Airbus Group NV (EPA:AIR) May Not Get $800 Million Deal From United States Government

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By Mark Michaels on September 30, 2014 Company

The United States Army just recently changed plans to give a contract that is worth more than $800 million to Airbus Group NV (EPA:AIR). The deal was for the United States Army to purchase helicopters built in the United States by an auxiliary business of Airbus. The proposed contract has been scrutinized closely as a measure of the United States government’s efforts to promote competition.

The Army caused controversy from rivals of the European company in June when it announced that it plans to retire two types of training helicopters and replace them with 155 units of the new EC-145 helicopters, manufactured by Airbus. This deal would have expanded on a similar deal signed in 2006.

A Finmeccanica, a rival manufacturer of helicopters based in Italy, took the bold step earlier this month of filing a lawsuit against the United States government to stop the continuation of the Airbus contract. The Italian company claimed that the United States government broke its own rules stipulating open contract to encourage competition.

AgustaWestland North America Inc is the business unit of Finmeccanica that operated in the North American region. The branch requested that a United States judge issue a temporary restraining order that would bar the Army from awarding the contract to Airbus without holding a competition. The complaint was filed on September 19^th with the United States Court of Federal Claims in Washington.

The United States Army stated that it does not expect to decide whether the porposed deal will be open to competition or not until January. The discussion regarded the contract could take an additional two months to begin.

Airbus refused to issue a comment.

The United States judge has not yet issued a ruling on the restraining order, but the official from the Army in charge of the proposed contract stated that the entity has not yet approved any awards to Airbus without a competition.

Officials from the United States government have agreed that the overall level of competition awards has decreased. Frank Kendall, the chief of acquisitions of the Defense Department, issued a new guidance last month that intended to promote competition. The statement contained guidelines for proposed deals without a contest.

The Army’s helicopter contracting officer, Paula Parker, said that the justification for giving the contract to Airbus was revised following the note from Mr. Kendall on the government’s increased efforts to boost competition.

The Army has increased the length of time for the comment period on its justification for giving the contract to Airbus until October 4^th. The government entity must issue a new comment if it decides to go ahead with a deal that did not involve a competition.

The Army plans to retire its fleet of OH-58 Kiowa and Bell TH-67 training helicopters, both of which were manufactured by Bell Helicopters of Textron Inc (NYSE:TXT). The Army plans to place them by transferring existing Lakota helicopters from other uses as well as new units to be produced by Airbus. Airbus will manufacture these units at a facility in Columbus, Missouri, and also makes these units for export customers, such as Thailand.

Currently, the Army uses the Lakota for noncombat missions, like reconnaissance or transport mission. The Lakota is a type of the EC-145 helicopter that is usually used to transfer supplies and workers to offshore gas and oil platforms.

Both Bell and AgustaWestland have stated that the EC-145, which features twin engines, will cost more to operate and purchase than the helicopters they make.

On the other hand, the Army has stated that it is cheaper overall to get rid of whole fleet types. It will cut costs by using the same type of helicopter for both operations and training.

The Justice Department is currently reviewing the complaint filed by Finmeccanica, but did not issue any other comment.