February 1, 2009  

Industry pulse: Another year, another re-compete

ARH replacement opens chances for contractors

Another defense procurement program is heading for a re-competition this year after the original contract was canceled when the winner fell four years behind schedule with price increases of 70 percent.

Unlike the controversial and high-profile contest between Boeing and Northrop Grumman/EADS North America for the Air Force’s KC-X aerial tanker contract, where there are only two bidders, the hunt for a replacement for the Army’s Armed Reconnaissance Helicopter (ARH) program might attract at least five competitors — including arch-rivals Boeing and EADS.

A sources sought notice (SSN) was issued by the Army in early November seeking information from the rotorcraft community. By the Dec. 5 response date, Boeing, EADS and Bell Helicopter acknowledged responding to the SSN, likened by one observer to a marketing survey. Sikorsky is also believed to have responded. Italy’s AgustaWestland is believed a potential competitor but it’s not known if the company responded to the SSN. In any event, a response isn’t required to compete, according to a former Defense Department official. Any company will be free to respond to the request for proposals (RFP) when the time comes.

The Army confirmed in January that it has asked industry to help develop and build a new aircraft designed to replace the ARH.

Speaking at the Association of the United States Army Aviation Symposium Jan. 7-9 in Arlington, Va., Col. Grady King, the capability manager for reconnaissance and attack at the Army’s Training and Doctrine Command, said: “The Army product manager sent out a sources-sought document which said [to industry], ‘Tell us what you can do with these kinds of requirements.’ We talked to them [industry] in December, and they are getting back to us next week.”

Requirements for the helicopter are still under development, but they will be similar to the ones sought for the ARH.

The ARH, together with the unmanned SkyWarrior drone and the third block of the AH-64 Apache helicopter, will fill the gap caused by the cancellation of the Comanche helicopter program. The ARH will replace the aging Bell OH-58D Kiowa Warrior. While the Apache is an offensive attack helicopter, the ARH will be armed for defense, designed to get out of sticky situations rather than offensively engage the enemy. Reconnaissance is the primary mission.

Bell won the contract in 2005, beating out Boeing for 512 light ARHs needed to replace and expand the fleet of Kiowas. But after Bell fell four years behind schedule and the cost ballooned from $8.9 million to more than $14 million per aircraft, the Army canceled the contract.

Although the delay puts pressure on the Kiowas and requires the Army to pour about $800 million into maintaining the fleet, it also gave the Army the opportunity to change some important specifications suggested in the SSN.

Historically, the Army built aircraft based on the assumption that battles would be fought on the rolling plains of Europe. This meant that the ability of a single-engine helicopter to hover out of ground effect, or HOGE, at 4,000 feet at 95 degrees Fahrenheit was sufficient.

A war in the hot, high altitudes of Afghanistan was never envisioned. Furthermore, aircraft weight tends to increase throughout its life as new components, weaponry and other equipment are developed or revised and installed. These factors led the Army to suggest changes in the SSN now that a re-competition is coming.

The Army revised the technical requirements for the ARH to include HOGE at 6,000 feet at 95 degrees with an endurance of two hours, 40 minutes, plus a 20-minute fuel reserve. Weapons include Hellfire missiles, 2.57-inch rockets, the GAU19 .50-caliber Gatling gun and M134 7.62mm mini-gun.

Who’s competing

Mike Burke, director of Army Rotocraft Business Development at Boeing, said the company will offer the AH-6S, a stretched version of the AH-6 Little Bird, which is based on the former McDonnell Douglas MD-500/600/900 series. (Boeing acquired McDonnell Douglas in 1997, but later sold off the helicopter unit while retaining the intellectual property rights to the helicopter.) The AH-6 uses the MD-500 airframe with MD-600 engine and drive train.

Boeing said the S model would have more room, just enough so that it could rescue the two-man crew from another ARH that is downed through combat or mechanical failure.

Boeing provides the successful Apache helicopter to the Army, which Burke says has received awards for lean manufacturing and which has been on budget with on-time deliveries. Burke points to this as a key element of the Past Performance criteria analyzed by the Army.

Bell is expected to re-compete its helicopter from the canceled contract. The former defense official said that with the sunk costs to date, Bell could compete within the price range anticipated for the new RFP. But losing the contract in the first place will likely hurt Bell in a past performance evaluation.

“We believe the ARH-70A, which is based on our Model 407, remains the best and most capable platform of its kind. Bell is committed to meeting the armed reconnaissance and scout helicopter needs of the U.S. Army both today and in the future,” a Bell official said. “If and when the Army issues a formal request for proposals for an aircraft to replace the OH-58D Kiowa Warrior, we will review the RFP thoroughly and decide at that time if competing for that contract fits with Bell’s business objectives.

EADS has a militarized version of the AS365, which is used by other forces, but could potentially offer a knock-off of the UH-72 Lakota. This is a twin-engine helicopter the Army ordered in 2006. EADS just delivered its 50th Lakota. The company says the Lakota has been on time and on budget, and will certainly use this as a past performance example to support its bid.

Sikorsky’s potential ARH platform is unclear, but could be the new X-2 push tail.

A version of AgustaWestland’s EH101 was selected by the Navy for the new presidential helicopter fleet. The company is not believed to have a helicopter in the size the Army wants, but could offer a bigger one.

The Army required a single-engine, small aircraft in the first round, which may argue against an EADS UH-72 derivative or a larger AgustaWestland model. But one observer says there are no single-engine light utility helicopters that meet the Army’s HOGE and payload requirements.

Another key element that apparently restricted the number of contenders in the first round was the requirement that the helicopter fit in a C-130 for rapid deployment. This requirement has been removed from the SSN; the C-17 is now the assumed transport.

Why did the Army cancel the Bell ARH contract?

A former Defense Department official said Bell’s price went from $5.5 million to $9 million per aircraft, without first delivery. The company intended to take technology from a commercial model under development, where 70 percent of the cost would be absorbed in this process, and integrate it in to ARH. Less than 30 percent would be paid by government. But Bell canceled the commercial program, and came back to the Army for pay for more than 70percent of the development cost, sharply ballooning the cost to the government.

Bell also canceled plans to build the helicopter in Canada, instead deciding to build it in Texas. New production and assembly facilities would be required, adding to the cost.

“People talk about Army changing requirements — this was not true,” the former Defense Department official says. “Key Performance Parameters (KPP) remained the same. No KPP changes were permitted without approval of the vice chief of Army. KPPs didn’t change, but the scope of certification changed.”

Ultimately, the Army canceled the program.

What’s next?

The Joint Requirements Oversight Council (JROC) has to review the program, followed by Requests for Information, the Draft Request for Proposal and the final RFP.

With the new Obama administration and priorities on the U.S. economy, as well as a stated goal to remake defense procurement, will the ARH get stalled?

The Army has an immediate and proven requirement; it needs to have competition and it needs to drive the risk down. Boeing and EADS have successful track records with proven products. We could see another round of competition between these two global giants.

Scott Hamilton is an analyst with the Leeham Co. (www.leeham.net).