Lockheed hopeful of cargo plane deal

Lockheed Martin believes its case for selling more Super Hercules cargo planes to the military has strengthened as the Pentagon starts to prepare its request for fiscal year 2010.

The defense giant and the Air Force have been negotiating for several months on a new multiyear purchasing deal for the C-130J Super Hercules, a battle-tested cargo plane. The talks are just the beginning of what will likely become an intense lobbying campaign by Lockheed Martin to win congressional approval for a new multiyear contract.

{mosads}Lockheed Martin, which builds the airplanes in Marietta, Ga., has strong backing from the Georgia delegation. Sen. Saxby Chambliss (R-Ga.), a defense authorizer, will be a key player in pushing for more aircraft.

Air Force leaders have been pressing Congress for months to extend production of the C-130J. The Air Force has the buying authority for all the C-130Js flying regular combat delivery missions and special operations, as well as the Marine Corps’ aircraft refueling version.

Jim Grant, Lockheed’s vice president of business development for global mobility and special operations forces, said Wednesday that there is “recognition within the Air Force that bundling all the C-130J needs would generate “some significant savings” for the government.

“We are currently working with the Air Force and the Marine Corps to try to build that business case for a multiyear and we are working that against a number of options,” Grant said at a briefing with reporters at an Air Force Association symposium. “Under all scenarios we will produce significant savings.”

The current negotiations for a new multiyear buy were sparked by an unsolicited offer Lockheed Martin made to the Air Force in October last year to sell it 120 more airplanes for roughly $6 billion.

“The unsolicited offer stimulated people to realize that the potential for significant savings was there,” Grant said.

This time around, however, the negotiations are going to lead to a request from the Pentagon rather than another unsolicited offer, Grant added.

Currently the contractor and the military are looking at several different options that would buy between 50 and 150 airplanes over the span of five or six years, said Grant.

With an increased yearly production rate, the price of the airplane would go down. Currently, the cost of a C-130J is about $60 million.

Lockheed officials on Wednesday did not disclose any new pricing information as part of their negotiations with the Air Force. Under last year’s unsolicited offer, however, the company estimated different variants of the C-130J would range between $47 million and $52 million per plane assuming a purchase of 120 aircraft.

Those numbers were not adjusted for inflation. Lockheed assumed that the Air Force and Marine Corps would buy 24 airplanes a year for five years and that international customers would buy another six planes a year.

{mospagebreak}Winning another multiyear contract would be a huge victory for Lockheed Martin, which is working to prevent the production line for the C-130J from being shut down in two years. The current multiyear contract with the Air Force runs out in August 2009.

The company has growing international orders and has also received war supplemental funding for more C-130Js.

The request from the Air Force for a renewed multiyear contract will be reflected in the 2010 budget request the Pentagon will submit to Congress next February.

{mosads}Lockheed Martin could also position itself to offer the Air Force the C-130J if Congress does not approve funding for the Air Force to start buying the C-27J plane under the Joint Cargo Aircraft program. The Air Force is sharing that program with the Army. L-3 Communications and Alenia North America are the contractors for the Joint Cargo Aircraft.

House defense appropriators in particular argue that the Air Force has failed to show it needs the planes, and both House and Senate appropriators slashed the Air Force’s funding requests for the C-27J purchase. This could affect the Air Force’s plans to start buying the plane in 2010.

The Air Force has not made any significant efforts arguing for the plane, according to congressional sources. Officially, the Air Force has stated numerous times that it is fully behind the JCA program.

Lockheed Martin offered a shorter version of the C-130J for the JCA competition but was dropped from the competition, which at the time was led by the Army. The Army did not include Lockheed’s plane, arguing that it did not receive certification from the Federal Aviation Administration. Lockheed disputed the argument and accused the Army of not working closely enough with the Air Force on the offerings. Lockheed filed a protest with the Government Accountability Office but lost.

But the odds could change in the company’s favor in a couple years.

“If the JCA program is not funded for some years then there is recognition [within the Air Force] that C-130J can support that mission requirement,” Grant told The Hill.

He said that while the Air Force fully supports the JCA program, it also is reviewing all the options, Grant said.

It is still too early to tell whether the Air Force will choose the C-130J option if Congress does not budge. Supporters of JCA are planning to mount an intense lobbying fight to keep the program intact. The C-27J is half the size of the C-130J and its cost is also considerably less, at approximately $34 million per plane.