Top DOD buyer signals globalization is reality; tanker contract might come Feb. 25

Two top Defense Department officials today (Feb. 16) told a conference sponsored  by Aviation Week magazine that the contract award for the KC-X could be made by the end of the month.

The buzz in Washington is that it will be after the stock market closed on Friday, Feb. 25.

The statements by the DOD officials are summed up nicely in this Defense News article.

At the same Aviation Week conference, the Pentagon’s top buyer, Ashton Carter, repeated remarks he made a week earlier at the Cowen & Co. aerospace and defense investors’ conference February 9. At the Cowen event, the headlines to come out of it were remarks made by Boeing CEO Jim McNerney about the prospect of proceeding with an all-new replacement for the 737.

The headline that did not come out of it was from a speech presented by the Pentagon’s top buyer, Ashton Carter. Elements of his speech did, indeed, make news. However, buried in his speech as the last topic were his comments about globalization and procuring key defense systems from non-US companies.

Is this laying the groundwork for selecting the EADS North America KC-45 tanker in the KC-X competition? DOD Buzz picked up on this, too, but well down its story.

Perhaps this is too much “Kremlinology” but carefully read his remarks:

In the industry that supports these international security efforts, we likewise simply cannot avoid or wall ourselves off from globalization. Depending on the program, from a few percent to much more of the value-added in defense goods and services is sourced overseas – mostly to companies that serve as subcontractors to U.S. primes and that provide, for example, a particular specialized part. Sometimes that is where the best technology or best value can be found, and when it is, we owe it to the warfighter to do so. Globalization of our market is not an option – it is a reality. Our utilization of, for lack of a better term, “non-heritage” firms is essential for nearly all of the systems upon which we rely. We are committed to continue opening our markets while at the same time striking the appropriate balance with security concerns. Just as we have opened our markets to the leading firms from around the world, we urge our partner nations to do likewise. Exports obviously strengthen our industry’s competitiveness, but they also enhance our security – and international security – when they build the capacities of international partners. We are doing our part by implementing President Obama’s reforms of our antiquated export control regulations and procedures, and we expect our efforts will result in increasingly open and fair competitions around the globe.

To summarize, our goals in the new era for our defense industry are:

  • A strong, vibrant, and financially successful defense industry,
  • Structural change largely through market forces but adjusted where the interests of the taxpayer and warfighter require,
  • Preserving and enhancing competition,
  • Equal attention to the health of smaller and mid-sized companies, spinouts, new entrants, and service providers,
  • Encouraging open entry into the defense marketplace, and
  • Full advantage taken of the opportunities of globalization

Here is Ashton Carter’s speech, from the Cowen conference. The Aviation Week remarks were essentially identical.

30 Comments on “Top DOD buyer signals globalization is reality; tanker contract might come Feb. 25

  1. Seems pretty good for EADS…If they win it congratulations to them.

    Is there anything in Boeing’s favor?

    If Boeing loses let’s hope they do not protest and just let it go.

    Boeing will be ok…:)

  2. If Boeing were to lose the competition, I think they have laid too much groundwork to not launch a protest.

    The question is, would EADS lauch a protest, were they to lose?

    • of course they would – a 1% profit margin equates to 1 billion dollars. they’d be daft to just let it go…

      • Would they have a ground to protest?
        One cannot (should not) protest merely for the sake of protesting. Boeing did have grounds to do so back in 2008.

      • of course they’ll have grounds. There’s thousands of pages and hundreds of requirements.
        Like Boeing did, EADS could inundate the GAO with any complaint they have – the GAO only needs to uphold a single one, or deem the combination of several significant enough…

    • IMHO the bleeding heart 767 line stuff from Boeing was/is
      intentional and premeditated.

      It is now _not_ potential jobs not created but existing jobs destroyed.

      Hmm: How easy is it to morph the 767 line into a 787 line ?

    • The protest is an asymmetrical weapon. The US General Accounting Office will only consider the loser’s claims of bias and will ignore any compensating bias that the winner would want to claim should the competition be lost on appeal. They are also bound up with process and don’t consider the broader context much. A protest is a one-way bet for the loser.

      Having said that, there’s no guarantee that a protest will be effective. The GAO don’t decide anything – they just refer back for review.

    • EADS NA Chairman Ralph Crosby said there would be no protest if EADS loses unless there were an egregious error on the part of the USAF.

  3. That profit margin is spread over the life of the contract, something like 15-20 years. It also usually means a lose producing the 4 SDD aircraft, or at best a break even. That is because these aircraft and flight testing will ‘allow’ the USAF to fine tune he final production version, by adding or deleting ‘needed’ or ‘unwanted’ capabilities and correct problems that may be found during testing and operational evaluations. The profit is really based on the following 175 tankers.

    Ashton Carter may want more ‘globalization’ in future DOD contracts, but the timing of his speech ignors the current economic reality here in the US. We need jobs to get the estiminated real unemployment rate (as said by some) down from 19%, and need to begin controlling inflation, which is running almost out of control. This economy needs jobs, and jobs provide for tax revenue to the government, and those revenues can help pay for the new tanker (as opposed to borrowing the money). It is a closed loop circle.

    The speech also ignors the very real possibility the Congress will not fund any major weapons buy that sends most of the monies to Europe.

