leaders are concerned that it could damage their long-term relationship with Boeing.”

Analysis: The effect of this meeting, if any, will depend on Boeing’s assessment of a straightforward question: If the potential prize is nearly $20 billion in work over 20 years, how much strain on their long-term relationship with the USAF becomes an acceptable risk in the current environment?

Industry trends are also playing a role…

US Aerospace Trade Balance Flying High

The American Aerospace Industry Association (AIA), which recently made a strong pitch to improve American math and science education, collects statistics that include annual industry trade balances. While the USA as a whole is running a trade deficit of $708.5 bilion in 2007, the final 2007 trade balance tally for the aerospace industry stands at a record positive figure of $60.4 billion.

US Aerospace Exports were $96.9 billion, up 14% from $85 billion in 2006. Military-related exports were only $13 billion of this total, and civil aircraft dominated growth.

US Aerospace Imports were $36.5 billion, up 19.67% from 30.5 billion in 2006. One-third of that growth was reportedly related to commercial transport aircraft and increased imports of regional jets.

AIA President and CEO Marion Blakey said that “Airlines from around the world are stocking up on U.S. aircraft because of growing demand in both emerging and established markets… This is a very hot market despite economic uncertainty.” Blakey did not discuss what impact rising fuel prices might have on that growth’s rate, direction, and composition. AIA release.

US Arms Export Agreements a Sticking Point for India

LPD 14 Trenton,
now INS Jalashwa

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…

The 2006 Saudi Shopping Spree: Hail the Caesar Light Mobile Artillery!

“Climb every mountaaain…”

Developed as a private venture by France’s Giat Industries (now Nexter), the CAESAR system is based around a light 155mm/52 caliber howitzer, mounted on a 6×6 truck chassis fitted with an armored cab. The air-portable mobile howitzer system has been sold to France and Thailand, but its export history had not been as successful as Giat had hoped – and it has a very interesting history in the USA.

In July 2006, Giat Industries announced an export contract for 76 of its CAESAR artillery systems, mounted on a Soframe-Unimog truck chasis. While Giat would not confirm the customer, Agence-France Presse reported that they were destined for Saudi Arabia. This certainly fit expectations in the wake of the July 21/06 defense cooperation agreement it signed with France.

Since then, a number of French deals to Saudi Arabia have fallen through or been delayed indefinitely. A recent Jane’s report adds credence to the AFP reports, however, and indicates that the Caesar sale is moving ahead.

US DoD Trying to Slow Ballooning Prescription Drug Costs

The US Department of Defense’s prescription drug spending alone is estimated to reach $15 billion by 2015. GAO examined DOD’s prescription drug spending trends from fiscal years 2000 – 2006 and DOD’s key efforts to limit its prescription drug spending at retail pharmacies, military treatment facilities (MTF), and the TRICARE Mail Order Pharmacy (TMOP). That spending more than tripled to $6.2 billion in 2006 from $1.6 billion in fiscal year 2000, and retail pharmacy spending drove most of this increase with a $3.4 billion. Part of the issue is that more people arer using more costly retail pharmacies instead of MTFs or mail order, and so the US DoD has used a variety of techniques to try and slow that cost growth.

Report #GAO-08-327, “DOD Pharmacy Program: Continued Efforts Needed to Reduce Growth in Spending at Retail Pharmacies,” goes into more detail regarding these issues, and the solutions being tried, from pharmacy rebates, to outreach efforts like the Member Choice Center, to initiatives aimed at changing copayment policies to provide the right incentives. See also “TRICARE Trials & Tribulations,” which places prescription drug costs within a much larger issue of US military medical costs more generally.

Spain Snaps up Searcher-II UAVs for Afghan Mission

Spanish Searcher, Herat

In April 2007, Spanish reader Pedro Lucio alerted us to an official announcement that Spain’s Ministry of Defence had issued a EUR 14.37 million (then about $19.5 million) contract for unmanned air vehicles that would be deployed to support Spanish troops in Afghanistan. The contract was awarded to a consortium formed by Indra Sistemas and EADS-CASA, and Israel’s IAI; they will produce IAI’s Searcher-II-J UAV, which received excellent reviews from India in the wake of the 2004 tsunami.

Ongoing updates include delivery, a complementary buy of mini-UAVs, and the first flight in Afghanistan. The key characteristics of Spain’s new sistema de Plataforma Autonoma Sensorizada de Inteligencia (PASI), and contract developments, include…

$127.6M for 14 RQ-7B Shadow UAV Systems

RQ-7, flightline

AAI Corp. in Hunt Valley, MD received a $127.6 million firm-fixed price contract for the full rate production buy for 14 Shadow unmanned aerial vehicle systems and associated support equipment. Work will be performed in Hunt Valley, MD and is expected to be complete on Mar. 15, 2010. One bid was solicited on Aug 16/07 by the U.S. Army Aviation and Missile Command (W58RGZ-08-C-0023). This compares to a $153.4 million contract for 14 systems in December 2007.

