EADS North America is withdrawing from the US Army's Joint Multi-Role/Future Vertical Lift (JMR/FVL) programme.
"We will withdraw from further consideration for the JMR/FVL concept development effort," writes Sean O'Keefe, chief executive officer of EADS North America in a letter addressed to Heidi Shyu, assistant secretary of the army for procurement. "We deeply regret the fiscal necessity to make this decision."
O'Keefe says that EADS faces financial constraints in light of the Congressional sequestration law that automatically cuts projected US defence outlays by 10% every year for 10 years and the implementation thereof.
Sequestration forced the army to reduce funding for the EADS UH-72A Lakota. The army had planned to buy 31 UH-72As in Fiscal 2014 and 10 the following year, but instead now plans to buy only 10 during the next fiscal year that begins on 1 October.
O'Keefe says that his company will focus its efforts on the army's armed aerial scout programme, however the service has yet to decide if it will proceed with that procurement.
Analyst Dan Goure of the Lexington Institute says that it makes perfect sense for a company like EADS to withdraw from the JMR/FVL project given that budgets are declining and there is uncertainty about how much money will be available going forward. "Why would a company put scarce talent, even if it was being paid fully for the effort-but the government wants them to put in their own money and effort-why would they do that when the chances are increasingly dim for any kind of production programme," he says.
Moreover, foreign-owned entities like EADS North America and AgustaWestland have not had experienced a positive track record in prior dealings with the Pentagon, Goure says. "So why spend the time, effort and money on a long-shot?" he asks.
But it will not just be foreign companies that opt out of bidding for US defence tenders as the flow of cash starts to ebb, even big US defense prime contractors may start carefully weighing the opportunity cost submitting a proposal to the Pentagon. "This I think is the leading edge," Goure says. "You're going to see this happen more and more and more from defence companies including US primes."
The bottom line is that in many respects the US government is an extremely demanding customer and the cost of doing business with it may simply not be worth it, Goure says. There are other business areas for companies to invest in that generate far better returns on the dollar, he says.