Price negotiations begin on lump-sum deal for 122 V-22s

Washington DC
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Bell Boeing has submitted a lump-sum proposal to the US Navy to build 122 V-22 Osprey tiltrotors over a five-year period in an attempt to preserve the original programme of record and create room in the production system for possible international customers.

Such multi-year procurement (MYP) deals are common for mature production programmes, but in this case signing the deal is critical for the V-22's future.

The programme's long-term budget was created assuming a reduction in unit acquisition costs as a result of signing a second MYP deal. Bell Boeing estimates their proposal would generate "double-digit" savings in terms of percentage compared to a series of single-year contracts.

If the government and industry can not agree on a lump-sum deal, the numbers of V-22s may have to be reduced.

In June, Col Greg Masiello, V-22 programme director, called signing the next MYP deal "absolutely essential", adding: "We're budgeted for a multi-year."

Multi-year contracts are expected to slash production costs by at least 10% compared to single-year deals. By guaranteeing aircraft sales over five years, the long-term contracts provide the supply chain with an incentive to make long-term investments in production improvements.

At the same time, however, the MYP deals reduce the government's flexibility. Such deals have come under greater pressure as the Department of Defense faces uncertain budgets.

The navy has more than a year to make a decision about the Bell Boeing proposal. Contract award is not expected for another 16 months.

In the meantime, Bell Boeing is continuing to deliver aircraft under the first multi-year deal, which was valued at $10.6 billion for 167 V-22s, including 26 for the US Air Force Special Command. The programme has added seven aircraft to the first MYP deal since the contract was signed.

Signing an MYP deal now also would help the US government's efforts to attract foreign buyers. The Israeli air force evaluated the MV-22 in June, and will pressure their government to buy the aircraft. Textron's chief executive, Scott Donnelly, also has recently described a potential international market of 10-12 countries.