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Saturday, April 1, 2006

Editor’s Notebook

James T. McKenna

A Three-Horse Race for LUH?

Is LUH a three-horse race now?

After MD Helicopters' presentations at Heli-Expo, I have to believe so. The head of the company essentially said that her supply chain is in a shambles, with suppliers trying to hoodwink her on prices without committing to parts volumes or delivery schedules that she needs to satisfy customers. She went on to say that she will find suppliers who will work with her on her terms or else she'll build the needed supply capability herself.

Now Lynn Tilton, MD's new owner and the one calling the shots at the company, is an impressive businesswoman. It is safe to say that anyone who has seen her or heard her would tell you that. She says she's going to rebuild MD's supply chain, and she might just be the person to pull it off. She certainly owns the stable of industrial might she'd need and appears to have pockets deep enough to pay for such drastic changes.

But her commitment and capability aren't in question when it comes to MD's standing in the U.S. Army's competition to provide 322 Light Utility Helicopters. What is in question is whether field-grade Army officers and civilians of similar position are going to bet their careers on a recommendation that she can actually deliver those aircraft in sufficient quantity and quality and on time. I don't think there is the slightest chance of that. If I'm right, MD is out of the running. That leaves Bell's 412EP, AgustaWestland's AW139 and EADS's bid based on Eurocopter's EC145 (on which Ron Bower presents a pilot report this month starting on page 33). If I'm wrong, I'll eat this page--this one, that I'm holding.

Now in the weeks since Heli-Expo, I've discussed this with knowledgeable people, most of who have looked at me askance and asked, "Yeah, and this surprises you why?" Their point is that MD has been in a deep, deep hole for years, so why would I ever think it had a chance in the LUH race. There are a few reasons.

First, my cynical mind could imagine a political argument that says, "Bell got the Armed Reconnaissance Helicopter award. AgustaWestland won VXX. Eurocopter won the U.S. Border Patrol "sign-cutter" contract and the U.S. Coast Guard re-engining work. So now it's MD's turn."

Yes, I know, federal acquisition procedures ensure an unbiased, non-political assessment of the best values for meeting the requirements in question. And I'm sure that's the case--right up until the paperwork gets passed above the colonel/GS-15 level.

Consider having that debate--give a $2-billion-plus Army contract to an ailing U.S. company or competitors that include two European-controlled firms--in a town that just set a wartime U.S. president back on his heels over a deal to sell to an Arab company port facilities that no U.S. company wanted. It might get a little heated.

Again, humor my cynicism: if that debate got really hot, it would leave Bell and MD in the mix. Bell got ARH.

Another reason I thought until late February that MD stood a chance was that, while there were very big concerns and questions about the company's abilities, some colonel or lieutenant colonel or major would have to raise them. Sure, customers were very unhappy and commercial and government ones were walking away from MD. But MD had a plan. It was on the road to recovery. It was flush with funds and making suppliers and customers happy again. So some hapless officer would have to stand up before a general, who in turn would have to stand up before--among others--the powerful aide of a certain powerful Republican senator from Arizona, and say essentially, "We don't buy it."

That was the case until about 1 p.m. Central Daylight Savings Time on Feb. 27. That's when Lynn Tilton stood up at Heli-Expo in Dallas, opened her kimono (as they say in the military) and took that hapless officer--whoever he or she might have turned out to be--right off the hook. No need to say, "We don't buy it." The head of the company handled that.

Now Lynn Tilton would take issue with my assessment. I know, because I asked her about it. She says she has filled in Army officials completely about the situation at MD and her plan for rectifying it. I'd be surprised if she hadn't, because candor certainly seems to be one of her things. But LUH is a risk-averse program. At a time when every federal dollar is needed for combat operations or deficit reductions, they know that any big problem, any delay in the program could cost them some or all of their funding. MD obviously still has big problems that are hard to buy your way out of fast.

The irony is that Tilton could end up the big winner by losing LUH. Remember, Boeing leveraged its loss in the U.S. Air Force's C-5 competition into one of the best selling commercial airliners ever, the 747.

A loss would strip MD of the cash flow from a fat military contract. It would force Tilton to focus on the commercial business. She's already blasted customer service in the helicopter industry as a farce and vowed to transform it. If she actually pulled that off, by virtue of having her money and attention honed in on that task, she could set a gold standard of customer service. Her erstwhile competitors might not know what hit them.

But first, she needs to get those parts in the door in Mesa.

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