The Shadow is the Army’s de facto Class-II/battalion-level UAV; it is too small to carry weapons, but it can serve as a targeter for laser or GPS guided missiles, rockets, and artillery shells. The Shadow is also being developed as a communication relay with an impressive coverage range. Each Shadow system includes 4 RQ-7B unmanned aircraft, 2 One System(R) ground control stations and ground data terminals, 4 One System remote video terminals, a One System portable ground control station, and associated components and support equipment.

The system’s biggest challenge at the moment is “deconfliction,” or staying out of the way of other aircraft. As “Field Report on Raven, Shadow UAVs From the 101st” discusses, this limits the UAVs’ flexibility, and forces 48 hour flight plan lead times rather than fast reaction launches. Even so, Shadow UAVs accumulated almost 100,000 flight hours on the front lines in 2007.

Street Fighters: M1 Abrams TUSK Tank Conversions

M1A2 Abrams TUSK

TUSK stands for “Tank Urban Survival Kit,” and represents the American approach to the problem of employing tanks in urban situations where weapons elevation, protection placement, and other design elements aren’t designed to cope with key threats. The Leopard 2 PSO (Peace Support Operations) is another example of this kind of adaptation, albeit with a different combat engineering slant and camouflage improvements. France has its AZUR program for the Leclerc, and other vehicles as well. Israel’s Merkava tanks are seeing their own modifications, including a rear sniper porthole to go with its traditional under-armor mortar and space for infantry; now dedicated APC versions are also in the mix. What is certain is that combat in urban terrain is the way of the future, as demonstrated by trends over the last 15 years of major military engagements.

This article details the M1 TUSK kit, and covers associated purchases from 2006-2008…

US GAO Reports on Security Clearances, April 2008

Security clearances are a big deal for the US defense industry. Delays of up to 2 years in processing applications has made them a major bottleneck for many defense firms, and led to premiums of $20,000 – $30,000 for employees who do possess one. Congress has taken note of the issue, and its Government Accountability Office recently issued report #GAO-08-580R: “DOD Personnel Clearances: Questions for the Record Related to the Quality and Timeliness of Clearances.” An excerpt from this short report:

“Through our reports and testimonies, we have emphasized a need to build more quality and quality monitoring into the clearances process… We find [the current] measure to be problematic… (the clearance process has six phases: the requirements setting, application-submission, investigation, adjudication, appeal, and clearance updating). As noted in our February 13, 2008 report, we are encouraged by some department specific and governmentwide efforts that have improved DOD’s personnel security clearance program… Current and future efforts to reform personnel security clearance processes should consider, among other things, the following four key factors: (1) determining whether clearances are required for a specific position, (2) incorporating quality control steps throughout the clearance processes, (3) establishing metrics for assessing all aspects of clearance processes, and (4) providing Congress with the long-term funding requirements of security clearance reform. The timeliness statistics that OMB and OPM have provided to Congress may not convey the full magnitude of the time required to complete clearance investigations and adjudications… there may be continuing problems in these areas.”

$650.1M for 4,526 Hummers

M1151 HMMWV, new

While orders and shipments of blast-resistant MRAP vehicles continue to roll, the flat-bottomed, vulnerable, but lighter Hummers remain the core of the US wheeled vehicle fleet. They are still seeing extensive use on the front lines, and the early wear created by the weight of their add-on armor has led to RESET maintenance programs for some Hummers and allied giveaways for others.

The US Army had about 19,000 HMMWV vehicles in Iraq alone in mid-2007, and even accelerating shipments of MRAPs have only reached 5,200+ to all services throughout all of CENTCOM as of April 2008. As Hummers wear out and are given away, or sent to a depot, they must be replaced. Some replacement involves cycling vehicles from other units into theater, but those units must eventually have their lost vehicles replaced with Hummers or with something else, in order to maintain their own readiness rates for deployment. Hence the necessity for ongoing buys of more Hummers, in the absence of a plan to provide immediate replacements on a fleet-wide basis.

AM General, LLC in South Bend, IN recently received a $650.1 million firm-fixed price contract for 4,526 HMMWVs of various types. That’s about $144,000 per Hummer, compared with the $500-550 thousand average for more survivable MRAP vehicles. Note that this is not the final cost, however, as all vehicles will also receive expensive additional equipment like electronics, mounted weapons, up-armoring kits, et. al. after they’re produced. Production be performed in Mishawaka, IN and is expected to be complete by Dec 31/09. One bid was solicited on March 17/06 by US Army TACOM in Warren, MI (DAAE07-01-C-S0001).

UPDATE: In May 2008, another 3,216 Hummers for $522.4 million.