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16 May 19. DynCorp International Awarded Aviation Field Maintenance (AFM II East) Contract. On May 15, the U.S. Army Contracting Command at Redstone Arsenal awarded DynCorp International (DI) a contract for Aviation Field Maintenance (AFM) and Sustainment Level Maintenance for the AFM Directorate (AFMD) in the East Region. The work involves program management, aircraft and ground support equipment maintenance, as well as aircraft modifications, and other logistical support to aviation customers worldwide. The contract is a one year base with seven one year options, with a total contract ceiling not to exceed $2.447 billion.
On April 26, DI won the AFM II West contract. AFM II East covers regions in the rest of the world.
“The entire DynAviation team is thrilled with the U.S. Army’s decision to award DI AFM East,” said Joe Ford, president of DynAviation. “We look forward to continuing our support and partnership on this critical mission for Army Aviation.” (Source: BUSINESS WIRE)
16 May 19. Russian Helicopters to open mobile service center for maintenance of Mi-171Sh helicopters in Peru this year. Russian Helicopters holding (part of Rostec State Coropration) will participate in the Seventh International Exhibition of Technology for Defense and Prevention of Natural Disasters SITDEF-2019 held in the territory of the headquarters of the Peruvian Army in Lima from May 16 to 21.
This year, we present in Mexico the main civilian line of Russian helicopters: the light Ansat, the medium Mi-171A2 and the medium heavy Mi-38.
“We are working closely with our Peruvian partners in creating a mobile service center for maintenance of the multi-purpose Mi-171Sh helicopter in close to the city of Arequipa. The holding has currently finished the first installation and commissioning stage under a contract with Rosoboronexport. Further work will continue in October, as agreed with the Peruvian side. We are planning to finish all operations this year and provide further support to our partners during the first helicopter repairs”, said the Deputy Director General for Aftersales Services, Igor Chechikov.
The service center consists of three different maintenance lines: for full airframe overhaul of the Mi-171Sh, mechanical system aggregate maintenance and aviation/radioelectric equipment maintenance.
In 12 countries in North and South America, including Mexico, Venezuela, Colombia, Argentina and Chile, more than 370 helicopters, both civilian and military, manufactured in the USSR and Russia are functioning. Peru operates over 90 civilian and military Mi-8/17 helicopters produced in the USSR and Russian Federation, the highest amount on the continent.
At the exhibition, the holding’s experts will hold discussions about the questions concerning both service maintenance and repairs of the Mi-8/17 series of helicopters operated in Peru. It is also planned to hold negotiations with both Peruvian partners and representatives of other countries on the acquisition of modern Russian civilian technology and its possible deliveries to foreign customers.
The light multi-purpose helicopter Ansat, which has the largest cabin within its class, is actively used by the Russian air medical services. This twin-engine helicopter has compact size and does not require a large landing area. It can also be used for normal passenger and VIP transport, cargo delivery and environmental monitoring. High-altitude tests of Ansat have been successfully completed, which confirmed the possibility of its use in mountainous terrain at altitudes up to 3,500 meters.
The Mi-8/17 series of helicopters, which the Mi-171A2 is a part of, is well known in Peru. Its cruise and maximum speeds have been increased by 10% and its flight automation has been significantly improved. Unique flight characteristics allow to operate the Mi-171A2 in humid tropical climate. The helicopter is designed to solve a wide range of tasks – from patrolling and coast guard to search and rescue operations.
The holding also presents a multipurpose Mi-38, which occupies a niche between the middle Mi-8 and heavy Mi-26. It can carry 5 tons of payload over a distance of 800 km. The rotorcraft is equipped with highly economical engines, crash-resistant fuel system and energy-absorbing seats, which makes it as safe as possible for passenger traffic.
15 May 19. Defense firm’s ‘excess profits’ land in Congress’s crosshairs. Call it the gold-plated clutch disk. The Pentagon paid contractor TransDigm $1,443 for a for a three-inch ring called a “non-vehicular clutch disk” which is used in the C-135 transport aircraft, though it cost the company just $32 to produce, giving it 4,436 percent in excess profit, according to a House Oversight and Government Reform memo released Wednesday.
The committee set to probe what it called TransDigm’s “extreme profit margins” at a hearing Wednesday, echoing a famous Pentagon crackdown in 1984 on “gold-plated” weapons and other items that are built to much higher standards than common sense would dictate. Lawmakers are expected to use the hearing to explore the potential need for greater transparency and stronger regulations on defense industry profits.
