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Big contractors opt out of U.S. Air Force helicopter competition

By Andrea Shalal-Esa

WASHINGTON (Reuters) - Five big defense contractors on Tuesday withdrew from the U.S. Air Force's latest attempt to replace its aging fleet of HH-60 Pave Hawk rescue helicopters, leaving just Sikorsky Aircraft in the running for a deal whose value is capped at $6.84 billion.

Northrop Grumman Corp, which was teamed with Italy's Finmeccanica SpA; Boeing Co; Textron's Bell Helicopter unit; and the U.S. unit of Europe's EADS said they would not compete to build 112 new helicopters for the Air Force, raising questions about whether the contest can proceed as planned.

Industry executives, speaking on background, said the Air Force bidding rules were so narrowly framed that they effectively excluded their aircraft from the competition. They said the terms favored Sikorsky's Black Hawk helicopter and would not reward extra capability offered by bigger aircraft.

No comment was immediately available from the Air Force on whether it would continue the competition under the terms it first outlined in March and finalized in October. The Air Force revamped the competition to focus on existing aircraft and affordability, given mounting budget pressures.

Sikorsky Aircraft, a unit of United Technologies Corp that has teamed up with Lockheed Martin Corp, said it still planned to submit a bid for the work. Sikorsky built the existing fleet of H-60 Pave Hawks, which are a variant of its popular Black Hawk helicopter.

Northrop, which announced a teaming agreement with Finmeccanica's AgustaWestland in September, said the two companies still plan to bid for a separate U.S. Navy competition for a new presidential helicopter using AgustaWestland's AW101.

Northrop spokeswoman Margaret Mitchell-Jones said the two companies decided to skip the Air Force competition after a thorough analysis of the service's final request for proposals, or RFP, which was published in October. Bids are due January 3.

Boeing said it would not submit bids based on its H-47 helicopter -- which won the Air Force's last rescue helicopter competition, only to see the $15 billion contract canceled -- or the V-22 tilt rotor aircraft built with Bell Helicopter unit.

Boeing spokesman Damien Mills said the H-47 Chinook and the V-22 "Osprey" had been proven to be the world's most capable and cost-effective search and rescue aircraft, but their capabilities exceeded the parameters of the Air Force contest.

"While the Chinook and Osprey exceed the parameters of the USAF's Combat Rescue Helicopter program, they are often the go-to aircraft for the U.S. Army, Marines and Air Force Special Operations Command when needing to extract personnel from dangerous situations," Mills said.

He said the two aircraft had been used to save lives in conditions where other aircraft could not operate.

EADS also said it would skip the competition. EADS North America Chief Executive Sean O'Keefe told Reuters in July that his company might not bid unless the Air Force dramatically revamped rules. As written, he said at the time, the rules would have knocked his company's helicopters out of the running.

The Air Force rules say no company will be considered if its total bid is evaluated to cost more than $6.84 billion.

The Air Force in 2006 picked Boeing's H-47 Chinook helicopter to replace its aging fleet of Sikorsky HH-60 Pave Hawk helicopters, but the Pentagon canceled the contract in 2009 after multiple protests by the losing bidders.

The service released a draft request for proposals in March that was conceived as a "best value" competition, but left some industry executives concerned about whether the rules would allow them to win the bid, or make much profit if they did. It finalized the rules in October.

The Air Force revamped its approach to the rescue helicopter program to put a premium on lower costs, since it is facing huge outlays in coming years for new refueling tankers being built by Boeing, F-35 fighter planes built by Lockheed Martin and a new long-range bomber that it wants to start developing.

"The Air Force budget is under tremendous pressure," said defense consultant Jim McAleese. "The tanker, F-35 and bomber are critical priorities. Every other program must justify the incremental gain in combat capabilities relative to its cost."

In October, the Air Force said it was pursuing a "capability-based, best-value approach," with a big push to use aircraft and training systems that are already in production.

The service said its approach had been carefully reviewed by top Pentagon leaders to ensure a low-risk, executable process that "will deliver the warfighter a product that meets the requirement at an affordable price."

(Reporting by Andrea Shalal-Esa; Editing by Dan Grebler)

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