Tuesday, September 15, 2009

The Battle for Taiwan’s P-3 Sale



The Battle for Taiwan’s P-3 Sale
L-3 and Lockheed Plan Strategies


As Taiwan moves to buy a dozen U.S. maritime patrol aircraft, L-3 Communications Integrated Systems may elbow its way into a deal that Taiwanese Navy officials intended to give to Lockheed Martin.

L-3 is facing an uphill battle for the estimated $1.2 billion to $1.4 billion contract to refurbish mothballed P-3C Orions. Navy officials have refused to provide operational requirements to the company.

But Ministry of National Defense (MND) officials are talking about ordering the Navy to launch a competition for the job, ministry sources said.

Lockheed says it could provide the planes more quickly without the contest; L-3 says the competition will reduce Taiwan’s costs.

“L-3 just wants a fair competition. That’s all we are asking for,” said James Burkhardt, senior director for L-3 Maritime Surveillance Systems.

Taiwan’s legislature is not expected to approve the P-3 spending plan until late 2006 or early 2007, but both U.S. firms sent teams in mid-July to meet with MND officials and local contractors.

Lockheed’s ostensible lock on the job dates back to 2001, when the Bush adminstration promised to sell the low-wing, four-engine planes to the self-governing island. Taiwan initially asked to buy new P-3Cs, but that would have required Lockheed to reopen its production line, sending the estimated price tag to $4 billion. Options to buy less-capable P-3Bs or smaller S-3 Vikings were also discarded.

Navy officials ultimately decided to pay Lockheed to overhaul and update 12 Orions from the boneyard — officially, the U.S. Aerospace Maintenance and Regeneration Center in Arizona. Officials have already picked the dozen planes to be returned to service.

If the budget is approved, sources say the Navy will be forced to hold a competition of no more than 18 months. The contest would likely turn on three criteria, Taiwanese sources said, including:

• Ability to guarantee a 20-year service life and new wings for the planes.

• Aircraft configuration.

• Work for Taiwanese firms as part of an offset package that delivers 70 percent of the deal’s overall value.

The Taiwanese Navy requires “maximum commonality with current U.S. Navy P-3C and worldwide P-3C systems,” a Taiwan defense source said. It also requires the aircraft to fire Taiwan’s AGM-65 Maverick missiles and handle anti-submarine warfare; anti-surface warfare; and intelligence, surveillance and reconnaissance missions.

Lockheed is offering the Anti-surface warfare Improvement Program (AIP) package.

L-3 officials say AIP will not be serviceable for the lifetime of the aircraft and that Taiwan needs a more modern system.

“We can meet all of their requirements” L-3’s Burkhardt said. “We have far more experience with the P-3 than Lockheed.”

Lockheed officials in Taiwan declined to comment.

As for work share, U.S. Navy officials have already agreed to allow Taiwanese firms to work on at least eight of the aircraft.

L-3 officials are offering to let Taiwanese firms do the work on 10 aircraft, which they say would create more jobs on the island — something Taiwan legislators are demanding more of from foreign defense contractors.

Lockheed is offering eight planes, saying that the U.S. Navy recommends that four be produced in the United States to facilitate training their Taiwanese aircrews.

Much of the work would likely go to Aerospace Industrial Development Corp. (AIDC) in Taichung, the only company in Taiwan capable of handling large aircraft. AIDC designed and built Taiwan’s Ching-kuo Indigenous Defense Fighter and Tzu Chung AT-3A attack/trainer, and makes parts for the Spartan C-27J cargo aircraft and Bell AH-1Z helicopter.

Complicating matters, Lockheed in April 2004 filed a lawsuit in U.S. federal court against L-3, accusing L-3 of misappropriation of proprietary information and breach of a license agreement. The lawsuit came out of an L-3 subcontract for South Korea’s P-3 program. The lawsuit is currently in the discovery phase, sources said.

SIGINT Version?

Taiwan is quietly considering modifying one or two aircraft into EP-3 Aries II signals-intelligence (SIGINT) planes.

“I don’t see any problem providing an EP-3 capability for Taiwan if that is what they want, and, of course, subject to U.S. government approval,” a source close to the MND said. “But both [Lockheed and L-3] provide SIGINT aircraft to many international customers on many different airframes. It really is a question of what systems are exportable to them and what kind of a platform they want it on.”

Providing Taiwan with a signals-intelligence plane might interest the U.S. government, which shares intelligence with Taiwan’s National Security Bureau (NSB) and helps staff a listening post just north of Taipei to pick up signals from China. Taiwanese officials believe such intelligence-sharing agreements induce Washington to support Taipei’s defense needs.

“If Taiwan wants the EP-3, only L-3 can provide this option,” said Burkhardt. “We are currently under contract to convert some straight P-3Cs from desert storage to EP-3s. If Taiwan desires that and the U.S. government allows it, we are in the best position to provide it.”

Updating ASW

Taiwan needs to replace its ageing 30-year old S-2T Tracker anti-submarine warfare (ASW) aircraft. Though Taiwan officially has 26 aircraft, divided into two squadrons, Defense News has learned that no more than three to four are operational at any one time. Some of the aircraft are towed around air bases as decoys for China’s reconnaissance satellites.

The U.S. Department of Defense has been pressuring Taiwan to upgrade its ASW capability due to China’s increasing number of submarines, especially newly acquired Russian-built Kilo-class diesel attack submarines.

One scenario that concerns Taiwan is the use of Chinese submarines to blockade Taiwan’s naval and commercial ports.