Bloomberg News

Pentagon Sees ’Substantial Savings’ in Block Buying of V-22 Osprey, Subs

March 02, 2012

The Defense Department will realize “substantial savings” from further five-year purchases of weaponry, including the V-22 Osprey from Textron Inc. (TXT) and Boeing Co. (BA), the Pentagon’s top weapons buyer told Congress.

Frank Kendall, the department’s acting undersecretary for acquisition, wrote lawmakers yesterday that additional block contracts for the Marine Corps’ V-22 Osprey tilt-rotor aircraft, the Navy’s Virginia-class attack submarine and DDG-51 Arleigh Burke destroyer and the Army’s CH-47 Chinook heavy-lift helicopter meet criteria established by law.

Kendall’s letter is a first step required before congressional review and the eventual signing of contracts. Multiyear commitments are seldom canceled because the Pentagon would have to pay substantial termination fees to contractors and would face opposition from congressional champions of the systems being scrapped.

Bulk contracts also let companies buy parts in advance, with savings passed on to the Pentagon, and maintain a stable workforce. Kendall’s letters outlined initial expected savings derived from the Pentagon’s cost-analysis unit.

The biggest savings over annual purchases would be $4.4 billion, or 14 percent, for nine Virgina-class submarines bought between 2014 and 2018 from Huntington Ingalls Industries Inc. (HII) of Newport News, Virginia, and General Dynamics (GD) Corp.’s Groton, Connecticut-based Electric Boat unit. Annual purchases would cost as much as $31 billion in contracts for the vessels, radar and sonar.

Nine Destroyers

Bulk contract purchases of nine new missile-defense capable DDG-51 destroyers built by Huntington and General Dynamics’ Bath Iron Works, of Bath, Maine, would save $1.5 billion, or 9 percent, over an estimated $17.7 billion in annual contracts.

The Navy wants to buy 98 additional V-22s from the joint venture of Textron’s Fort Worth, Texas-based Bell Helicopter unit and Boeing’s Philadelphia aircraft unit. Kendall found a block purchase would save at least $852 million, or 12 percent, over $7.35 billion in annual buys.

Kendall certified a savings of at least $373 million, or 10 percent, for bulk purchases of 155 new and upgraded Boeing CH-47F helicopters through 2017.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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