Army's FLRAA decision set to shake up rotorcraft industry

By Evan Ochsner  / July 7, 2022

The Army's upcoming choice on the Future Long-Range Assault Aircraft is poised to create cascading effects throughout the U.S. defense business, shaping the futures of three industry titans and thousands of suppliers at a time when close observers of the industrial base are raising alarms about its health.

When in September the Army announces its FLRAA choice between Bell and a joint proposal between Sikorsky and Boeing, it won’t just be choosing between two different helicopters. It will be deciding between two fundamentally different approaches to advanced rotorcraft and handing the winner a contract that could help keep factories running and shareholders happy for decades.

“We’re used to [Defense Department] procurement decisions being significant for the platform,” said J.J. Gertler, a longtime military aviation analyst for the Congressional Research Service. “But this may be a significant decision for the future of what rotorcraft looks like. That’s not written in any lines of the acquisition documents, and yet it’s one of the more far-reaching consequences.”

The prime contractors submitting proposals for the contract are large enough that they likely won’t be forced out of the defense rotorcraft space if they lose the bid, but FLRAA, alongside other upcoming Future Vertical Lift contracts, will reshape the contours of competition among the three companies, experts said.

“FVL is a tale of five factories,” Gertler said. “And when the music stops, are there still going to be five? Or how many fewer might there be?”

In addition to smaller facilities and suppliers, those five factories serve as the backbone of DOD’s rotorcraft industrial base: Boeing has factories in Arizona and Pennsylvania, Lockheed Martin-Sikorsky has factories in Connecticut and New York, and Bell has a factory in Texas.

Industrial decline can’t be easily reversed, said Jeb Nadaner, former deputy assistant secretary of defense for industrial policy. And there’s not always enough business to keep everyone happy.

"There are not many new starts, and new starts, if they're successful, they tend to be around for several decades,” Nadaner said. “So, these are always momentous decisions.”

There are industrial issues that are directly relevant in the Army’s decision: In their bids, Bell and Sikorsky/Boeing have included information about not only the technological details of the proposed rotorcraft, but also their abilities to produce them.

But experts said broader issues related to the health of the industrial base should not drive the Army’s decision. They urged the Army to take a high-level view of industrial policy and said individual contract decisions can’t be used as a tool to correct wider issues in the supply base. If the losing company believes industrial health concerns influenced the Army’s decision, experts said the losing company would likely have grounds to protest.

An Army spokesman told Inside Defense in a statement that the service continues to “consider industrial base impacts into its overall acquisition strategy in order to manage and mitigate cost risk across every stage of the program’s life cycle.”

The spokesman added: “[I]ndustrial base considerations are also nested within FLRAA’s risk reduction activities,” which the Army says have helped increase innovation and competition.

Sikorsky: Anchored by an iconic helicopter

“The stakes are high for all companies involved,” Sikorsky President Paul Lemmo told reporters in May. But he suggested they were higher for Sikorsky because of its longtime role in the Army’s industrial base.

“If we’re not selected, it will be a big deal for sure,” Lemmo said. “I know we have some other programs here, but we’ll certainly be smaller than we are today down the line as Black Hawk goes out of production and FLRAA enters production somewhere else.”

But experts said they expected the Black Hawk to remain an enduring strength for Sikorsky, which recently signed a deal to provide the aircraft for the Army through 2027, with plans for it to remain in service for decades.

Bryan Clark, director of the Center for Defense Concepts and Technology at the Hudson Institute, said FLRAA would be too expensive to serve as a one-for-one replacement of the Army’s more than 2,000 Black Hawks. Just as the Air Force has continued to fly legacy fighter jets after the introduction of the F-35, the Army will continue flying its existing platforms.

“They’re going to need something that’s a daily driver,” Clark said.