Rep. Ro Khanna, a member of the Oversight and Reform, Budget and Armed Services committees, had requested an internal probe of TransDigm and is leading Wednesday’s hearing. The witnesses are due to include Assistant Secretary of Defense for Acquisition, Department of Defense Kevin Fahey, TransDigm executives Nicholas Howley and Kevin Stein, as well as the Defense Department’s Acting Inspector General Glenn Fine.
“Our nation has been at war for two decades. We owe it to our service members to give them everything they need to fulfill their missions on the battlefield,” Khanna said at the hearing’s opening. “What we will not tolerate is war profiteers, those who seek to use the fat while we are at war to hold us hostage and hike their prices on mission-critical defense articles to astronomical levels.”
The concern is bipartisan. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, sent a letter to acting Defense Secretary Patrick Shanahan, President Donald Trump’s nominee to lead the department, seeking more information about how the Pentagon is protecting itself from contractors who overcharge.
“As a long-time supporter of strong defense and also a long-time watchdog of financial mismanagement and waste at DOD, I am deeply disturbed by the recent IG Report which prompted this letter,” Grassley wrote, adding: “Responsible officials who knew about it but did nothing to stop it should be held accountable. Mr. Secretary, please resolve this matter before it undermines support for higher DOD budgets.”
TransDigm is a public corporation that manufactures parts for military aircraft, including the AH-64 Apache, C-17 Globemaster III, the F-16 Fighting Falcon, and the CH-47 Chinook—each of which is used in Iraq and Afghanistan. But the House Oversight and Government Reform is accusing it of gouging the government as its business model.
Under awards by the Defense Logistics Agency and the Army, the DODIG found in February that TransDigm earned “excess profit” for 112 of 113 contracts it reviewed. The IG’s office considers profit percentages of 15 percent or below to be “reasonable,” but TransDigm had profit margins ranging from 17 to a whopping 4,451 percent.
The Pentagon issued a total of 4,942 contracts to TransDigm valued at $471m from April 2012 through January 2017. The department has has asked that the company repay $16.1m in excess profits identified by the inspector.
The clutch disk wasn’t all. A 3 1/2-inch quick disconnect coupling half, used in the Freedom Fighter F-5 and the T-38 Talon aircraft, cost TransDigm only $173 to produce, but the company charged the Pentagon $6,986, resulting in 3,930 percent excess profit for TransDigm, according to the panel’s memo.
An $799 actuator cover assembly cost the Pentagon $11,988, earning TransDigm 1,385 percent excess profit. A $557 hydraulic valve cost the Pentagon $10,000, earning TransDigm 1,680 percent excess profit. A $39 motor brake ring cost the Pentagon $5,317 for an excess profit of 1,923 percent.
This was by design, according to the congressional memo, which cited whistleblower statements and internal documents.
TransDigm exclusively licenses or acquires proprietary designs from aerospace and defense manufacturers, “positioning the company as a one-stop shop for hard-to-find replacement parts for planes and other equipment throughout the useful lives of the aircraft,” according to a report by investing newsletter The Motley Fool.
Doug Hillman, former CEO of a TransDigm subsidiary, told committee staff that the firm’s management used a “one-two punch” after acquiring a company. It involves two actions: one, raising prices, and two, cutting costs. They cut costs by firing employees. The metric they used was “revenue per head.”
Whistleblowers and former TransDigm employees indicate that TransDigm intentionally concealed cost data from Defense Department contracting officers, according to the memo. However, TransDigm sent a letter to the Committee claiming it “has no written policy stating that employees should refuse to provide uncertified cost data on request.” (Source: Defense News)
14 May 19. Pentagon Contractor’s 9,400% Profit on Half-Inch Pin Challenged. The Pentagon is weighing legislation that would give contracting officers the power to demand back-up data on spare parts costs after its inspector general said TransDigm Group Inc. could be paid about 9,400% in excess profit for a half-inch metal pin.
The Defense Logistics Agency could end up paying TransDigm $4,361 for the “drive pin” in a July contract that should cost $46, according to a Pentagon review endorsed by the inspector general.
The review found potential excess profits for 98 of 100 parts sampled and concluded the Pentagon may end up paying TransDigm $91m more in coming years for parts valued at $28m, with excess profit per part of 95% to the 9,380%, the Defense Department’s inspector general said in an audit labeled “For Official Use Only” and obtained by Bloomberg News.
As the Pentagon weighs whether to recommend legislation to require more disclosure by contractors, the House Committee on Oversight and Reform will review the audit and TransDigm’s pricing policies in a hearing on Wednesday.
