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Pentagon Stop-Work Order Adds to French Aircraft Cost

Sep. 24, 2012 - 09:10AM   |  
By PIERRE TRAN   |   Comments
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PARIS — France is being asked to pay an extra $5 million on a $466 million contract after the Pentagon ordered Boeing to stop work to upgrade the French Air Force’s four airborne early warning aircraft, sources familiar with the situation said.

Although relatively small, about 1 percent of the program budget, the added cost and negotiations are grating on the nerves of French defense officials.

“There might be reduced capability because of the technical solution proposed,” a French official said. There may also be another technical change that would drive the cost higher, the official said.

“Program protection issues” over technology deemed too sensitive for export led U.S. Defense Department officials to issue an order in the domain of stop-work on the upgrade of the four French E-3F airborne warning and control system (AWACS) aircraft, a source briefed on the subject said.

DoD’s export procedure seems to have been slow on the program protection issues, but defense officials insist the client must pay.

If the changes are accepted, the upgrade is expected to start in the first half of 2013, a year late, the French official said. France is the first export client for midlife upgrade to the Block 40/45 standard, also being installed in the U.S. Air Force’s 32-strong AWACS fleet.

U.S. officials early this summer called for a due diligence study to see whether there was a technical risk on the export deal and asked Boeing to put a hold on the French upgrade, agreed to under a $466 million contract signed in 2010 under Foreign Military Sales (FMS) rules.

The total contract comprises $440 million and a $26 million reserve amount under the FMS regime. Boeing gets $324 million of the total amount, as prime contractor for the upgrade.

“The credibility of FMS is in play,” a second French official said. Cost increases are part of negotiations being held “in the framework of the contract,” the official said.

The Direction Générale de l’Armement procurement office, Boeing and a spokesman for the Defense Security Cooperation Agency either declined to comment or could not be reached as of press time.

A modernization of the French AWACS fleet is important for trans-Atlantic cooperation, French Air Force Gen. Jean-Paul Palomeros said Sept. 10.

The upgrade is vital for “interoperability,” he said. “We need to have the best-performing equipment possible.”

The Pentagon order to stop work led to Boeing incurring costs the company wants to recover from the client. Boeing had sent staff over to Paris to work on the equipment modernization and had to idle the personnel.

Most of the cost increase stems from the stop-work order.

On the due-diligence assessment, the U.S. side concluded “mostly no risk,” and small modifications were needed, limiting the engineering cost.

An administrative waiver or re-engineering were options to deal with the program-protection issues, with the former available if the re-engineering costs were too high.

The U.S. government is negotiating on behalf of France, as the midlife upgrade contract was signed under FMS rules, which put the deal on a government-to-government basis.

The French authorities spent $10 million in 2009 on a risk-reduction study that looked at the engineering and technological issues behind the upgrade. The program protection issues did not arise at the time.

With future upgrades, the AWACS planes could be linked up to Tiger attack helicopters to support a 360-degree strike force in joint operations, he said.

Robbin Laird, with consultancy ICSA, based here and in Washington, questioned whether it was fair for France to pay for the delay since it appeared the upgrade had been held up by a U.S. policy review.

The modernization of the planes and the ground system had been due to start in June at Le Bourget airport. Boeing is the prime contractor for the midlife upgrade, with Air France Industries acting as prime contractor at the depot level.

In a Feb. 3, 2010, statement, Boeing said it had been awarded a $324 million FMS contract, which would be the largest-ever upgrade for the French AWACS fleet.

The Block 40/45 standard updates the mission computing system and is intended to boost network-enabled operations, increase reliability and reduce life-cycle costs, Boeing said in the 2010 statement.

Under the contract, the French upgrade is due to be completed by the second quarter of 2015.

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