Sept 14/07: The GM/ GDLS Defense Group L.L.C. Joint Venture in Sterling Heights, Mich. Received a $37.9 million delivery order for 33 Stryker M1133 Medical Evacuation (MEDEVAC) Vehicles, as part of a $5.68 billion firm-fixed-price contract for the Stryker family of vehicles. The 8×8 wheeled M1133 provides mobile protection for up to 6 patients and a medical team.
The DoD release says that work will be performed in Sterling Heights, Mich. (60%), and London, Ontario, Canada (40%), but General Dynamics’ release adds Anniston, Ala. And Lima, Ohio as work sites. Work is expected to be complete by Jan. 31, 2010. Bids were solicited via the World Wide Web on April 6, 2006, and 17 bids were received by the U.S. Army Tank-Automotive and Armaments Command in Warren, Mich. (DAAE07-00-D-M051).
ITT Corporation of White Plains, NY and has reached a definitive agreement for ITT to purchase all outstanding shares of NYC-based EDO Corp. for $56 per share in cash. Including approximately $120 million of net debt and the anticipated conversion of convertible notes, this transaction values EDO at $1.7 billion. The transaction is subject to approval by EDO’s shareholders, as well as customary closing and regulatory conditions; it is expected to close in early 2008. Lazard LLC and UBS Investment Bank are acting as financial advisors to ITT, and Simpson Thacher & Bartlett LLP is legal counsel. EDO’s financial advisor is Citigroup, and their legal counsel is Debevoise & Plimpton LLP.
Both companies are mid-market defense firms, and have been mentioned in takeover rumors; their merger continues existing trends in information technology, communication, and high-tech field equipment. ITT is a global leader in water and fluid transport, treatment, and control technology, who also has direct defense applications via communications and electronics, space surveillance systems, intelligence systems; and advanced engineering. EDO has about 4,000 employees; its strengths include mobile networking and integration, interference cancellation and antennas, advanced engineering, and interference creation via electronic jammers.
For the six-month period ended June 30, 2007, EDO’s revenue was up 83% to $501.4 million vs. the first half of 2006, and EDO’s revised Q2 guidance [PDF] forecast 2007 total revenue of $1.1 – $1.15 billion. ITT generated $7.8 billion in 2006 sales, and expects the acquisition to be neutral to its earnings per share in 2008, and accretive thereafter. The firm adds that the acquisition will give them roles in key initiatives such as the F-35 Joint Strike Fighter, the Navy’s Littoral Combat Ship, counter improvised explosive device (IED) programs, and the Coast Guard Deepwater programs. Other than the JCREW anti-IED contracts, however, all of the programs mentioned present some level of procurement risk due to cost and schedule issues. ITT release.
Kazakhstan Today reports the Russia’s RSK-MiG signed a $60+ million contract at the MAKS 2007 aerospace show to refurbish and upgrade Kazakh aircraft. Reports indicate that the aircraft are 10 of Kazakhstan’s 50 MiG-31 Foxhounds, a derivative of the MiG-25 Foxbat interceptor optimized for high-altitude flight, radar overwatch and control, and cruise missile defense. The planes were inherited from the Soviet Union during its breakup, since they were based on Kazakh territory.
Yet Kazakhstan may be using many of these interceptors for a different purpose entirely…
The United States Transportation Command (US TRANSCOM) Directorate of Acquisition at Scott Air Force Base, Ill. has issued 9 multiple-award, indefinite delivery/ indefinite quantity, fixed-price contracts with a total maximum value of $400 million. The contractors selected will perform international express delivery of packages and letters weighing 300 lbs or less. This is not the same thing as the Defense Logistics Agency’s Small Surface Package Program, or the $2+ billion in annual international airlift contracts issued by the Pentagon over the last couple of years – but some of the companies do overlap.
The initial contract award value to each winner is $2,500, and winners will compete for delivery orders over the contract. This arrangement is a one-year base contract, with 3 one-year options. If all options are exercised, the performance period is from Oct 1/07 to Sept 30/11. Contract funds will expire at the end of the current fiscal year. A total of 9 offers were received, which means that every respondent won an opportunity to compete for further awards. DID will continue to add winners as they are announced; winners include:
DID’s FOCUS Article covering the US Army’s RESET maintenance programs shone a light on an under-appreciated aspect of defense spending. Now a Congressional Budget Office report says the US Army has received $38 billion to date to replace, repair, and recondition equipment that has been lost, damaged, or used extensively in conducting operations in Iraq and Afghanistan.
Using any vehicle heavily will lead to maintenance needs, and combat usage is always far higher than non-combat usage; unsurprisingly, RESET and replacement requests have increased steadily from 2005 to 2007. The US Army has also said that it will continue to need approximately $13 billion annually for that purpose for as long as operations continue at their current pace – and for at least 2 years after hostilities cease.
