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:: March 2004 Letter ::

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Dear Fellow Helicopter Watchers (Version 2.0),

Again with the helicopters. It’s a busy time for the rotary winged red-haired stepchildren of the aerospace industry. The only thing that could eclipse the endless VXX debate was a Comanche cancellation. And that’s what we got. Thus, more spilled ink.

Let’s start from the top. Why was Comanche doomed? One reason: money. The Army never had the cash to build this thing. Converting it from a sub-$1 billion a year research effort to a $3-4 billion a year procurement effort would have clobbered the Army’s budget. Comanche’s place in the broader scheme of things was terrible, too. It was neither a cherished legacy asset nor a transformational priority. It was basically an interim system far from deployment, making it roadkill on the Transformation Highway.

But while the move was inevitable, the timing was intriguing. The program was under DoD review, along with the F/A-22. But the Army decided to take matters into its own hands, probably to spin this as a pro-active strategic move. That beats looking like the victim of a higher power’s budget axe. This is the equivalent of the KGB stooge handing a gun to the disgraced Politburo member and saying “we can do it, or you can do it.”

What will the Army do? This cancellation provides a golden opportunity for the Army to look pro-active, reinvent itself and direct the funding to the Future Combat System, which will incorporate uninhabited drones for the scout mission. The Army held a press conference, issuing the time-honored battle cry: “Retreat!” Instead of reserving the cash for uninhabited recon systems and FCS, the service announced a broad and confusing list of alternative helicopter acquisitions. They trotted out the decades-old Light Utility Helicopter (LUH) requirement (after years of noticing that Black Hawks often fly around with two guys in the back, it’s about time). They also announced another armed scout requirement with absolutely zero definition. Of course, if you combine the scout and LUH requirements, you get LHX. That’s not the airport code for Lagos. That’s the requirement that launched the Comanche farce two decades ago.

Yet helicopter contractors might just find that the new acquisition list is too vague to mean anything. From the contractor perspective, it could be like hearing “there’s a pile of rubies in the back room; will you count them for us?” and then going inside, hearing the door slam, followed by demonic laughter.

The Army maintains that cancellation costs will be in the $500 million range. But this contract cancellation will be at government convenience. Ironically, the Comanche program was finally shaping up, and the sixth restructuring was the one not written by simians with typewriters. Cancellation costs could easily exceed $2 billion, obliterating some of the Army’s hopes for a shopping spree at the rotorcraft showroom. (You can practically hear Homer J. Simpson in the background: “Two Billion Dollars? But I already spent the money we saved on Beer.”) Then again, perhaps the Army announced its helicopter shopping list to keep the Comanche firms from speed-dialing Johnny Cochran’s number.

In addition to cancellation costs, the Army is likely to find that a failure to re-invent itself as a lighter, more agile and deployable force will perpetuate a most unfortunate trend. Every day for the last ten years, Air Force, Navy, and Marine cafeterias have been serving large, tasty helpings of the same thing: the Army’s budget. It’s everyone else’s favorite lunch, and will continue to be until the service can argue that it’s just as expeditionary as the other guys. Buying hundreds more helicopters won’t change this situation, and it forestalls funding for reinvention.

Where do Boeing And Sikorsky stand? In very different places. Sikorsky’s dream of returning to market leadership has been dashed, and they have no products that could do the armed scout mission. The best Sikorsky can hope for is sympathetic and preferential treatment on the VXX and CSAR competitions, but there’s no evidence that the Army communicates about helicopter issues with the Marines and Air Force. At least Sikorsky gets an extra batch of Black Hawks and rebuilds, but these would probably have been plus-upped by Congress anyway.

For Boeing, by contrast, there’s a strong upside. After all, the Comanche mission will probably be divvied up between Apache and FCS, both Boeing projects. This sure beats 50% of a risky proposition. The company is now guaranteed more Apache funding (501 Block III upgrades for a start). While additional new or rebuild Apaches are likely too, any company plans for a scout Apache version (AH-64E?) to do Comanche’s job have been kept out of sight for diplomatic reasons. As ever, Boeing wants to be seen crying at the funeral, not holding the smoking gun. Or, as Clarence Darrow once said, “I have never killed a man, but I have read many obituaries with a great deal of pleasure.” (A colleague followed this with, “In parts of this country, he needed killin’ is still a legitimate murder defense.”)

In short, this cancellation may be necessary and inevitable, but it’s difficult to imagine anything good coming from it. The Army’s recapitalization plans are still a mess. Aside from the T800 engine, it’s hard to identify anything salvageable from the $8 billion spent. I’d like to take credit for being right about the program’s fate, but this was never a tough call. As the saying goes, even a broken clock is right twice a day. And don’t forget the last two phases of any failed program: (1) Destruction of all useful documentation, and (2) Persecution of the innocent.

A tangential benefit, however, could be the removal of a key obstacle to industry restructuring. One of the big obstacles to mergers in this overcapacity-ridden industry has been an inability to agree on how much a company is actually worth. Sikorsky, for example, was able to put itself in a better negotiating position when it could point to the possibility of Comanche revenue. With that prospect now ended, Sikorsky can now negotiate as buyer or seller with much less uncertainty.

One last issue—what does this move mean for other programs? I’d argue that it means absolutely nothing. The Army is in the unique position of trying to maintain its legacy capabilities, reinvent itself and watch its share of the defense budget shrink. Meanwhile, the F/A-22 has a procurement line item. Killing a research-only project is easy, because you’re only firing a bunch of propellerheads in lab coats, not thousands of angry, single-issue-voter machinists.

Needless to say, March’s supplement includes a Comanche update. It also includes a bunch of Navy programs—AV-8B, P-3, E-2, plus Airbus’s narrowbody family, the K-8, Dauphin, and others. Have a cancellation-free month.

Yours, Until I Get A Flight In An Uninhabited Drone,

Richard Aboulafia

 

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