The inspector general’s report “exposes how a company entrusted with supporting our military men and women took advantage of American taxpayers by overcharging the government more than $16m” in parts sales sold between 2015 and 2017, Oversight Chairman Elijah Cummings said in a statement. The hearing will “investigate whether these pricing issues are more widespread, and demand answers,” he said.
From 2013 through 2015, according to the audit, the contractor increased the price of a valve that opens and closes to change the pressure of fuel moving through an engine to $9,801 from $543. In those years, TransDigm also charged $1,443 each for a “non-vehicular clutch disk” that cost $32 to make.
Planes, Copters
The Pentagon’s inspector general first raised pricing concerns over TransDigm in a 2006 report, followed by the one this year that was released in redacted form in February.
TransDigm manufactures spare parts for airplanes and helicopters including the AH-64 Apache, C-17 Globemaster III, F-16 Fighting Falcon and the CH-47 Chinook. From April 2012 through January 2017, DOD issued 4,942 contracts valued at $471m to TransDigm.
Liza Sabol, a spokeswoman for the Cleveland-based company, said in an email “that we are not providing comments on specific questions related to the IG report.”
“TransDigm has been and remains committed to conducting business within the framework of applicable laws and regulations,” she said. “The IG report does not make any assertion of wrongdoing on TransDigm’s part with respect to its pricing.”
The underlying debate is over laws and acquisition regulations that hamstring Pentagon contracting officers from demanding back-up data on parts contracts. Legislation from the Federal Acquisition Streamlining Act of 1994 to recent defense policy bills sought to encourage commercial contractors to conduct business with the military by freeing them from providing information that could be competitively sensitive and onerous to collect, according to the inspector general’s report.
The provisions discourage contracting officers from asking for the data when “determining whether a price is fair and reasonable,” it said. The inspector general “previously identified contracting officers’ limited success in negotiating fair and reasonable prices for sole-source parts dating as far back as 1998,” a spokeswoman said in a statement Tuesday.
In a sample of contracts awarded from 2015 through 2017, TransDigm “refused to provide uncertified cost and pricing data to contracting officers when requested” for 15 of 16 contracts, the audit found. “Contracting officers had limited options once TransDigm refused.” TransDigm earned $2.6m in excess profits on the parts, the inspector general said.
Legislation Recommended
The watchdog office recommended legislation “to compel companies to provide cost data when required.” The Pentagon responded by issuing a memo in mid-March to jump-start a moribund system requiring contracting officers to report and share the names of recalcitrant companies.
“We are considering potential options for legislation proposals and weighing the ‘pro’s and cons’ of how that could impact the entire industrial base, including our desire to reach more non-traditional defense contractors,” Lieutenant Colonel Michael Andrews, a Pentagon acquisition spokesman, said in an email.
TransDigm shares have climbed more than 36% this year. It drew 34% of its 2017 sales from defense, up from 24% in 2006. In its 2017 annual report, TransDigm estimated 80% of its sales revenue that year came from products for which it’s the sole supplier.
Patrick Mackin, a spokesman for the Pentagon’s Defense Logistics Agency, said the agency is managing the July 2018 contract that was questioned by the review in a way that “limits ordering” due to “the potential overpricing and scrutiny” of TransDigm.
He said the agency can’t “unilaterally change pricing outside of the contractual repricing periods” but will assess the contract at its first chance in 2021. The agency is “currently seeking alternatives to support these items where such alternatives may exist.”
Among the parts of concern in the current contract, according to the review:
- TransDigm charged $803 for a retainer bearing that should have cost $32.
- A part described as a “ring” for which TransDigm charged $4,835 apiece should cost $71.
- TransDigm charged $67 for a lug used in the auxiliary power unit of an F-15 jet that should have cost $3.
- TransDigm charged $8,819 apiece for a valve assembly check oil pump that should cost $369.
The inspector general’s report also outlines the history of a three-inch TransDigm coupling with a “quick disconnect” that illustrates the problem that Pentagon contracting officers confront.
While TransDigm estimated the coupling cost $287 to make, the contractor’s pricing has “contained excess profits” since the Defense Logistics Agency first purchased the part in 2007 for $1,239 apiece, the unredacted report said. The price increased to $7,325 by 2017. (Source: Defense News Early Bird/Bloomberg)
14 May 19. People are key to securing the defense-industrial supply chain. Infiltrating the defense supply chain is one of the most insidious means by which attackers can compromise our nation’s communications and weapons systems. Successfully targeting a single component of the defense industrial base can cause a ripple effect that can significantly impact everything from data centers to war fighters in theater.
