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Whose Chopper Creates More Jobs?

By Stan Crock Six years ago, United Technologies' (UTX) annual report boasted that its Sikorsky unit's new S-92 was "truly a 'world' helicopter," built by companies on four continents. The commercial chopper had development partners in China, Japan, Taiwan, Spain, and Brazil. These days, though, as Sikorsky vies to replace the 20 Marine One helicopters in the aging White House fleet, the Stratford (Conn.) company is pitching the bird's military version, the VH-92, as an "All-American" craft with 100% U.S. content.

UTC's presto-change-o marketing and manufacturing makeover says a lot about what happens when globalization collides with Pentagon procurement. Under U.S. law, bidders for military contracts must comply with "Buy America" legislation, which requires that at least 50% of a defense purchase be made in the U.S. The mandate doesn't apply when a company tries to sell a commercial copter. Indeed, because foreign partners can make it easier to sell in the partners' home markets, the world-helicopter concept makes sense.

PUT ON PROBATION. In Sikorsky's case, however, going global with this chopper quickly turned into a headache. One partner flouted U.S. export controls on several occasions. In 1999, the government indicted China National Aero-Technology Import & Export Corp. (CATIC), which helped design and assemble some tail parts for the S-92, for buying machine tools from McDonnell Douglas and illegally diverting them to the Chinese military. In 2001, a CATIC subsidiary pled guilty to one related charge, according to Fred Fielding, a lawyer for CATIC.

The Chinese company was fined $1 million and sentenced to five years' probation, according to court documents. Then in May, 2002, the State Dept. cited technology sales to Iran in barring CATIC for two years from any U.S. government contracts, according to a Federal Register notice. As a result, CATIC wouldn't have been able to work on Marine One.

Now, Sikorsky's rival for the $7 billion Marine One contract, AgustaWestland, a British-Italian joint venture, is trying to counter the VH-92's homegrown spin (see BW, 4/5/04, "A Dustup Over Chopper One"). It lined up Lockheed Martin (LMT) and Bell Helicopter as partners. The team says its offering will have 65% U.S. content to start, a figure slated to rise to 90% in the maintenance and spare-parts phase. And it argues that it'll create 1,000 new jobs in the U.S. Beyond that, AgustaWestland has opened a new facility in the Philadelphia area for work on different helicopter models.

NEW BUZZWORD? Through it all, Sikorsky hopes that by keeping all the jobs in the U.S. with the Marine One, it may be able to mitigate the potential job loss from the Army's cancellation of the Comanche helicopter program.

With the AgustaWestland and Sikorsky game plans both trying to maximize U.S. jobs, the tale of two chopper programs provides an interesting insight into the way markets work in a global economy. In contrast to the commercial world of outsourcing, the disproportionately large U.S. defense market makes America a magnet for defense jobs. And that may create a new buzzword: insourcing. Crock covers national security and foreign affairs for BusinessWeek from Washington. Follow his views in Affairs of State twice a month, only on BusinessWeek Online

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