| WASHINGTON, April 9
WASHINGTON, April 9 Sikorsky Aircraft said on
Wednesday the U.S. Navy's plan to skip orders for 29 MH-60
helicopters in the final year of a five-year contract could
undermine the industry's willingness to sign such cost-saving
agreements in the future.
Any move by the Navy to "break" the agreement in fiscal 2016
could also raise the cost of 60 U.S. Army Black Hawk helicopters
included in the deal, Tim Healy, director of maritime programs
for Sikorsky, a unit of United Technologies Corp, said
at the annual Navy League conference.
"This is not a legal issue. This is a confidence issue,"
Healy said. "If multiyear contracts are negotiated and then not
followed through ... industry is back to making year-to-year
calculations and investments because you never know when the
next year's contract is going to be canceled."
Sikorsky signed an $8.5 billion contract with the Army and
Navy in July 2012 to buy 653 Black Hawk and Seahawk helicopters
through December 2017, a deal that generated significant
discounts given the large size of the order.
Navy Captain Jim Glass, program manager for the H-60
helicopters, told reporters he believed this would be the first
time the Pentagon has reneged on a multiyear pact with industry.
The Pentagon promotes such agreements since they provide
stability for industry, and generate savings of 10 percent or
more on key weapons programs by providing economies of scale.
Companies often used the long-term agreements to fund
investments in reducing production cuts.
Glass said the proposed cuts in Sikorsky helicopter orders
were pegged to the Navy's inability to fund the refueling of an
aircraft carrier, and the associated aircraft reductions would
likely be revisited if funding for the carrier was restored.
The Navy's fiscal 2015 budget and five-year spending plan
omitted funding for 29 Sikorsky helicopters and other key
weapons programs in fiscal 2016, when automatic budget cuts
required under sequestration are due to resume.
Navy officials have said they will have to cancel the
refueling of the nuclear-powered USS George Washington aircraft
carrier, and eliminate the associated fleet of aircraft, unless
Congress reverses the mandatory budget cuts.
Senate Armed Services Committee Chairman Carl Levin last
month said the Navy's decision to breach the Sikorsky agreement
would trigger termination fees of at least $250 million.
Both Healy and Glass said it was difficult to determine the
financial effect, or any termination fees, since it remained
unclear how the cuts would be implemented.
But Healy said breaking the multiyear agreement would have
other far-reaching consequences for the U.S. Department of
Defense's ability to reach such deals in the future.
The fiscal 2015 budget preserved the multiyear contract for
now, Glass said, and included $107 million in advanced
procurement funding to ensure production could begin as planned.
Pentagon documents from fiscal 2014 showed that the
multiyear contract resulted in savings of over 17 percent when
compared to buying the aircraft one year at a time.
(Reporting by Andrea Shalal, editing by G Crosse)