Lockheed Martin's offer of lower prices in return for an accelerated US Air Force order for C-130Js is aimed at securing an economically viable production rate on which to base bids to overseas air forces.
In return, the USAF will receive lower prices if the company wins overseas contracts. But if a USAF order is delayed, Lockheed Martin will have difficulty maintaining the pricing it has offered international customers.
Under its "economic order quantity" (EOQ) proposal to the USAF, the company is offering price reductions of 18-21% in return for a $150 million long-lead downpayment next year and orders for a minimum of 46 C-130J-30s over the following five years.
The US Marine Corps has been offered similar price reductions on KC-130J tankers.
Currently the USAF plans to buy 34 C-130Js in 2002-6 at an average unit price of $68 million. The EOQ offer is based on an average price of $57.3 million, with a discount of $3.3 million per aircraft taking the unit cost down to $54 million for the C-130J-30. Deliveries would begin in 2002, a year early than planned, at an initial rate of eight instead of two a year.
The offer is based on Lockheed Martin being able to maintain a production rate of at least 19 aircraft a year combining US and international orders. Manufacturing initiatives and improved cost controls have reduced the economically viable rate from 24 a year.
Next year 16 aircraft will be built and even fewer in 2001 unless additional orders are secured. If there is a gap in the line, many company insiders believe it will be difficult to restart production when the USAF is ready to begin acquiring the 168 C-130Js it needs.
If an early USAF order helps secure international orders, however, the service stands to gain additional price reductions: $1 million per aircraft if the production rate goes above 20 a year, and $2 million if it goes above 23 a year.
The USAF says it is studying the EOQ proposal jointly with the US Department of Defense.
Source: Flight International
