Strategic gamble equals high risk

This first appeared as a Comment in the 15 April issue of Flight International

Budget pressures facing the US military are not new, but they have reached a fresh and disturbing level.
The US Navy is proposing to break a multi-year deal with Sikorsky on MH-60R Seahawks in fiscal year 2016. Such arrangements allow a contractor to negotiate better terms with its supply chain, and to invest in cost-reduction initiatives. In return, the government gets a minimum 10% discount on average unit prices.
In 2012, the navy was pleased to join the US Army’s five-year contract to buy 650 Black Hawks, Seahawks and Jayhawks. But budgets have declined since, and the service believes it can no longer afford to honour the deal. Instead, the navy is proposing to unilaterally break the deal, in an almost unprecedented move.
This has been attempted only once before. In late 2004, then-US secretary of defense Donald Rumsfeld proposed the cancellation of the Lockheed Martin ­C-130J contract – with 62 aircraft left on the order.
Rumsfeld was forced to reverse his decision six months later, conceding that the cancellation fees would be as costly as buying the aircraft anyway.
The USN may be trying to get Congress to add funds in order to preserve the multi-year procurement – and to top up orders for Boeing EA-18Gs and P-8s as well. However, the strategy could backfire – and this threatens to damage the integrity of one of the few acquisition practices that makes sense for everyone.

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