Boeing and Sikorsky Get $34-Billion Army Helicopter Program

Boeing and Sikorsky won the Army’s $34-billion lightweight helicopter program Friday, dealing a tough setback to a competing team of McDonnell Douglas and Bell Helicopter Textron.

The new helicopter, a twin-engine aircraft intended to replace several thousand scout and light attack models dating as far back as the Vietnam War, is among the Army’s largest projects for the next two decades.

But at $34 billion, the program faces a difficult future in an era of declining Pentagon budgets and what is likely to be repeated efforts by competing weapons firms to offer lower-cost alternatives, analysts said.

Army Assistant Secretary Stephen Conver said the service plans to buy 1,292 of the aircraft at a projected cost of $34 billion, amounting to roughly $26 million per helicopter. Although cheaper than Air Force fighter jets, the cost is roughly as much as a medium-size passenger jetliner.

As early as next week, the Army is expected to award an initial $2.8-billion contract to launch full-scale development of the LH helicopter, which will include production of several prototypes that will be evaluated before production begins. The first helicopters will not be fielded until 1998.

Because of the slow pace of the program and the potential for future reversals, securities analysts were cautious in their appraisal of the LH project. The program has been scaled back substantially since its inception in 1985, including a reduction just last year that cut planned purchases to 1,292 from 2,096.

“At its peak, it will generate revenues of $3 billion to be split among the two firms, engine producers and other equipment suppliers,” said UBS Securities analyst Wolfgang Demisch. “Still, this is a major win and will allow Boeing and Sikorsky to expand their engineering capabilities.”

Sikorsky, a subsidiary of United Technologies and the nation’s largest producer of helicopters in terms of revenues, is located in Stratford, Conn. Boeing’s helicopter unit is located in Philadelphia. Boeing spokesman Robert Torgerson said no decision has been made yet on where final assembly of the aircraft would be located. TRW said it will provide the helicopters’ communications, navigation and identification electronics under an initial $100-million development contract, supporting 200 jobs in San Diego.

Securities analysts had favored the McDonnell and Bell team, owing to their greater experience in producing armed combat helicopters. McDonnell produces the Apache in Mesa, Ariz., and Bell produces the Cobra in Ft. Worth. Sikorsky and Boeing are leaders in large transport helicopters for the Marines and Navy.

For McDonnell, the loss compounds a series of recent setbacks and substantially raises the stakes for the upcoming award of the Air Force’s advanced tactical fighter program, in which the firm is teamed with Los Angeles-based Northrop.

If McDonnell is not successful in the ATF program, it would face a declining future in both helicopters and fighter jets. The Army’s Apache program will end in 1993. And the Air Force is planning to end production of the F-15 within several years, as well.

“It is a major disappointment for McDonnell,” analyst Demisch said. “McDonnell is going to have to cut back its level of activities in helicopters substantially.”

McDonnell Douglas Helicopters President Thomas Gunn said Friday that the “loss of the program does not change the positive projection for the company’s financial growth or negatively impact McDonnell Douglas Corp.’s financial position.” McDonnell employs 4,700 in Mesa and 1,400 in Culver City.

Gunn said the firm will deliver 172 more Apaches by the end of 1993 and produce 100 MD500 commercial helicopters by 1995. He also said deliveries of a new commercial MDX helicopter will begin in 1994.

The new LH helicopter is intended to be more survivable than its predecessors while operating deep behind enemy lines. It features a rear tail rotor embedded in the aircraft’s rear tail boom, making the helicopter “stealthy.”

McDonnell had proposed a revolutionary idea of using an air circulation system to entirely eliminate a rear rotor, but the concept had developed technical problems, Demisch said. But he could not say how much these problems contributed to the loss of the program.