Gates sparks battle between major defense contractors

Defense Secretary Robert Gates’s decision to transfer control over an Army cargo plane program to the Air Force has started a lobbying war between two defense manufacturing giants.

Lockheed Martin has spied an opening in the highly lucrative competition for contracts to build the planes, and could take business away from Alenia North America, an arm of the Italian conglomerate Finmeccanica.

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Both manufacturers have invested a lot of political capital — particularly in Florida and Georgia — to win as much share as possible to build supply-carrying aircraft.

But Gates stirred the pot some more this week when he gave an endorsement to Lockheed by justifying the Pentagon’s decision not to buy more of Alenia’s cargo planes because the military already has so many of the Lockheed planes in its inventory that are waiting to be used. Translation in pure business terms to Lockheed: When the time comes to replace that fleet, the military will be ready for Lockheed’s next line of planes.

Lockheed for several years has eyed the opportunity to sell more of its C-130J Super Hercules cargo aircraft — the newest in the line — to the Air Force.

That would encroach on Alenia North America’s territory. The Italian company, which has partnered with L-3 Communications, is hoping to sell the Pentagon as many of its cargo planes — the C-27J — as possible. But a recent Pentagon announcement that the Army would no longer purchase cargo planes has Alenia preparing for an uphill battle with the Pentagon.

Both the Lockheed and Alenia aircrafts come with strong commendations and are battle-tested, but the fight will come down to making the convincing case that buying one aircraft over the other will eventually be more cost-effective for the Pentagon at a time when the Obama administration is tightening the purse.

Alenia’s C-27J is a smaller aircraft than Lockheed’s C-130J and about half the price. The basic version of Lockheed’s C-130J can cost between $60 million and $65 million per plane. Alenia’s C-27J costs approximately $34 million.

Alenia’s plane has two engines, while Lockheed’s has four and can carry a larger payload.

While Alenia’s plane can’t carry as much as Lockheed’s, its size makes it more agile and it can take off and land on smaller airstrips, said Richard Aboulafia, an analyst with the Teal Group. Its size also makes it more ecnonomical when the military has to fly fewer supplies, he added. Backers of Lockheed’s C-130J argue it can fly most of the missions made by Alenia’s C-27J.

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Alenia initially looked to be winning the fight when Lockheed lost out three years ago on the competition to provide the Army and the Air Force with a cargo plane that could fly deep into the battlefield and deliver supplies to troops. But the decision to leave the formerly joint program solely in the hands of the Air Force, coupled with Gates’s comments this week, is putting Alenia on the defensive.

Gates told House and Senate defense authorizers that he was a bystander when Army Chief of Staff Gen. George Casey and Air Force Chief of Staff Norton Schwartz discussed and agreed on the change in the C-27J program. The 2010 budget submission had Gates’s stamp of approval.

Gates this week also threw his clout behind Lockheed’s C-130 aircraft by indicating that he does not deem it “necessary” to buy more than 38 C-27Js because there are more than 200 C-130s in the domestic inventory that the National Guard can resort to during natural disasters and other crises.

“The reality is, here at home, we have over 200 C-130s that are available and uncommitted,” Gates said at a House Armed Services Committee hearing on Wednesday, repeating the idea before Senate authorizers on Thursday.

“So the notion that cutting or limiting the C-27 program somehow reduces the ability of the Air National Guard or the Army to respond to a national disaster or natural disaster or some other kind of disaster here at home is not sustainable.”

Lockheed will likely capitalize on that statement and try to turn it into profit. If the National Guard resorts to using more of the C-130s, that also means Lockheed over the next decade will get to replace the old C-130 version with its newest: the J model, also known as the Super Hercules.

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Lockheed is currently exploring with the Air Force the framework of a multiyear buy of C-130Js in coming years. The defense giant is counting on the fact that the more planes it sells, the more it can bring down the cost.

According to Gates, there are approximately 424 C-130 planes in the Air Force’s inventory, and two-thirds of those are in the reserve components, which usually fly the older versions.

“The C-130J was originally proposed by Lockheed Martin for the Joint Cargo Aircraft program,” said Lockheed Martin spokesman Peter Simmons. “We look forward to any opportunity where the C-130J could be re-evaluated for that role.”

But Alenia argues that its plane is carved out for that role.

“The C-27J was designed not as a replacement to the 130s but to augment and support larger aircraft in more austere and rugged areas such as Afghanistan,” said Alenia’s Benjamin Stone. “This is exactly why it is an excellent fit for direct support or “last tactical mile” operations.”

Alenia was planning to assemble the C-27J in Jacksonville, Fla., but with half the order it expected, the company likely will not build the planes in the United States. That has already put Florida’s governor, Charlie Crist (R), on alert. Last week he sent a letter to Gates pressing him to buy the initially planned 78 aircraft instead of 38.