Defense contractors vie for FAA data contract

Tue Jan 10, 2012 6:18pm EST

(Reuters) - Defense contractors ITT Exelis Inc (XLS.N), Harris Corp (HRS.N) and Lockheed Martin Corp (LMT.N) are vying for a contract expected to be awarded in June to build a data communications system for the Federal Aviation Administration's NextGen program.

The system to be built and operated under the contract is meant to replace voice with digital data for many of the communications that take place between pilots and air traffic controllers.

The contract is the second major step in building NextGen, the FAA project to transition from an air traffic control system based on World War II-era radar technology to one based on satellite technology.

"If we're going to be able to safely and efficiently move traffic on into the 21st Century, we've got to get away from the speed of voice and analog communications," said Dan Elwell, vice president of civil aviation for the Aerospace Industries Association trade group.

He added he was concerned the Next Generation air transportation program as a whole could be set back after a bipartisan congressional committee failed last year to agree on $1.2 trillion in deficit-cutting measures. That failure triggered a process called sequestration that mandates $600 billion in across-the-board cuts at the Defense Department to kick in starting next year.

NextGen has "been funded so far adequately to stay on track, but if sequestration goes forward ... we're very concerned that NextGen will suffer dramatically," Elwell added.

An FAA spokesman declined to comment on the value of the data contract, but industry observers said it is believed to be at least a billion. The defense contractors who have confirmed their bids all have longtime ties with the FAA.

"It's not surprising that all the big players would be vying for it," Ellwell said.

ITT Exelis said this week its team includes Airbus EAD.PA, Rockwell Collins Inc (COL.N), United Parcel Service Inc (UPS.N) and air carrier United Continental Holdings Inc (UAL.N).

Exelis said the FAA data contract win could be a springboard to new international business as the defense company, which was spun off from ITT Corp (ITT.N) last year, looks to expand its customer base outside the U.S. Pentagon.

"We see it as a big market and a big growth platform for us," said Ed Sayadian, president of air traffic management at ITT Exelis.

In 2007, ITT was awarded an FAA contract to install and operate ground stations for Automatic Dependent Surveillance-Broadcast (ADS-B) technology that is the backbone for the NextGen system, which is aimed at reducing traffic congestion and allowing more flights.

Harris Corp, which developed and installed the advanced telecommunications infrastructure system now used by the FAA, said its team includes ARINC, which provides communications and engineering for defense and commercial sectors, as well as Thales (TCFP.PA) and General Electric Aviation (GE.N).

"We are a very, very large FAA contractor, so we would bid for an opportunity like this no matter what the (U.S. defense) budget environment looked like," said John O'Sullivan, Harris vice president of mission critical networks.

Diane Desua, Lockheed Martin director of NextGen strategy, called the data contract a "high priority" for Lockheed, which is already working with the FAA to replace the existing air traffic control automation system that is more than 30 years old.

Lockheed's team in the data contract bid includes aircraft maker Boeing Co (BA.N), IP service provider Level 3 Communications Inc (LVLT.N), telecommunications software firm Telcordia and airlines, Desua added.

(Editing by Andre Grenon)

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