Ed Fortunato, an Army programs executive at Sikorsky parent company Lockheed Martin, said the FLRAA choice will have “dramatic” impacts on the bidding companies, but he said Sikorsky would continue to update the Black Hawk. The helicopter will receive new engines from the Army’s Improved Turbine Engine Program as the company explores expanded fly-by-wire capabilities and options for autonomous flight, he said.

“They're going to be around for a long time, and they need to be relevant,” Fortunato said.

The company’s position is further bolstered by the CH-53K King Stallion, which should provide another stable, long-term revenue stream. That program reached initial operational capability in April, and the Marine Corps has already placed orders for the aircraft as part of its goal to procure 200 CH-53Ks.

“They’re not going to disappear if they lose the FLRAA contract,” Clark said of Sikorsky.

In fact, Fortunato argues the enduring strength of the company is one more reason for the Army to choose Sikorsky.

“If you maintain the partnership that you have today on the industrial base, which is Sikorsky and Boeing, you now benefit from them maintaining and managing the current, enduring fleet while they're also provisioning and fielding the future fleet,” he said.

As Sikorsky’s parent company and an integral part of Bell’s team, Lockheed Martin is positioned to profit regardless of who wins.

Boeing: Anticipating strong continuing demand

Sikorsky’s partner in the FVL competition, Boeing, also has strong existing contracts: the CH-47 Chinook and AH-64 Apache, the latter of which will receive the ITEP engine.

The future of the Chinook has appeared tenuous at times, as the Army has cut procurement money for the legacy system in favor of its modernization priorities, but Congress has on multiple occasions restored funding for the program and chastised the service for it.

Chinook received a further boost this month when Germany announced a long-term deal to purchase the modernized F variant of the aircraft. Germany selected Chinook over Sikorsky’s CH-53K, a reminder that although Boeing and Sikorsky are competing for FLRAA as a team, they are still competitors.

The Boeing-made Apache is expected to retain its status as the Army’s attack helicopter, with the expectation that the Future Attack Reconnaissance Aircraft would take over the reconnaissance roles Apache has been shoehorned into.

Tony Crutchfield, vice president for Army systems at Boeing, said it was “crucial” that the Army continue to modernize Apache and Chinook alongside Black Hawk.

"They're going to have to have these aircraft in production and in the Army organization for quite some time,” he said.

Bell: Seeking sea change

Bell, which partners with Boeing to produce the V-22 Osprey and makes utility helicopters for the Marines, doesn’t have the long-term, robust continuing lines of the other two companies, experts said.

“There’s no question that Bell is already a strong industrial player in the defense space,” Gertler, the former congressional aviation aide, said. “The issue is how long can they maintain that position without one of these contracts.”

After V-22 and H-1 procurement contracts end in the next few years, Bell won’t have a prime defense rotorcraft contract, Gertler said.

Potential upcoming Future Vertical Lift contracts include FARA, a new maritime strike capability for the Navy and high-speed vertical takeoff and landing for the Air Force. But it could be a long time until those programs provide profits to contractors, potentially meaning a long wait for the FLRAA loser and creating the potential for a decrease in manufacturing capacity.

Keith Flail, executive vice president for advanced vertical lift at Bell, said the stakes of the competition are clear.

"From an industrial base standpoint, anytime there's a competition, there's going to be winners, there's going to be losers,” Flail said, also noting that Boeing and Sikorsky are larger than his company.

Flail said the upcoming contracts favor a tiltrotor aircraft. If that’s the case, those contracts could trigger a shift that would favor Bell.

“One thing I think that's very important to remember is Bell is the United States’ tiltrotor industrial base, and I don't think folks talk enough about that: We are the tiltrotor industrial base for this nation,” he said.

Bell has a strong commercial aviation business, a potential source of insulation against losing FVL contracts that Sikorsky, which is more dependent on the military, doesn’t have. Like the other companies, Bell enjoys strong demand from foreign militaries for its existing lines.

