Bloomberg News

Boeing Army Radio Program Canceled by Pentagon as Costs Rise

October 14, 2011

(Updates with closing share price in sixth paragraph.)

Oct. 14 (Bloomberg) -- Boeing Co.’s largest U.S. Army radio program was ended yesterday by the Defense Department because of rising costs, according to the Pentagon’s acting top weapons buyer.

“Based on growth in the unit procurement costs, I am terminating the program,” Frank Kendall wrote in a letter to Congress. A copy of the letter was obtained by Bloomberg News.

The Pentagon will pursue a competitive program to buy less- powerful radios to “provide required military capability at less cost,” according to the letter. The department will submit a separate reprogramming request to move $74 million into a new budget line for a new acquisition strategy, it said.

Boeing, based in Chicago, was developing the Joint Tactical Radio System’s Ground Mobile Radios as part of an industry team that also included Northrop Grumman Corp., Rockwell Collins Inc., BAE Systems Plc and Harris Corp.

“While Boeing is disappointed by the decision to end the JTRS GMR development effort, our contract was scheduled to end in March, 2012. The decision by the Pentagon simply confirms that fact,” Matthew Billingsley, a spokesman for Boeing, said in an e-mail. “We look forward to applying our experience and knowledge in future competitions.”

Boeing rose 36 cents, or 0.57 percent, to $63.89 in New York Stock Exchange composite trading at 4:15 p.m.

$2 Billion Since 2002

Boeing has received about $2 billion since fiscal 2002 under the contract, which “was simply for the development of the system and to certify two vendors to compete to produce the radio,” Billingsley said in a separate e-mail. “Our contract specifically restricted us from production.”

Known as GMR, the radio was the most expensive part of the joint radio system. The family of digital radios was conceived in 1997 and is still in development. The GMR program last year was estimated to cost $19.5 billion.

The Army in May decreased the number of radios it planned to buy to 10,293 from 86,209. The program was closely tied to the $159 billion Future Combat Systems, which then-Defense Secretary Robert Gates canceled in 2009. The reduction caused the radio’s unit price to increase more than 50 percent, triggering a formal review and notification to Congress.

Inadequate affordability analysis, a misunderstanding of the technical challenges due to immature technology and poor contractor and program performance all contributed to the cost growth, according to Kendall.

‘Necessary’ Termination

“Our assessment is that it is unlikely that products resulting from the JTRS GMR development program will affordably meet service requirements, and may not meet some requirements at all,” he wrote. “Therefore, termination of the program is necessary.”

The ground mobile radios were scrutinized in June and July as part of the Army’s Network Integration Evaluation at Fort Bliss, Texas, and White Sands Missile Range, New Mexico.

Army Brigadier General Michael Williamson, who heads the office that oversees the Boeing program and other joint radio systems, said the waveform -- the software that runs the device -- performed well.

“There are still questions about what’s the right size and configuration for the radio itself,” he said on Oct. 11 in an interview in Washington. Soldiers were concerned about the radio’s “size and heat. That was their biggest issue.” Williamson didn’t immediately return a request for comment yesterday.

Kendall, who serves as the acting undersecretary of defense for acquisition, technology and logistics, directed the program manager to “smartly” close out the existing development contract, which expires in March 2012.

The Pentagon will submit a reprogramming request to Congress to increase a fiscal 2012 budget line by $14 million -- to $32 million -- “to ensure an orderly closeout of the GMR program and existing contract,” the letter states.

--Editor: Steven Komarow, Ann Hughey.

To contact the reporters on this story: Brendan McGarry in Washington at bmcgarry2@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net

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


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