Industrial co-ordination and co-operation is a key issue on Europe's three major surveillance programmes
For the past few weeks EADS and Northrop Grumman have been working to finalise legal arrangements for the establishment of their Eurohawk joint venture that will be the prime contractor for Germany's high altitude, long endurance (HALE) unmanned air vehicle programme. Key details of the new company are to be unveiled by EADS and Northrop at the Flight International – Association for Unmanned Vehicle Systems International Unmanned Systems Europe 2005 conference in Cologne on 3 May.
Eurohawk is the first of four new companies being planned by European and North American aerospace and defence houses to support Europe-focused high-end surveillance requirements.
During early fourth quarter this year the Transatlantic Industrial Proposed Solution (TIPS) team selected for NATO's €3.5 billion ($4.52 billion) Alliance Ground Surveillance (AGS) programme will evolve into a registered company. That will pave the way for the award of a 30-month, €350 million design and development contract.
Common planning
In similar timeframes, the six industrial participants in the Transatlantic Cooperative AGS Radar (TCAR) programme will transform their existing co-operation arrangements into a registered company, that may also include Raytheon, to facilitate production and support contracts with the single TIPS corporate entity. The TCAR radar will be carried by Airbus A321s and Northrop Grumman RQ-4B Global Hawk UAVs under the combined manned-unmanned architecture being pursued by NATO.
In the longer term, industrial participants in the Euromale programme are considering options for establishing a single joint-venture vehicle to deliver the medium endurance UAV system to the marketplace once the initial demonstration phase of the project is completed.
Common to the planning for the use of special-purpose corporate entities on all four projects is a desire by European acquisition authorities to simplify contracting and programme delivery in the face of what will remain highly complex national funding and industrial co-operation arrangements.
Establishment of the 50:50 EADS/Northrop Eurohawk company comes six months later than originally planned, in part reflecting slippages in approval for the project as it progressed through Germany's labyrinthine defence acquisition system, as well as complexities in resolving legal arrangements for the new venture. Formal German Cartels Office approval for the joint venture is still being processed.
The Eurohawk project is based on replacing the Luftwaffe's ageing Breguet Atlantic electronic intelligence-gathering (ELINT) aircraft with five RQ-4Bs equipped with EADS-developed suite comprising both ELINT and communications intelligence (COMINT) payloads. The project is expected to cost at least €350 million.
As well as co-ordinating industrial arrangements for the project, Eurohawk will be the primary body for in-service support of the RQ-4Bs with this to include significant German industry work share arrangements. The new company will be headquartered at Friedrichshafen in southern Germany, alongside EADS Defence & Security Systems.
The German Military Procurement office – Bundesamt fur Wehrtechnik und Beschaffung (BWB) – released a restricted request for proposal to EADS and Northrop for supply of a HALE UAV-based system in September last year. The two industrial partners delivered their combined response at the end of March with tender evaluation now underway.
The project still requires final approvals by the German parliament, including consideration at the defence and finance committee level. A parliamentary recess mid-year may delay consideration until July/August; however planning schedules are based on a four-year development and demonstration contract being signed by August. Original project planning had proposed an initial operational capability from 2008; however this has slipped into 2009.
The new TIPS corporate entity will be developed around the core of the six existing industrial partners in the AGS project – EADS, Galileo Avionica, General Dynamics Canada, Indra, Northrop Grumman, and Thales. Negotiations are underway on final shareholding arrangements and the national legal code under which the company will incorporate.
The proposed contracting framework for AGS will see TCAR become a primary subcontractor to the TIPS venture. TCAR itself will comprise the existing five partners in the SOSTAR company – Dutch Space, EADS, Galileo Avionica, Indra and Thales – plus Northrop Grumman and Raytheon. SOSTAR was created in 2001 by France, Germany, Italy, the Netherlands and Spain to develop the SOSTAR-X ground-surveillance radar to provide a technical basis for a predominantly European solution to the AGS requirement. The BWB co-ordinates the project for the five member nations. The AGS TCAR radar merges the SOSTAR system with the Northrop Grumman-led, US-funded Multi-platform Radar Technology Insertion Program (MP-RTIPS).
Project partners
The option of folding TCAR into TIPS has been the subject of talks between all the parties involved in the two projects, but rejected. The TCAR partners in particular plan to use the separate identity as a means to continue to evolve the sensor's technical capabilities as well as pursue other market opportunities.
Funding for TCAR radar development is provided directly by five SOSTAR nations as well as the USA, rather than NATO. Production of radars to meet the AGS requirements will, however, be funded by NATO, with this requiring an amendment of the overarching AGS programme memorandum of understanding between the 23 programme nations.
NATO wants the TIPS corporate entity in place this year to facilitate a design and development phase contract, with signature planned for early second quarter 2006. In the interim NATO is preparing to fund €25 million programme implementation study (PIS) conceived by the 23-nation project late last year as a mechanism to clarify programme issues before the design and development contract award.
The TIPS consortium was formally advised of the introduction of the PIS process in January. This interim phase – likely to be renamed within the fortnight – will run until October with final results to be considered by the council of national armaments directors (CNAD) at NATO headquarters late that month. The PIS phase is required to develop an overall project risk mitigation plan; a detailed TCAR implementation programme, including individual platform integration plans for the A321 and RQ-4B; provide updated cost estimates for the project, including life cycle costing guidance; and provide a strategic support concept for the system. Notwithstanding, TIPS initial PIS implementation concepts will be considered at a CNAD meeting being held 28-29 April.
In similar timeframes the AGS programme nations are working to finalise the individual MoUs governing overall financial contributions to the project. This issue is expected to dominate discussions on AGS at this week's CNAD meeting, with the contributions framework having been in flux for several months due to some nations scaling back investment while others are exploring increased input as a means of securing further industrial workshare.
