Sikorsky warns of consequences if Pentagon breaks multiyear deal

WASHINGTON Thu Jun 26, 2014 8:45pm EDT

WASHINGTON (Reuters) - Sikorsky Aircraft, a unit of United Technologies Corp (UTX.N), said on Thursday it hoped Pentagon officials would realize that reneging on the final year of a five-year helicopter contract would undermine confidence in future deals and drive up costs.

Sam Mehta, president of Sikorsky Defense Systems and Services, said he realized U.S. military officials were in a difficult position given mandatory cuts in defense spending, but that his company and others viewed the Navy's plan to truncate its multiyear agreement as a "serious concern."

"If you violate one multiyear agreement, you basically undermine the basis for all multiyear contracting, which has delivered billions of dollars of savings to the DoD (Department of Defense)," Mehta told Reuters in a telephone interview.

"I don't know how the DoD would be able to face a contractor again and ask them to make long-term commitments on things like pricing," Mehta said, noting that companies would be skeptical about making such agreements if the Pentagon set a precedent for backing out of the deals later.

Mehta said lawmakers and military officials generally agreed that the move should be a "last recourse" and Sikorsky had not found anyone who favored the plan as a good way to save money.

"Once they understand the amount of savings they'll be forgoing in buying aircraft from Sikorsky going forward, and also buying aircraft or other military equipment from other suppliers, I think cooler heads will prevail," he said.

Outgoing Pentagon Comptroller Robert Hale this week told Reuters he hoped the Pentagon could avoid breaking the multiyear deal with Sikorsky, depending on how its broader budget negotiations with Congress turned out.

He said Pentagon officials realized that such a move was a big concern for the industry, and could be costly since contracts were generally structured with penalties for early termination. But budget pressures left Navy leaders little choice, given their greater need to restore training and maintenance, he said.

Navy acquisition chief Sean Stackley earlier this month said the 29 helicopters in question were tied to the fate of the Navy's 11th aircraft carrier. If Congress funded continued operation of the 11th carrier, he said, funding for the helicopters needed for the flight deck would also be restored.

He also said the Sikorsky contract would not be affected until fiscal 2016, which meant there was still time to work out a solution. "We have a long way to go," Stackley told reporters after a Pentagon briefing.

(Reporting by Andrea Shalal; Editing by Mohammad Zargham)