Lockheed pushes the J on Washington

Washington beltway newsmagazine The Hill reports that Lockheed Martin Inc. has put forward an unsolicited proposal to the Pentagon to sell the U.S. a pile of Hercules 130Js, the same plane that the Canadian government is almost certain to buy for its tactical airlift requirements. Canada, it seems to me, will be (or ought to be) watching this proposal closely because Lockheed's pitch apparently assumes a certain level of international sales. From The Hill story:

In an effort to avert having to shut down its Georgia production line in three years, Lockheed Martin is lobbying the Air Force to buy an additional 120 C-130J aircraft under an offered multi-year contract worth more than $6 billion . . .

Lockheed’s offer assumes the Air Force and Marine Corps would buy 24 airplanes a year for five years. International customers would purchase an additional six airplanes a year, under Lockheed’s plan.

Lockheed currently builds about 12 C-130Js a year at a cost close to $60 million per plane for Air Force and Marine Corps versions.

Lockheed projects on average that a combat delivery variant would cost $50.4 million a plane; a shorter, more mobile version would cost $47.8 million; and an air refueling tanker would cost $51.8 million, in current dollars.

Adjusted for inflation and prior to contract negotiations, Lockheed’s proposal would cost $58.9 million to $63.7 million per plane between 2011 and 2015, according to Pentagon officials.

…Lockheed’s price target also assumes strong international interest in the C-130J, said the official, who described that assumption as high-risk.

While we're keeping an eye on prices — the Norwegian Air Force has just signed up to buy four C-130Js at a maximum price of about $304-million U.S. Norway has much the same problem Canada does: An aging Hercules fleet that desperately needs attention. Lockheed announced the contract late yesterday afternoon:

The Norwegian Super Hercules will be the longer fuselage, or “stretched” variant of the C-130J, similar to those being delivered to the U.S. Air Force. Deliveries to Norway will include one aircraft in 2008, one in 2009 and two in 2010.

The first two aircraft for Norway are already in production and were originally destined for service with the U.S. Air Force. As a result of Norway's urgent need to replace its nearly 40-year-old C-130s, the Norwegian government arranged with the U.S. government for early delivery. The second two aircraft will be built specifically for Norway.

Meanwhile, a writer at Defense Industry Daily picks up on Lockheed's new push at the Pentagon and adds a little more context to the story:

The USAF has about 20% of its C-130E/H Hercules fleet on the ground or under significant flight restrictions right now, and has been pleading to be able to retire them instead of spending time and maintenance dollars on aircraft that will probably never fly again. This percentage will continue to grow as the hours continue to pile up. Meanwhile, the C-130Js are performing well in Iraq and Afghanistan, where their performance suffers much less from the heat and high altitude than C-130E/H versions. US Special Forces are also looking to renew their aging C-130 specialty aircraft and gunship fleet, but they worry that platforms like the C-130 won't be survivable 15 years from now.

Both groups have made noises lately about a competition that could involve Airbus' recently-delayed A400M, which breaks through the 20-ton cargo barrier that has stymied several US armored vehicle programs. Those rumblings, and the delay, may have handed Lockheed both motive and opportunity to make its proposal…

The important thing, from Lockheed Martin's perspective, is to raise the size of the USA's C-130J fleet high enough that competitive alternatives become too expensive due to the scale of duplication required for training, logistics, maintenance, et. al. An additional 120 aircraft would almost certainly achieve this goal, locking in a much larger volume of long-term orders, while keeping the production line open long past 2015 for other international customers.

The 20-ton space is likely to become rather crowded by 2020, however, with the Indo-Russian MRTA, Embraer C-390, and Chinese Y-9 all vying for market share, and the possibility of the American AJACS program as an additional complicating factor. Meanwhile, Airbus will be offering a competitor that offers major performance advantages, while remaining within the financial reach of existing customers like Chile, Malaysia, and South Africa.

For all of these reasons, the C-130J has little chance of duplicating its predecessors' international success. Regardless, Lockheed Martin has invested $1 billion of private funds in the aircraft's development, and wishes to recover them. To do so, however, it must remain in the competitive game. Offering substantial discounts now is a smart way to do it.