Lockheed, Navy Clash Over P-3 Funding : Firm Wants to Keep Working While Awaiting Bidding on New Model

For a quarter century, Lockheed has built the Navy’s anti-submarine patrol aircraft, known as the P-3 Orion, only one of a handful of military aircraft programs that have had such extraordinary longevity.

But all that was upset in January when the Pentagon released its fiscal 1988 budget. The Navy requested no funds for the nine Orions that Lockheed had expected the service to order during the year and that Lockheed had even begun producing, spending $7 million of its own money.

Lockheed, as a result, has launched a political and public relations campaign to persuade Congress to restore funding for the P-3 over the objections of the Navy. Top executives of Lockheed California, the firm’s Burbank-based aircraft subsidiary, have blanketed Congress with its pitch.

At issue is whether the Navy should stop buying the current P-3C version before it conducts a competition among aerospace firms to determine which one would build 125 of a new version, the P-3G. It’s worth as much as $5 billion of new business for the aircraft and related equipment.

The $35 million P-3 is a four-engine, turbine-propeller aircraft, based on Lockheed’s Electra passenger jet of 1950s vintage. The plane patrols for submarines with a load of sonar gear, linked by radio to buoys that it drops into the ocean. The aircraft also carries torpedoes and missiles. During the Vietnam War, it was used to mine North Vietnam’s harbor at Haiphong.

E. Lloyd Graham, Lockheed executive vice president, said Wednesday that if the Navy carries through with its plan to stop the P-3C production line and restart it later for the updated version of the aircraft, it would result in a $420-million increase in the cost of the P-3G program--about a 21% increase.

“What we are saying is, if you have a requirement for the airplane, what sense does it make to shut down and restart the program,” Graham said, who noted that he called 17 members of Congress in the last week to make the same argument. “It means the cost to the taxpayer is going to go up 21% for the same capability.”

But a senior Navy officer, speaking on the condition that he not be identified, said in a telephone interview Wednesday that some of the blame for the current situation rests with Lockheed, because the firm has opposed the Navy’s efforts to hold a competition in the first place.

“We have been looking for a year for a way to conduct a competition,” the officer said. “We had not been able to reach agreement with Lockheed on some of the issues to conduct a competition.”

Those issues involved the data rights to the design of the P-3 airframe, which Lockheed said it owned since it was based on the old Electra airframe.

Lockheed finally agreed to permit other companies to bid to build the P-3 airframe, but no other company thought it could compete with Lockheed, not surprising since Lockheed has 25 years experience in building it. On that point, one of very few, Lockheed and the Navy agree.

So, the Navy has now opened the competition to any airframe that contractors want to offer. A request for proposals is expected to be issued by May 1 and a winner selected by the end of the year, the Navy official said.

That is fast by military standards but not fast enough for Lockheed. The last P-3C, part of the fiscal 1986 order of nine aircraft, will be delivered by mid-1989, Graham said. The first P-3G would not be delivered until mid-1993, a four-year production gap.

Lockheed stands to lose substantial foreign business in the meantime. South Korea, West Germany, Pakistan and the Persian Gulf Cooperation Council--an alliance of Arab nations around the gulf--have indicated that they are ready to order 51 P-3Cs, worth $2 billion, Lockheed’s Graham said.

In addition, Lockheed says it would start laying off workers this summer. The program supports employment of 3,200, according to Tod C. Ellis, Lockheed P-3 program manager.

The advocacy for a P-3 competition came in large measure from Rear Adm. Stuart Platt, the officer in charge of promoting competition in Navy purchase programs, who retired recently. On Wednesday, Platt strongly rebutted Lockheed’s claims.

“The P-3 has been making money for Lockheed for a long time, and I felt 25 years of monopoly was too long without bringing market pressures to bear,” Platt, who is now in private industry, said. “The pressures of the market can only help bring down the price of the aircraft.”

But Graham said: “This P-3 competition is competition at any price,” echoing a widely held sentiment in the defense industry that the military services are pushing for competition when it does not make economic sense.

Meanwhile, the high-ranking Navy official said the motivation for updating the P-3C is that it can no longer fulfill its mission requirements, which call for it to have a 1,500-mile combat radius and the ability to stay on station for four hours 1,500 miles from its base. That is because the plane now carries more weight.