Starting Over With Or Without The VH-71

(MoneyWatch)  One of the most contentious decisions made by the Obama Administration with their new defense budget was canceling the VH-71 New Presidential Helicopter. The program had seen extreme cost and schedule growth much of it due to the requirements levied on the aircraft by the Government. The VH-71 would replace the current aging fleet and provide significant upgrades in performance, protection, communications and security. The cost of fitting all of that into one platform was money, time and a lot of modifications to the base aircraft. This decision led to Lockheed Martin (LMT) laying off several hundred workers.

The Navy had already invested about $3 billion into the program which included acquiring several Increment One aircraft. These were to be used to do test and support design and modification for the final versions. The program has supporters in Congress who want to use these aircraft to do some of the mission and recoup a portion of the money already spent as well as keep Lockheed jobs in their districts. The House has left money to do that in their version of the Defense Appropriations Bill which is in Conference with the Senate. Obama has threatened to veto the bill if the $450 million allocated by the House is left in the final version.

Ashton Carter the Undersecretary of Defense for Acquisition, Technology and Logistics said yesterday that the Pentagon is looking to start up a new program early next year to attempt to buy a new helicopter. One of the goals is to reduce the requirements and streamline the program so that it will cost less and be delivered faster then the original VH-71 program. Key to this is to modify an existing helicopter already in production.

Unfortunately that was the proposed path with the VH-71. An existing medium sized EH-101 made by Augusta Westland was selected. Augusta Westland is part of the large Italian Finmeccanica (FNC.MI) defense contractor. This "US101" would then be modified and have the specific mission equipment integrated by Lockheed Martin. Any new program no matter what aircraft it chose would have to do the same thing. This approach may lead to some of the same problems the original program had unless the new equipment and requirements are strictly controlled.

The chance of the bill being vetoed over $450 million if it remains in the final version seem pretty low. The bill contains almost $700 billion in spending and is key to executing not only myriad different programs some of which are favored by Obama but also to pay for the operations in Afghanistan and Iraq. Delays to getting this done will only hurt the overall defense effort and many parts of the defense industry through delay of contracts. There is already discussion of a supplemental to help fund operations overseas and further delays in the normal budget process will only increase this need.

The other issue is that a new program will take time and money. Perhaps too much of both if things go badly. The fight will then be to keep that program going and finally get a replacement for the forty plus year old aircraft now being used.