TRW Stripped of Military Job Worth Billions
Federal authorities have stripped a top-secret military satellite contract from TRW and awarded the business to archrival Martin Marietta, an action unprecedented in the high stakes world of multibillion-dollar defense contracts.
The loss is a serious blow to a firm that has endured a series of setbacks in recent years, prompting questions about the long-term future of TRW’s military space business in Redondo Beach, industry experts said.
TRW and Martin spokesmen declined comment on the classified decision, though industry officials knowledgeable about the program confirmed that Martin’s aerospace operation in Denver had succeeded in a lengthy battle to unseat TRW.
TRW had won the contract late last year to build a new fleet of satellites that would use radar to scan the skies and seas for enemy targets--a task that would create more than 2,000 jobs and generate more than $2.5 billion in revenue over the next decade, according to industry sources.
But the losing firms in the competition, Lockheed and Martin, protested to the General Accounting Office that TRW had submitted a “low-ball” bid that was well below the actual production cost of the satellites.
Although federal purchasing rules are supposed to bar these kinds of bids, in practice many defense firms win contracts on proposals that ultimately are far below the original cost estimate and result in losses borne by stockholders or taxpayers.
Nonetheless, analysts and industry experts could not recall another bid protest that succeeded on a program of this size. Occasionally, small contracts, particularly in desktop computers and software, are protested successfully, but big-ticket weapons awards are ordinarily handled with extreme care by contract officers to avoid later reversals.
Earlier this year, the GAO ruled that the satellite contract be rebid and Martin submitted a new contract bid that significantly undercut TRW’s latest bid, according to industry sources. Also, some sources said the new bids might have included new technical details or designs for the spacecraft.
Defense firms in recent years have been at each other’s throats, accusing each other of foul play and launching hostile takeover battles. The increasing tensions reflect the battle for survival in an extremely lean era for the industry.
It is not clear what action, if any, TRW will take now, but experts speculated that the Cleveland-based company will file a protest seeking to have Martin’s award overturned.
“I can’t believe TRW will not appeal this,” said Michael Beltramo, a defense consultant specializing in competitive analysis. “There used to be an attitude that you didn’t want to rock the boat, because it could come back to haunt you. Now, the view is who cares, because if you lose you will be out of the business anyway.”
The contract was issued by the National Reconnaissance Office, a secretive agency that acts as the development and procurement arm for satellites used by the Central Intelligence Agency and the Air Force.
For years, TRW has been a major supplier to the National Reconnaissance Office, the CIA and the Air Force, but intelligence budgets are quickly dropping. Although much of military space spending is classified, experts say the nation spends about $13 billion annually, down from a peak of $20 billion in 1992.
Defense officials have testified before Congress that the number of spy satellite manufacturers will drop from eight producers to two. TRW would like to be one of the survivors and for many years it has been among the best in the industry.
“TRW was already on a downhill slope and the slope just got steeper,” Beltramo said.
TRW employment in metropolitan Los Angeles peaked in 1985 and 1986 at 18,000, compared to 10,000 today after reorganization.
Some employees have feared for years that TRW might divest its space business, just as other major companies such as Goodyear, Ford Motor and General Electric have fled the aerospace industry. Lockheed officials approached TRW about a possible sale, but nothing resulted from the talks, according to an industry official.
Aerospace analyst Wolfgang Demisch of BT Securities said that TRW does not face any immediate crisis and has enough work in its pipeline for a few years. But “the outlines of a hole” are emerging in its business and must be filled in the next 12 to 18 months or the firm will be forced to disband crucial engineering teams, Demisch said.
TRW has a large number of remaining programs, but they are either older programs that are winding down or nascent efforts that are long shots to develop into big money-makers, according to John Pike, a military space expert at the Federation of American Scientists.
The firm also recently lost one of its last orders for its cornerstone Defense Support Program, an early warning satellite. “Poor TRW,” Pike said. “When it rains, it pours.”
According to Pike, Martin Marietta builds the LaCross satellite, another radar spy system, whereas TRW has never built that type of a system. The new satellite, known by the designations of 7795 and P-81, will use a highly sophisticated “phased array radar,” which has a beam that is steered electronically rather than with a moving dish. Such radars can track and identify targets more quickly and accurately.
