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LOCKHEED STRUGGLES TO SALVAGE ACS

24 Aug 05. The Wall Street Journal reported that as Lockheed Martin Corp. scrambles to salvage its multibillion-dollar contract for Army spy planes, documents and people familiar with its bid suggest the defense giant was uncertain about the viability of its proposal before it secured the contract a year ago.

Lockheed beat out Northrop Grumman Corp. for the spy-plane contract in August 2004, laying claim to a program that ultimately could be valued at as much as $7 billion. But in recent weeks Lockheed and the Army have said the plane that was part of the winning bid — a jet made by Brazil’s Empresa Brasileira de Aeronautica SA, known as Embraer — is too small for the electronic sensors and personnel the Army wants for its spy missions.

Now, Lockheed confirms sending letters to at least three plane makers in May 2004 seeking performance and cost information about alternative airframes. The letters were sent after Lockheed had publicly announced its alliance with Embraer on the project but before the final Army deadline for bids.

The letters, received by Boeing Co., General Dynamics Corp. and Bombardier Inc., asked for a wealth of technical information, such as payload and flight range, as well as the purchase price. Lockheed attached spreadsheets so that the plane makers could calculate projected maintenance and life-cycle costs over 25 years. It requested responses within three days.

Two people involved in the re-evaluation said Lockheed managers on the spy-plane project were considering alternative planes because of concerns that the Embraer model couldn’t support the weight of equipment and crew members desired by the military. One of these people said a Lockheed manager told him the company ultimately decided it was too late in the bid preparations to switch such a central component, but that Lockheed would consider options if it won the contract.

Lockheed confirmed it sent the letters but said there was nothing unusual about such a move. Marshall Keith, who is now vice president for the spy-plane program but was not at the time of the bid, said Lockheed was adjusting its bid to meet the Army’s latest configuration preferences. In a two-track process, Lockheed considered alternative aircraft at the 11th hour, he said, but also worked with Embraer on modifications to accommodate the extra weight. Its team concluded that several “low-risk changes,” such as extending the wing and increasing engine power, would do the trick. Lockheed decided to stick with Embraer, and when the company submitted its bid weeks later, Mr. Keith said, it had no doubts “at all” that the proposal could fulfill the Army’s mission. With the plane now deemed unworkable, Lockheed, based in Bethesda, Md., is proposing to switch to a much larger Embraer model — without reopening the program to bidding. The Army is expected to choose a new aircraft soon, a major change that is bound to add costs and cause delays in a program whose initial development outlay totals $879 million. Both the Army and Lockheed say the weight problems with the original aircraft emerged only after the contract was awarded.

The Army could approve Lockheed’s latest proposal to use a larger Embraer plane, select another airframe or reopen the contract. The last option could subject the government to hefty termination costs and long delays. Citing the sensitivity of the program’s review process, the Army declined to comment.

Randy Belote, a spokesman for Northrop, said the company is reserving the right to protest Lockheed’s contract if a new plane is selected without reopened bidding. “We would explore our options regarding a protest if a significant program change is adopted,” he says.

The spy-plane program’s woes come as the Pentagon studies ways to reduce a plague of cost overruns and delays. Problems often stem from the military services changing their weapons programs midstream, but contractors also can be

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