Sierra Nevada, Embraer Win U.S. Contract With $950 Million Value

Sierra Nevada Corp. and Embraer SA (EMBR3), its Brazilian subcontractor, beat Beechcraft Corp. in a fight for a U.S. military contract valued at as much as $950 million.

The winners will provide aircraft for the Afghan military. The Air Force’s initial order is for 20 of Embraer’s A-29 Super Tucano turboprops, maintenance support and training, for $427 million, the Defense Department said yesterday in a statement.

The contract is a coup for Embraer and will boost its ability to sell warplanes in other markets, said Nicholas Heymann, a William Blair & Co. analyst in New York who rates the company’s American depositary receipts as market perform. Embraer is trying to expand its defense unit, which produced 15 percent of the company’s 2011 sales.

“It’s like the good housekeeping seal of approval for Embraer,” Heymann said. The award is an endorsement from the “largest, toughest buyer of military hardware.”

Deputy Defense Secretary Ashton Carter called Brazilian Minister of Defense Celso Amorim yesterday to inform him about the decision, according to George Little, a Pentagon spokesman. Amorim said in a statement that the decision was a “big victory” for Brazilian industry.

“This will certainly open many new doors to a sound project that has already proven its success at home and in other parts of the world,” Amorim said, according to the statement posted on the ministry’s website.

‘Digest This’

“I’m still trying to digest this myself,” Gary Spulak, president of the U.S. unit at Sao Jose dos Campos-based Embraer, said in an interview. “We’re ready to get to work.”

The Pentagon originally awarded the work in December 2011 to Sierra Nevada, a woman-owned contractor based in Sparks, Nevada. It canceled the award about two months later after Beechcraft, formerly Hawker Beechcraft Corp., sued the military over its exclusion. Yesterday, Beechcraft lost for the second time.

The Super Tucanos are part of a U.S. plan to leave the Afghan army with the weapons and technology needed to fight the Taliban as President Barack Obama moves to fulfill a pledge to withdraw most U.S. troops from the country by the end of 2014.

“The United States is trying its best to stand up the Afghan Air Force to function as we pull out,” Charles Tiefer, a former member of the U.S. Commission on Wartime Contracting, said in an interview. “This contract is at the heart of whether the Afghan Air Force can make a go of it on its own.”

‘Great Honor’

Taco Gilbert, a vice president at Sierra Nevada, said it’s a “great honor” to provide the aircraft and support for the contract.

“The Light Air Support program is essential to the United States’ objectives in Afghanistan and to our national security,” he said.

The aircraft were originally set to be delivered in May 2013 and are now scheduled for May 2014, according to company documents provided to Bloomberg News. The contract will extend through Feb. 19, 2019, according to the Pentagon.

The Air Force award is lucrative because it includes training and maintenance in addition to aircraft.

The award would have boosted Beechcraft’s shrinking revenue from U.S. military contracts. The company’s prime, or direct, contracts with the Pentagon plunged 67 percent to $340 million in fiscal 2011, which ended Sept. 30, from $1.03 billion in fiscal 2009, according to data compiled by Bloomberg.

Beechcraft ‘Disappointed’

“We are disappointed that our proposal was not chosen,” Nicole Alexander, a spokeswoman for the company, said in a statement. She wouldn’t say whether Beechcraft would protest the award.

The company plans to meet with the Air Force “for a full debrief of the award and determine our next steps forward at that time,” Alexander said.

Beechcraft announced on Feb. 19 that it had emerged from Chapter 11 bankruptcy protection.

The loss of the contract makes it harder for Wichita, Kansas-based Beechcraft to turn around its business, said Tiefer, a University of Baltimore law professor.

Sierra Nevada provides electronics and engineering services to the Defense Department, the National Aeronautics and Space Administration, and the Department of Homeland Security. The value of the Sparks, Nevada-based company’s U.S. military contracts rose 39 percent to $1.3 billion in the fiscal year ended Sept. 30 from $938 million the previous year.

The award comes after an especially bumpy contracting process.

Beechcraft protested the original award to the Government Accountability Office, which arbitrates contract disputes. The company claimed that the Air Force sent a notice of its exclusion to the wrong company address, causing it to miss key deadlines.

After reviewing both sides’ claims, the GAO dismissed the case. In January 2012, Beechcraft sued the government in the U.S. Court of Federal Claims in Washington. The next month, the Air Force terminated the award, issuing a revised request for proposals in May 2012.

To contact the reporters on this story: Danielle Ivory in Washington at divory@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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