Rotor & Wing International

Is Procurement Hurting Competition?

Associate Editor and Defense Analyst Pat Host provides analysis into current U.S. government programs.

Industry officials are debating whether decreased military spending and Pentagon procurement practices are hampering the ability of competitors to break into the U.S. Defense Dept. rotorcraft marketplace.

One analyst, Loren Thompson, argues that the only way for companies without existing Defense Dept. business to break into that market is to win “new start” programs. But the services lack the money to fund such work, he said, and original equipment manufacturers with large existing contracts — such as Airbus, Boeing and Lockheed Martin’s Sikorsky — are not driving for the launch of new acquisitions.

Ongoing upgrades and procurements of H-60s, shown here, and AH-64s have sustained Sikorsky and Boeing, but new-start vertical-lift programs have been sparse.Photo courtesy of the U.S. Army

“It really has to be a clean sheet for outsiders to get into the business,” said Thompson, COO of the Arlington, Virginia, Lexington Institute, whose benefactors include Lockheed Martin.

He and others maintain that sole-source contracts for upgraded and new helicopters from those manufacturers can save services money. But others point out that the capitalist system in which the manufacturers operate is based on competition driving efficiencies and savings.

Failed New Starts

The Defense Dept. has tried, and failed, to fulfill a number of new starts over the years, from the Army’s Armed Reconnaissance Helicopter (canceled in late 2008), the Air Force’s Combat Search and Rescue Helicopter, or CSAR-X, (canceled in 2009) and the Army’s follow-on Armed Aerial Scout (dropped in 2013).

Sikorsky was the only bidder in a pair of big recent rotorcraft procurements. It won an initial, $1.3 billion contract for the Air Force’s Combat Rescue Helicopter in 2014 and also received an initial, $1.2 billion award for the Navy’s beleaguered presidential helicopter replacement, the VXX. Other companies said they didn’t bid because the competitions’ tenets would have put their contenders at a disadvantage.

Boeing also is a beneficiary of the current situation, winning work to supply upgraded CH-47 Chinooks and enhance the Apache to produce the AH-64E Apache Guardian variant. In April, that OEM said it had been awarded $1.5 billion worth of work to remanufacture 117 more AH-64s and provide flight simulators, logistical support and spare parts.

The last time the Defense Dept. had a real competition was in 2005 for the win of the Army’s Light Utility Helicopter program. Airbus (nee EADS North America) offered its UH-72A Lakota and in June 2006 beat out Bell, MD Helicopters and AgustaWestland to win that work.

Prior to 2005, the Army had a rotorcraft competition in the 1980s called Light Helicopter Experimental, which became the RAH-66 Comanche. After years of delays and cost overruns, the Army canceled it in 2004 with the intent of preserving its $14 billion in funding for development of new rotorcraft, including a new armed scout. (Comanche was intended to fulfill that mission.)

Ongoing upgrades and procurements of H-60s and AH-64s, shown here, have sustained Sikorsky and Boeing, but new-start vertical-lift programs have been sparse.Photo courtesy of Boeing

The various new-start failures have left the services relying on modernization, remanufacturing upgrades and continued acquisition of existing platforms. (A possible exception is the Navy’s pending desire to acquire more than 100 trainers, including an instrument-flight-rules one.)

The Air Force wants to improve the capability lacking in its Bell UH-1Ns; it especially wants to quickly replace the ones that perform the nuclear missile-field support and security missions. The service’s assistant secretary for acquisition, Lt. Gen. Arnold Bunch, said in March the service wanted to use an Economy Act “declaration and finding” to procure 41 new aircraft for the nuclear mission.

Such a finding, while not a sole-source award, would bypass a competition by adding the acquisition onto an existing Defense Dept. contract. Bunch said the Air Force could spend between $800 million and $900 million to replace the nuclear mission UH-1Ns, which first deployed in 1970. (The Hueys also perform airlift of emergency security forces and VIPs and transport congressional and executive-branch leaders to ensure the continued operation of the government in a national emergency.)

Industry officials are split on whether the Defense Dept.’s habit of awarding rotorcraft contracts without competition is bad for the military.

One lobbyist who represents competing aircraft manufacturers argued that sole-sourcing these contracts not only inflates the true price tag the Pentagon pays for aircraft, but also reduces their maximum potential capability. Companies, he argued, invest tens of millions of dollars to ramp up capabilities and prepare for an Air Force UH-1N competition, only to be rewarded with service leaders saying publicly they were thinking of awarding the contract without competition.

The Lexington Institute’s Thompson argued that competitions can waste money and that sole-sourcing the UH-1N contract to Sikorsky would save the Air Force money in the long run. (Lockheed Martin contributes to the institute.) He said the Air Force could tell Sikorsky that, without a good price, it couldn’t award the UH-1N contract at all. Secondly, Thompson said, since the Black Hawk is already in the joint force, sustainment costs would be lower than if the Air Force introduced another aircraft variant into the field.

Competition’s Values

Retired Air Force Lt. Gen. James Kowalski, former head of Air Force Global Strike Command, said he believed the Economy Act finding was the smartest way for the Air Force to procure UH-1N replacements. He said the Air Force has faced funding challenges in replacing the aircraft throughout the years and there aren’t many companies building the properly sized helicopter to do the mission the way it is currently defined.

Kowalski said a replacement helicopter remains an urgent need since a number of Defense Dept.-directed requirements changed, without funding, in a response to the Sep. 11, 2001, terrorist attacks. He said the number of airmen required to fit in it became larger than the UH-1N could handle.

He also said the Hueys don’t have the range to cover distances required at some of the farthest missile sites, which are scattered across vast distances in Montana, Wyoming and North Dakota. He added that they don’t have the speed to meet mission requirements.

Steven Schooner, a professor of government procurement law at the George Washington University Law School and a retired Army Reserve officer, said there is “no question” that if the Air Force piggybacks on an existing contract for an aircraft it wants, and it knows that aircraft will fulfill a specific requirement, it reduces its transaction costs. But Schooner said on a macro level, the entire procurement system is based on competition.

“If they’ve lost one or two of them in the last year, and they want to replace one or two, there seems to be a fair amount of logic in picking them up off of someone’s vehicle,” Schooner said. “If you tell me you are replacing all of them, even if you are buying, whether a half dozen or 40, I think the argument is going to be very difficult that the best thing to do is piggyback on [another contract].”

The Air Force’s deputy chief of staff for strategic plans and requirements, Lt. Gen. Mike Holmes, said the service had not decided on an acquisition strategy and was working with Congress on the proper way forward. Air Force officials said the service is focused on the urgent operational needs of the missile-support mission and that a separate acquisition strategy for the other UH-1N missions, like VIP and continuity-of-government missions, will be developed at a later date.

More details should emerge on the future of the UH-1N procurement when the House and Senate mark up their versions of the fiscal year 2017 defense authorization bills. House Armed Services Committee subpanels were to do that the week of April 18, and the full committee was scheduled to do so on April 27. Most Senate Armed Services Committee subpanels are to mark up their bills in closed sessions May 9 to 10, while the full committee holds its markup starting May 11, also in a closed session. R&WI