The Department of Defense’s new “Deliver Uncompromised” security initiative is designed to tackle this problem at its root cause: third-party suppliers. In essence, the DoD is requiring its suppliers to bake security into their applications from the beginning of the production process. A “good enough” approach that just clears the bar for minimal security criteria is no longer good enough. Security must be ingrained in the very fabric of the entire production process.
Security starts with people
The process starts with people. They are responsible for ensuring that the solutions that comprise the supply chain work as designed and are inherently secure. They work closely with highly sensitive and proprietary information that is attractive to enterprising hackers. They are the first line of defense.
Unfortunately, those same factors make people the most attractive attack vector. When a malicious actor wants to gain access to a component or system, it’s often easier to just steal someone’s credentials than it is to try and find their way around a firewall. Obtaining a simple password is often enough to gain access to a critical system that can then be compromised, or information that can be exploited.
Consider the well-publicized Sea Dragon hack. In that incident, Chinese hackers obtained sensor data, signals data, an electronic warfare library and more. The hackers targeted a contractor of the Naval Undersea Warfare Center, a research and development organization that is part of the Defense Industrial Supply Chain. They used that person’s credentials to access the treasure trove of data on the NUWC network, and the supply chain was compromised.
Behavioral analysis can mitigate risk
The incident may have been avoided had there been a mechanism in place to monitor users’ behavioral patterns. Being able to detect a change in human patterns — unusual access to sensitive information, for example, as was the case with Sea Dragon — can help suppliers prevent unauthorized access to information and systems. It’s an added layer that can help the supply chain remain clean and less susceptible to vulnerabilities.
The supplier can set up a system that monitors risk based on user behaviors, which can be measured against an established baseline. For example, a person might ordinarily access a particular subset of information, or have rights to make certain modifications to a solution within the supply chain. A deviation from this normal pattern of behavior could set up a trigger that signals that an anomaly has been detected. That anomaly could indicate a potential security threat — for instance, perhaps the user’s credentials have been compromised. In this scenario, the user could be automatically blocked from accessing information or performing further actions that could compromise the supply chain.
Being able to detect anomalous user behavioral patterns can be essential in protecting Controlled Unclassified Information, which many contractors are using to create new defense programs and solutions. CUI is information designated as unclassified information that must be protected from public disclosure.
For example, a supplier could be working on key components for a new aircraft. The information pertaining to those components may not be classified, but it may also not be something that the Air Force wishes to disclose for public consumption. An enterprising hacker could potentially access the credentials of a user working on this program and obtain its CUI data. They could then infiltrate the supply chain network that feeds into the program, potentially putting the entire effort at risk — even the pilots who will eventually be operating the plane.
Security: the top supply chain priority
A risk-adaptive behavioral analysis approach exemplifies the type of extensive effort that Deliver Uncompromised proposes. Deliver Uncompromised warns against doing the bare minimum when it comes to security. Indeed, it elevates security as a “4th pillar” of the acquisition process, making it equivalent to cost, schedule and performance.
In fact, the collective message the DoD is sending out with Deliver Uncompromised and its counterpart, the Defense Federal Acquisition Regulation Supplement, is that securing the supply chain must be a top priority. The DoD is telling its contractors to engage in “security-by-design,” not “security-as-an-afterthought.” Companies that do not adhere to this policy will no longer be considered trusted partners.
Those companies’ most valuable assets are their people. But those same assets can also be a vulnerable point of entry. Supply chain security must start and end with them. The DoD should consider partnering with organizations that show a commitment to securing their people as much as their technologies. (Source: Fifth Domain)
14 May 19. Australia launches investigation into frigate sustainment project. The Australian Department of Defence (DoD) has confirmed that it has launched an investigation into some of the procurement activities and costs incurred in the project to sustain the Royal Australian Navy’s (RAN’s) ageing Adelaide-class FFG frigates. A DoD spokesperson told Jane’s on 14 May that the investigation is a result of a “confidential complaint” in relation to procurement activities on the sustainment programme, which was carried out by contractors including BAE Systems and Thales. The investigation was first revealed in a report by The Australian on 11 May. The RAN originally operated six FFG frigates but four have been decommissioned in recent years. (Source: IHS Jane’s)
13 May 19. ADS Group launch new Industrial Strategy scheme. A new Industrial Strategy programme for aerospace industry SMEs was launched today, as new Business and Industry Minister Andrew Stephenson visited aerospace and defence supplier MEP in Aylesford, Kent. The Supply Chains for the 21st Century (SC21) Competitiveness and Growth scheme was allocated £10m Government funding, matched by industry, as part of the Aerospace Sector Deal published in December. The programme is now launched and will support 80 UK aerospace supply chain companies during the next three years.