Spain, for example, is responsible for 4% of project funding under current NATO shareholding arrangements, but is discussing increasing this to 10%. Germany is planning 20% but faces domestic defence budget pressures. The USA has already flagged hundreds of millions of dollars in funding cuts between 2007-2011 as part of its 2006 defence budget plans. France plans a 15% stake in the AGS programme and 15% in the TCAR radar but its concerns at the scale of commitment required to see the programme through to delivery were a major factor behind delays to the design and development phase award and introduce the PIS process. Despite the difficulties, AGS and industry programme officials say they can envisage the project becoming temporarily financially oversubscribed as member nations negotiate an agreement on the definitive funding framework.
NATO plans call for all partner-nation programme MoUs to be signed by late this year, at the same time that TIPS submits its final design and development phase proposal. With several nations also requiring parliamentary approval for their MoU before it can be finalised, the final structure of the financial structure of the programme is unlikely to be fully ratified until early next year – or just ahead of the design and development phase contract award.
The introduction of the PIS means the 30-month design and development phase will end in late 2008, with the follow-on EMD phase now pressured to deliver the initial operational capability sought by NATO in 2010. Notwithstanding, NATO remains committed to that target with the EMD phase baselined on delivery of two converted A321s and three RQ-4Bs subject to design and development phase outcomes. Options put forward by the TIPS consortium in the competition stage for early delivery of a single US Air Force configuration RQ-4B as an interim capability are not part of current negotiations with the NATO project office. However, they could re-appear in the design and development phase as a means of helping meet the 2010 target. The full operational capability target proposed by TIPS is based on seven RQ-4Bs and five A321s.
Workshare decisions
The TIPS consortium anticipates up to 80% of programme work will be directly awarded to its six founding members, with a third tier of contractors already built into its plans. However, with the financial structure of the programme guiding workshare decisions, the consortium is working on developing subcontracting mechanism to balance national interests with competitive best value sourcing.
The options being explored include the scenario of each of the six companies forming the TIPS joint venture being individually responsible for subcontracting out work packages in their respective areas of responsibility rather than TIPS undertaking this at the corporate level. Under that scenario, TIPS would also operate a centralised clearing house overseeing the third and fourth tier subcontracting processes to ensure equitable participation between nations.
Another concept proposes the creation of a partner nation industrial capability monitoring cell that would be located at the TIPS corporate level and which would provide guidance on membership of the lower tier supplier chain. That approach would provide an alternative to running any formal prequalification process.
The final shape of the devolved contracting mechanism will also face strong claims by programme member nations for access to noble programme work, particularly in the areas of design, electronics and system software. The actual mechanisms are not likely to be finalised until during the design and development phase, however it is probable that for the radar system, TCAR will retain responsibility for contracting system components, with TIPS handling all platform integration contracts.
The use of devolved contracting by major subcontractors is likewise being considered as the basic business model for the demonstration phase of the EADS-led Euromale project. Core industrial arrangements are planned to be locked down by the end of this year between nations participating in the Phase 1 system demonstration programme, but could evolve depending on overall production orders from participating nations in Phase 2 as well as potential follow-on orders by other European Union states.
Euromale is an initiative of the French Armaments Directorate (DGA) aimed at jump-starting the development of a wholly-European medium altitude, long- endurance UAV system that meets emerging European national defence and civilian market requirements. A single Euromale Block 0 UAV is expected to make its first flight in European airspace in 2007 and be ready to perform capability demonstrations from 2008.
The French government announced in June 2004 that it was investing €75 million into the Phase 1 demonstrator programme. This followed a co-operation agreement between EADS and Dassault that gives the former the lead role on Euromale, the latter becoming the prime contractor for France's Neuron unmanned combat air vehicle demonstrator programme. EADS is itself investing €100 million in Euromale, with the overall demonstrator phase expected to cost €300 million. The rest of project funding is planned to be sourced from partner nations and companies, with advanced negotiations underway with Finland, Greece, Italy, the Netherlands and Spain.
National champion
The Euromale Phase 1 industrial model proposes that EADS manages a series of primary subcontracts awarded to national "champions". Parallel government-to-government and industry-to-industry talks now underway should, by the end of the year, result in the second-tier industrial base for the project comprising: EADS-Casa, Finmeccanica, Hellenic Aerospace Industries, Patria and the Dutch Space-led Netherlands Industrial MALE UAV Platform (NIMUP) cluster. NIMUP was formed in 2004. Members include ADSE, Klein Poelhuis, Stork Aerospace, the National Aerospace Laboratory, and Thales Nederland.
Saab is also likely to form part of the Euromale group via its own direct funding. with the Swedish government seeking to defer its contribution to the project because of pressure on its defence budget.
The concept further proposes that each national industrial champion would be responsible for the selection and co-ordination of "junior champion" third- and fourth-tier suppliers within its domestic sphere of influence. In the case of France, this will provide the mechanism for involvement of Thales, Sagem and Socata as subcontractors to EADS. Dassault is already on-contract as the design authority for the Euromale airframe, which will be built by EADS-Casa and Israel Aircraft Industries. In the proposed Phase 2 production programme, restricted competition mechanisms could be added to expand the third- and fourth-tier supplier base.
The actual legal arrangements required to roll the approach out across the entire Euromale supply chain during both project phases are still to be fully defined. However EADS plans to have the full supply chain for Phase 1 on contract by mid 2006 to ensure schedule compliance.
For Euromale Phase 2, EADS plans to transition the core group of national champions into a joint venture company which would then become the prime contractor for delivery of operational systems to programme member nations. This would be paralleled by the transfer of the contracting authority role from the DGA to the European Defence Agency.
PETER LA FRANCHI/LONDON AND PARIS
Source: Flight International