Three players are better than two

The status of Bell, Boeing and Sikorsky as the three preeminent players in the rotorcraft space was put in stark terms early in the FLRAA award process, when the Army quickly narrowed down the process to those companies.

In announcing that decision, the Army said it “determined through extensive market research . . . that only two sources [Bell and Sikorsky/Boeing] exist in the market space that have the capability and capacity of developing, manufacturing, testing, and delivering both prototype and initial production FLRAA in the time allocated to achieve the Army’s goal of [first unit equipped] in FY 2030.”

These three companies have been the primary players in the rotorcraft space for decades. But the industry has not been immune to the consolidation the rest of the defense business has experienced. Hughes Helicopters developed the Apache but was subsequently acquired by McDonnell Douglas, which then manufactured the aircraft. In 1997, Boeing bought McDonnell Douglas and has since built the Apache.

The overwhelming sense among experts is that three strong companies in the space is better for competition than having two. But some said that because there is only a small number of rotorcraft programs to go around, it may require spending more money and conducting intentional industrial policy to ensure competition continues.

“I think it’s safe to say that DOD would love to have three competitors, if possible,” said Greg Sanders, deputy director and fellow with the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies. “The question is would they be willing to sustain three competitors?”

DOD certainly doesn't want the rotorcraft industrial base to get any smaller than it is, Sanders said, but a belief that the Army will let those considerations form the FLRAA decision could create problems.

"There’s a pretty good chance of protests regardless, and having a thumb on the scale” for industrial base considerations increases the likelihood “that it would be sustained,” he said.

He said protests have been rising over the years, particularly for “make-or-break" contracts like FLRAA.

The stakes of those contracts were made clear by a DOD report released earlier this year that said: “Opportunities for new programs can be limited, driving unsuccessful bidders to exit the market when it is unsustainable to maintain design and manufacturing skills until the next requirement presents itself.”

There are ways, Sanders said, that industrial base concerns could appropriately factor into the decision. One of those is the Modular Open Systems Approach, which the Army says provides opportunities for companies other than the winning bidders to incorporate new technology and system upgrade while reducing vendor lock and allowing for continued competition. A bid that allows the Army more latitude within the framework or in a similar vein might gain an edge, Sanders said.

“It could be something that could make it a more competitive bid, and it would be a reasonable place for industrial base consideration to come in,” he said.

Other efforts to bolster industry and stoke competition, like a licensing or dual-production arrangement, have not been discussed, company officials said. They also demurred on providing details about their protest process.

Sikorsky’s Lemmo told reporters in May that parent company Lockheed Martin rarely protests.

“You don't just file a protest because you're upset that you lost,” he said. “There have to be legal grounds, you think that something wasn't followed appropriately. And we'll look at the decision either way and decide at that time.”

Flail, at Bell, also declined to go into specifics.

“I'm not going to get into any kind of protest conversation,” he said. “We put our best foot forward, and the government's doing their evaluation, and we're standing by for their decision.”

Supply chain concerns stretch far down from the top

The Army, meanwhile, has required that the aircraft have a digital backbone, digital twin, net-centric interoperability and advanced sensors. In short, it asks aviation manufacturers to do things they haven’t necessarily excelled at in the past, said Nadaner, the former DOD industrial policy chief.

“These are things that really stretch, go to the outer edge of the limits of some of our finest high-tech companies,” he said. “And the software side particularly has not been among the greatest strengths of aerospace defense companies.”

For their part, the competing bidders have emphasized their prowess with the high-tech elements of the proposal, emphasizing the recent updates to their existing platforms, which have included expanded digital capabilities.

The new demands of the program could mean new suppliers in a supply chain that could include “several thousand” companies, Nadaner said. The competing teams will likely use the same suppliers for some components because there are limited suppliers of certain specialized parts.

But for some companies further down the supply chain, he said, the decision between Bell and Sikorsky/Boeing could very likely mean life or death.

“The industrial base issues are just -- they're mammoth,” he said.