In short, RESET needs are a big deal, and they are getting high level attention. The recent Congressional Budget Office (CBO) paper [PDF Format, 1.2 MB] was prepared at the request of the House Armed Services Committee. It examines the Army’s requirements and the Administration’s RESET/replacement funding requests, developing estimates of annual costs and comparing them with the Army’s estimated requirements and the Administration’s funding requests. Nevertheless: “In keeping with CBO’s mandate to provide objective, impartial analysis, the paper makes no recommendations.”
The Aerospace Division of Halifax-based IMP Group Ltd. recently received a second 7-year increment for its contract to maintain Canada’s search and rescue (SAR) helicopter fleet. This original contract, which was competitively awarded in 2000, provided for extensions in 7-year increments. The new increment is valued at an estimated C$ 591 million (about $570 million) over 7 years. In return, IMP Group will be called upon to provide first and second line maintenance, including sustained repair, overhaul of helicopter components, and engineering support and spares for the fleet.
Work will take place at the 4 Cormorant operating bases located in Comox, British Columbia; Trenton, Ontario; Greenwood, Nova Scotia; and Gander, Newfoundland. Canadian DND release.
The previous GBP 36 million TRADERS(The Rapier Exchange of Repairable Spares) contract with MBDA was signed in March 2004. In August 2005, however, the MoD’s Land Guided Weapons Integrated Project Team (IPT) launched the Air Defence Availability Project (ADAPT) to provide support to Rapier systems in service on an availability basis, rather than paying for parts and labor. This has been a persistent feature of British defense sustainment contracts, one that larger countries like the USA have been slow to recognize and adopt.
The new ADAPT agreement will sustain Rapier FSC until the system’s eventual out-of-service date in 2020, and the UK MoD estimates savings of GBP 175 million (about $355 million) in whole-life costs over that period – but does not divulge the contract’s total value. Approaches adopted to make this example of “future contracting for availability” mutually beneficial to the MOD and MBDA include contract incentives; a joint management team; contractor and Interated Product Team support co-located at a centre of excellence; fleet management; a ‘one stop shop’ for support to training aids; the use of sponsored reserves; and a first-to-fourth line maintenance policy on operations. MoD release.
Rapier FSC provides Low Level Air Defence over the battlefield for UK forces enemy aircraft and cruise missiles…
Britain’s unusual maintenance approach for military equipment is called “future contracting for availability.” In English, this involves partnerships with contractors that establish fixed-price support services for the equipment’s expected lifespan, with rewards and penalties based on established benchmarks for how often the equipment must be in service. It’s a far cry from the “pay for spares and hours” approach in use around the world, and Britain’s National Audit Office likes what it sees so far.
Implementation generally involves a phased set of contracts and agreements that gets the parties closer and closer to the desired goal. That way, each party understands the risks and demands as the contract’s complexity and comprehensiveness grow. “Britain Hammers Out Through-Life Support Framework for Tornado Fleet” described how this approach works on the ground, and talked about some of the keys to success. “UK’s “Contracting for Availability” Adds Hawks, Looks Ahead” mentioned the MoD’s March 2007 Long Term Partnering Agreement Foundation Contract with BAE Systems, which aims to place all British military aircraft under this kind of framework.
It’s a growing practice in a number of Commonwealth countries – independent deal monitors outside of official auditing offices whose role is to scrutinize the defense procurement process and certify the process as fair. India, which has traditionally had a very difficult time getting defense deals completed, has now taken a more permanent version of that step. After consultations with the Central Vigilance Commissioner, and in light of the 2006 procurement reforms, Defence Minister A K Antony has announced that independent monitors have been appointed to vet all major defence deals of value exceeding more than Rs 100 crore (1 billion rupees, or about $24 million). PTI report via Times of India.
In his written statement, the Minister said the 3 monitors appointed so far are:
T R Prasad, former Cabinet Secretary
P C Rawal, former Secretary to the Government of India
Hemendra Kumar, former Special Secretary to the Government
General Atomics of San Diego, CA won a firm fixed price contract from the USAF for $94.3 million in exchange for 36 Predator MQ-1B Aircraft, Aircraft Spares, RSP kits, Hellfire Missile Kit Installation, IMAs and core tasks. At this time, all funds have been authorized. Wright-Patterson Air Force Base OH issued the contract (FA8620-05-G-3028 0027).
MQ-1A Predators are successors to General Atomics’ I-GNAT platform, and serve with the US Air Force, US Navy, US Department of Homeland Security, NASA, the Turkish Army, and the Italian Air Force. The US Army flies the upgraded MC-1C Sky Warrior, while the USAF and British RAF fly the Predator’s successor, the MQ-9 Reaper.
The Predator A fleet recently reached a pair of key milestones. One was the 25,000th’s flight by a Predator A, achieved by P-144 on Aug 8/07 in Iraq. The other was 300,000 flight hours for the fleet, achieved by P-137 on Aug 12/07 while it performed an armed reconnaissance mission in Iraq. That particular aircraft has flown over 145 combat missions in the 18 months it has been deployed, which may explain why 80% of those fleet flight hours have been combat flights. MQ-1As flew over 100,000 flight hours last year alone, and are currently flying some 10,000 hours per month.