    The KC-X is more than just a new tanker for the USAF. It is also a jobs producer (EADS claims up to 48,000 US jobs, Boeing claims 50,000 + US jobs), which translates into votes (for Congressmen and Senators, as well as the reelection possibilities for the President in 2012 and beyond), and finally it is an economic engine that could generate additional jobs, and profits for any indirect companies (new cars and trucks and sales on new or exsiting homes, etc.). Make no mistake about it, the Congress will be watching this very closely. Should the contract be awarded to an overseas company, the funding could very well end up on the budget cutting block. Cutting some $35B over the next 15-20 years is very attractive in these days of spendng $2 for every $1 dollar the government takes in. The US national debt is now at some 102% GDP.

    • You need jobs that produce competive value. i.e. something
      that is sellable abroad and works towards alleviation of
      the excess in imports.

      What you propose is just another form of subsidy ;-)

      Giving this to Boeing on charity grounds would be just
      another training round in siphoning off public spending.

      In this context:
      Lawyers, bankers and leasers are not productive
      they just incur cost.

      • It is not really a subsidy as the government gets something in return for what it spends money on.

        But, if you look at it as a subsidy, then the EADS winnig bid (if that should happen) would be money given directly to the EU, with just a small portion going into the US.

  4. KC135TopBoom :
    It is not really a subsidy as the government gets something in return for what it spends money on.
    But, if you look at it as a subsidy, then the EADS winnig bid (if that should happen) would be money given directly to the EU, with just a small portion going into the US.

    He, that small portion being 50%++ by value ;-)
    My impression is that you will get less return from Boeing. Additionally you will have trained local commerce on how “to gain more from providing less”.

    Eisenhower called this the Industrial Military complex, right?

    • How will Boeing give you less return? I’m sure they use the same book keeping standards EADS-NA does.

      Yes, Eik did call it the Military/Industrial Complex. So what? EADS is trying to join it.

    • Hmpf watching from outside the decission process for
      US space access has the mobility and direction of
      a freshly beheaded chicken.
      Though the inner workings probably turn around partisan
      factions trying to roll porkbarrels onto hometurf.

      All with a thick icing of corpopolitico speak.

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  6. ikkeman :of course they’ll have grounds. There’s thousands of pages and hundreds of requirements.Like Boeing did, EADS could inundate the GAO with any complaint they have – the GAO only needs to uphold a single one, or deem the combination of several significant enough…

    But, in 2008, Boeing submitted about 100 cmplaints to the GAO. IIRC, 8 were upheld and these were the most significant complaints, where the USAF violated its own policies and regulations, as well as federal purchasing and contrct laws.

    It was not just one complaint, or several complaints which were combined into a significant one.

    • But that was what I meant. We all know the USAF screwed up once – sending both the others IFARA score. I think it is statistically impossible to run such a huge contract impeccably. Murphy always wins.

      • Actually, the DOD and USAF screwed up at least twice by granting EADS additional time to prepared their bid from 5/9/10 to 7/9/10, 60 days, and awarding EADS prime defense contractor status. Then they did not grant USAE additional time, nor treated them the same way they treated EADS. Boeing can use both examples to show some ‘favortism’ to EADS, and no one else.

  7. BTW, EADS had asked for a 90 day extension but was satisfied with the 60 days.

  8. There’s a recent article in the Economist that explains how little defense spending gets put out to competitive bidding, leading to a huge waste of taxes. It would seem the tanker program is one of the relatively good ones.

    Returning to topic, globalization is a way of ensuring more competition and better use of resources.

    • While some DOD contracts are sole source (they have to be), the KC-X contract is not one of them. The RFP clearly says the contract will be awarded to the lowest bidder (after the USAF price adjustments) that meets all 372 requirements.

      Most DOD contracts for major weapons systems are put out for a competition, in the past we have had the F-X (F/FB-111), CX-HLA (C-5), ATCA, (KC-10), CSAR-X (to be recompeted), LCS (both designs were selected), C-X (C-17), AMST (YC-14, Yc-15, neither one selected). The USN usually holds just a bidding compitition for new warships.

  9. Throw this into the mix:
    The Airbus tanker will be powered by GE engines, the Boeing version by Pratt & Whitney.
    The GE F136 alternate engine for the Joint Strike Fighter would seem to be dead meat (justifiably, but that’s another debate) after last week’s House vote.
    Airbus wins, giving a 400 engine order to GE and a bone to John Boehner.

    Wacky? We’ll see.

    • You do know the USAF can reject the engines offered by both OEMs? The USAF has the option of selecting just the airframe and then provide the OEM with its own selected engine as government provided equipment.

      For example, they could select the KC-767NG without engines, then buy some GEnx-2B engines and pay for the flight testing ad certification.

      Chances are the USAF will not do this.

  10. Why is it that ge never gets to bid directly against pratt&whitney for the military jet engine business?

  11. why did pratt &whitney receive the f35 jsf fighter business without having to bid against ge directly?

  12. how did pratt&whitney receive funding for their tf30 engine from 1962 through 1997 only to have ge replace their lousy engines on the f14/f15 and f16 fighter planes?

  13. and then, the military selects a derivative of the tf30 engine for the f35 jsf without any bids from ge.

  14. The TF-30 never powered the F-15 and F-16. It powered the F-14A and all models of the F-111. GE has won many military engine contracts, including the CFM-56 reengining for the KC-135, VC-25 (CF-6-80), C-40 (CFM-56), KC-10 (CF-6-50), F/A-18 (F-404 and F-414), C-5 (TF-43 and CF-6-80E), F-15E and reengined F-14B/D (F-110). The F-4 had a GE engine (J-79). Both GE and P&W built engines for the F-15s and F-16s.

    So it is not like GE not winning many engine contracts for military engines.

    If anything, P&W has gotten the short end of the military engine stick, except for the C-17 (PW-2040).

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