 EADS expects sharp cuts in military spending Paris (AFP) Sept 23, 2010 - European aerospace group EADS expects European governments, facing budgetary constraints following the global economic crisis, will make sharp cuts in defence budgets, a senior executive said Thursday. "The defence budget cuts will be tougher than the ones we've known in the past," the head of the group's Cassidian military division, Herve Guillou, was quoted as saying in the trade journal AeroDefenseNews. The company has already begun to feel the impact of the cuts, he added. "In my segment, we are down by almost 50 percent in Spain, and in Britain I expect a drop of 15 to 25 percent, and in the order of 10 to 20 percent for France and Germany," Guillou said. |
The agreement, which took more than four months to conclude, is necessary before the Department of Defense signs a contract for the fourth lot of F-35s.
Bryan Whitman, a Pentagon spokesman, said the deal covers 30 jets for the United States and one for Britain and an option for one for the Netherlands.
He said the contract provides a "fair and reasonable" basis for the fourth lot of production jets and "sets the appropriate foundation for future production lots" of the $382 billion multinational Joint Strike Fighter program.
Analysts say the agreement and the Defense Department's insistence on a fixed price agreement signals a drive by the military to cut back costs linked to development programs that historically surge past initial estimates.
"This price of contract shares the price of overruns between government and industry up to a fixed ceiling," Defense Secretary Robert Gates said during a news conference. "We need to see more of these kind of contracts."
It is understood that the agreement is 15 to 20 percent less than an independent cost estimate.
With the latest deal, the Pentagon's total order of F-35 reaches 63.
In a statement, Lockheed said it was facing a new reality in which the U.S. military is limiting its expenses.
"We remain confident that this agreement keeps us on track to reach our long-term price projections for the F-35 at full-rate production," the military contractor said.
The Joint Strike Fighter is expected to account for 25 percent of the aerospace giant's revenue.
The Pentagon retooled its Strike Fighter program earlier this year, "adding 13 months to the development program, withholding $614 million in award fees from Lockheed and firing the Marine general who ran it," The Washington Post reported.
The Defense Department deferred orders for 122 aircraft beyond the fiscal year of 2015. That means that Lockheed's production system will only rise by 10 against 43 aircraft order slated for the fiscal year of 2011.
Delays by the Pentagon to seal the F-35 deal unsettled lawmakers and investors for weeks.
Earlier this month, the Senate Appropriations Defense Subcommittee cut back on funding for 10 of 42 F-35 aircraft that the Pentagon had requested for 2011.
"The specific flyaway cost of each jet will be lower than the overall average but details will not be known until a contract is signed," Flight Global reported.
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