Navy Weighs $8 Billion Contract With Textron, Boeing for Ospreys

The Navy is considering buying another 122 V-22 Ospreys from Textron Inc. (TXT) and Boeing Co. (BA) for about $8 billion.

The proposed contract, in its early stages, would supply the aircraft to the Marine Corps and Air Force through 2017 -- renewing a current deal for five more years.

Textron of Providence, Rhode Island, and Chicago-based Boeing are in the last year of a four-year, $10.9 billion contract for 174 aircraft. Textron’s Bell Helicopter unit and Boeing have submitted a new request for proposals, officials said. The Navy declined to speculate on the potential value. At the current basic “flyaway” cost of $65 million apiece, the new contract could approach $8 billion.

“We have asked for a proposal,” said Navy Assistant Secretary for Acquisition Sean Stackley said in an interview. “We are just at that point.”

Stackley said the Navy wants a multiyear contract arrangement.

“I have had discussions with them to outline what a multi- year would look like,” he said. We want to get to a multiyear, we think it’s important to get the savings. We are at the very front end.”

Pentagon weapons buyer Ashton Carter, whom President Barack Obama is nominating to the No. 2 Defense Department post, has listed increased use of multi-year contracts as a key tool for driving down procurement costs.

In this case, the Navy and contractor must develop reliable data allowing the service to certify to senior Pentagon officials a five-year block buy can save at least 10 percent over annual batch purchases.

On Time, Under Budget

Signing a multi-year contract also virtually guarantees those aircraft can’t be canceled because the military would face steep termination costs.

Bell-Boeing V-22 executive director John Rader, in a statement, confirmed the companies have submitted a proposal.

“The Bell-Boeing V-22 program is presently on time and under budget in successfully executing its first multi-year contract,” he said.

Stackley said the intent is to validate savings so that, by next April or May, “we can go forward with certification after” the fiscal 2013 budget is submitted.

A contract potentially could be signed in December 2012, said Renee Hatcher, a spokeswoman for the Naval Air Systems Command.

The additional purchases would complete the Marine Corps and Air Force plan to field 410 V-22. The Navy has a requirement for a separate 48 that might be purchased after 2018, she said.

‘Looks Good’

Marine Corps Deputy Commandant for Aviation Lieutenant General Terry Robling in an interview said “it looks good. Bell-Boeing says they can achieve the 10 percent that is required and a little bit more than that.”

Congress through December has approved spending $35 billion on the $53.2 billion program.

The program was approved for full-production in September 2005 after four years of additional development to demonstrate the aircraft overcame a host of deficiencies, including problems with its design, safety and reliability uncovered after two crashes in 2000 killed 23 Marines.

The Osprey has been deployed in Iraq and Afghanistan. One plane ferried Osama bin Laden’s body to the U.S. Navy aircraft carrier USS Carl Vinson after he was killed in a U.S. raid May 2 in Pakistan.

The House Appropriations Committee in June said the aircraft’s overall performance “has laid to rest all doubts” about its combat effectiveness.”

To contact the reporter on this story: Tony Capaccio at at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net;

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.