An evolution of the established SC21 programme, the new Industrial Strategy scheme will help participating companies to raise their productivity, supporting the competitiveness of the whole UK aerospace sector. MEP participated in a successful pilot of the new programme.
Business and Industry Minister Andrew Stephenson said: “British aerospace companies of all sizes have unrivalled expertise and capabilities in manufacturing advanced components that are in demand around the world.
“This programme will make sure the small and medium businesses in this sector can continue to be world leaders – delivering a crucial part of our modern Industrial Strategy.”
ADS Chief Executive Paul Everitt (pictured) said: “Improving UK productivity is a national challenge and Industrial Strategy programmes to boost the competitiveness of supply chain companies are making a vital difference.
“The SC21 Competitiveness & Growth supply chain productivity programme we are launching today will help more UK aerospace companies to meet the challenge of global competition. This programme will strengthen the UK’s supply chain and ensure we continue to offer high value, long term career opportunities across the country.
“Improving productivity and competitiveness is the best way to combat the headwinds of Brexit uncertainty and make our economy more resilient and successful in the future.”
Following a diagnostic process, companies enrolled in the SC21 Competitiveness and Growth programme will take part in training to strengthen leadership and management skills, enhance workforce capability and implement streamlined business processes.
The aerospace sector is growing globally to meet high demand for modern, technologically advance and fuel-efficient aircraft, and the industry is raising production every year to deliver on the order backlog of more than 14,000 commercial aircraft on international order books.
MEP is an award-winning SME manufacturing business that specialises in moulding and machining for the aerospace and defence sectors. It has received six performance awards under the existing SC21 programme and works with some of the world’s largest aerospace and defence companies.
MEP CEO Phil Hart said: “After 12 years of participation and of supporting the development of the SC21 programme, it was exciting and rewarding that MEP was able to participate in the pilot of SC21 Competitiveness & Growth. We know from personal experience the transformation that embracing SC21 gives to aerospace and defence SMEs and I’m delighted to welcome members of Government, BEIS and ADS to our facility today.
“The news that the funding is now confirmed to be able to fully deploy Competitiveness and Growth is recognition of the work that’s gone into the programme, a massive boost to the aerospace and defence supply chains and a fantastic opportunity that will support MEP in reaching the next level of manufacturing competitiveness.” www.sc21.org.uk/the-programmes/competitiveness-growth(Source: Google/https://www.aero-mag.com)
10 May 19. In row with Turkey, US searching for alternative F-35 component vendors. Pentagon leaders are searching for alternative vendors to manufacture several F-35 Joint Strike Fighter components in the case Washington and Ankara are unable to resolve their dispute over latter’s plan to field the S-400 air defence system.
Ellen Lord, the US Department of Defense’s undersecretary of defence for acquisition and sustainment, spoke with reporters on 10 May about a host of topics including the ongoing quarrel with Turkey stemming from its plan to field the Russian-built S-400 system over the US-built Patriot system.
“We have been very clear that the F-35 and the S-400 are incompatible,” Lord told reporters.
“We have, for some time now, been working to look at alternative sources of supply for the F-35 supply chain that is inside Turkey right now,” she later added. (Source: Defense News Early Bird/IHS Jane’s)
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About Oshkosh Defense
Oshkosh Defense is a leading provider of tactical wheeled vehicles and life cycle sustainment services. For decades Oshkosh has been mobilizing military and security forces around the globe by offering a full portfolio of heavy, medium, light and highly protected military vehicles to support our customers’ missions. In addition, Oshkosh offers advanced technologies and vehicle components such as TAK-4® independent suspension systems, TerraMax™ unmanned ground vehicle solutions, Command Zone™ integrated control and diagnostics system, and ProPulse® diesel electric and on-board vehicle power solutions, to provide our customers with a technical edge as they fulfill their missions. Every Oshkosh vehicle is backed by a team of defense industry experts and complete range of sustainment and training services to optimize fleet readiness and performance. Oshkosh Defense, LLC is an Oshkosh Corporation company [NYSE: OSK].
To learn more about Oshkosh Defense, please visit us at www.oshkoshdefense.com.
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