Helicopter Industry Turns Cutthroat As Defense Procurements Dwindle

From left: A Bell-UH Iroquois and a Eurocopter UH-72 Lakota helicopters

The Army expects a ruling next month by the U.S. Court of Federal Claims on a protest filed more than two years ago by helicopter manufacturer AgustaWestland North America. The company challenged the Army’s decision to buy helicopters for its pilot training school from Airbus under an existing contract rather than invite other competitors to bid.

AgustaWestland argued that was a violation of the Competition in Contracting Act.

The court’s decision could come as early as July, said Army spokesman Dan O’Boyle.

The ins and outs of the suit are complicated, but broadly speaking they illustrate the degree to which military helicopter suppliers will fight for orders at a time when there are few new programs on the horizon.

When the Army started replacing its aging TH-67s with the Airbus-made Lakota light utility helicopters at the pilot training school at Fort Rucker, Alabama, it did not sit well with companies like AgustaWestland and Bell Helicopter, which had bid on the original light-utility competition and lost to Airbus in 2006. AgustaWestland filed a pre-award bid protest in 2014 in an effort to prevent any further acquisition of Lakotas for the training mission, said O’Boyle. He said there are currently 91 UH-72A Lakotas available for training at the U.S. Army Aviation Center of Excellence, and the total funded quantity is 187.

AgustaWestland executives said they would be unable to comment until the suit is resolved. Industry insiders point out that, for all practical purposes, the Army already is building a training fleet of Lakotas, and even if AgustaWestland’s claim prevailed, it would be unreasonable to expect the Army to introduce a new aircraft type so late in the program.

A favorable ruling for the company, however, would send a message to the Defense Department that contractors will take action to make sure military requirements are competed on the open market.

The Army has made the case that it did conduct a competition for a light utility helicopter, which Airbus won, and that the training mission was one portion of the larger LUH program. Officials were surprised to be challenged in court for doing what they thought was the most efficient way to get badly needed helicopters to its pilot training school.

For budgetary and logistical reasons, the Army also is reluctant to insert new aircraft models into the fleet. Under a cost-cutting plan known as the aviation restructuring initiative, or ARI, the Army proposed to downsize its inventory of about 3,000 helicopters from seven to four types of aircraft: the Lakota, Black Hawk, Chinook and Apache. It will retire the Huey, the Kiowa Warrior and the TH-67 trainer.

The protracted protest by AgustaWestland could be a sign of things to come as the opportunities to bid on new procurements become scarcer. Typically companies would be reluctant to go down that road out of fear of upsetting their primary customer.

Airbus’ competitors questioned the Army’s justification to stick with Lakotas for the training fleet. After the suit was filed, the judge told the Army to stop buying Lakotas while the case was under review, although at that point it had already purchased a large number. The Army reportedly has purchased 171 Lakotas for training under the existing 2006 contract. The court of claims will have to determine whether the Army’s actions were warranted.

Industry sources said it would be hard to imagine that at this stage the Army would start a competition for the few remaining helicopters it needs to fill out its training requirement of 187 helicopters. AgustaWestland’s only other options would be to seek damages or be content with sending a message about poor competitive contracting practices by the Pentagon.

Industry sources, who asked not to be quoted by name, said companies in the rotary-wing aviation sector are fed up with recent decisions to not compete helicopter procurements in favor of sole-sourcing. Companies have been especially irked by the Air Force for not competing its combat search-and-rescue helicopter and for hinting it would not compete a replacement for the Vietnam-era Huey, although the Air Force recently changed course in response to the backlash.

“It’s the principle,” one source said. “If you don’t have competition you erode the industrial base. There is a desire to make sure that this doesn’t happen again.”

The Air Force’s $2.5 billion UH-1N Huey replacement program — a procurement of 72 helicopters for nuclear security, VIP transport and other missions — is the industry’s next big target.
Air Force spokesman Maj. Robert Leese said details of this competition are forthcoming. “The Air Force is currently developing a detailed acquisition strategy, to include total procurement quantities, the program schedule and program costs."

There will be a “full and open competition,” Leese said.

Up until a few weeks ago, though, the Air Force had planned to buy 41 Sikorsky-made Black Hawks to replace 50-year-old Hueys following an urgent request from U.S. Strategic Command for helicopters to deploy at ICBM fields in Montana, North Dakota and Wyoming.

That decision came under political fire and the Pentagon overruled the Air Force, directing the service to conduct a competitive bid.

Lawmakers representing companies like Airbus, Bell Helicopter and AgustaWestland ramped up the pressure for competition, whereas the delegation from Connecticut, where Sikorsky builds helicopters, kept pushing for a fast-track deal.

The program has of late come under intense scrutiny because of the important role the Huey plays in guarding Minuteman nuclear missile facilities. The Senate Armed Services Committee asked the commander of U.S. Strategic Command to submit a classified report to Congress explaining how the use of old helicopters poses a threat to nuclear missile silos.

Sikorsky’s rivals were enraged by the Air Force’s initial attempt to use the Economy Act of 1932 as a justification for buying Black Hawks for the nuclear security mission under an existing Army contract with Sikorsky.  

Critics said the Air Force undermined its own case for an urgent procurement since it has known since 2003 that it needed to buy a replacement for the Hueys, many of which are unsafe to fly. “You say this is a critical need and for the better part of a decade you haven’t followed through on a replacement?” one source said. “Your inaction cannot be the reason why there’s a sense of urgency.”

There is speculation that the Air Force might break up the buy. It could first acquire aircraft for nuclear security, and later reopen the bid for the VIP transport mission, for which the service could select a less expensive helicopter.

The more stringent military requirements for nuclear security would almost certainly ensure a win for the Black Hawk, industry sources aid. But with a price tag of $25 million to $30 million per aircraft, competitors have argued, the Air Force would be hard pressed to justify such a big-ticket helicopter for routine VIP shuttling. That mission could be satisfied with less militarized commercial aircraft at half that price.

The fierce jockeying and behind-the-scenes lobbying associated with the Huey replacement program further illustrates the state of the market.

The world’s largest buyer of military helicopters, the U.S. Army, sent shockwaves through the industry when it released a 2017 budget request showing a $2 billion reduction in funding for new helicopters compared to 2016.

The Army plans to buy a new generation of helicopters under a “future vertical lift” project, but production of new aircraft is at least 20 years away. Some contractors have grown more skeptical about the Army’s modernization efforts after the service canceled a multibillion-dollar armed-scout helicopter procurement. Airbus, for instance, had spent $100 million to design and build prototypes for a program that never materialized.

Photos: Defense Dept. 

Topics: Aviation, Rotary Wing, International, Logistics, Procurement