- The Washington Times - Monday, February 18, 2008

ASSOCIATED PRESS

The British government is about to complete a $2 billion, 25-year deal with a Lockheed Martin Corp.-led joint venture to train 50,000 British pilots and aircrew.

The tentative deal for Bethesda-based Lockheed and privately held British defense contractor VT Group PLC took nearly five years to negotiate. The program will instruct almost all British military services on flying fighter jets, helicopters and multi-engine aircraft.

Lockheed expects to train roughly 2,000 pilots and aircrew a year to meet Britain’s required wartime force levels, which are maintained even during times of peace.

Analysts say the benefits of long-term service contracts for companies like Lockheed Martin help smooth profits in an industry defined by unpredictable demand spurts for weapons and other big-ticket military hardware.

As the final details are being ironed out, the transaction is expected to close by March 31, said Lorraine Martin, vice president of Lockheed’s flight solutions unit based in Orlando, Fla.

The Lockheed-led venture, known as Ascent Flight Training, was selected in November 2006 as the “preferred bidder” by the British Defense Ministry over rivals Sterling, a partnership between France’s Thales Group and Boeing Co., as well as Vector Flying Services, a venture of Houston-based KBR Inc., URS Corp.’s subsidiaries EG&G; and Lear Siegler Services Inc., and Canadian aerospace company Bombardier Inc.

With far leaner budgets than in the United States, the British military has been at the forefront in pursuing partnerships with the private sector for defense logistics, base maintenance and troop housing.

Public-private partnerships have been emerging across British government agencies in an effort to make expensive programs more cost-effective. The long-term contracts can reduce costs up to 15 percent, analysts say. In the flight training program, savings could be achieved by having the companies finance the purchase of planes and the building of flight simulators in exchange for receiving annual fixed payments over an extended period.

“The governments themselves can’t fork over the huge initial investments required to get things off the ground,” said Garrick Ngai, an aerospace and defense analyst with the consulting company Frost & Sullivan. “They feel as though it’s a better return for the taxpayer in the U.K.,” where the government has run federal budget deficits the past five years in a row.

Excluding supplemental funding for the Iraq war, the U.S. defense budget in fiscal 2007 totaled $493 billion, more than seven times larger than Britain’s defense budget of $67.5 billion for the same period.

What is happening in the Britain is expected to happen elsewhere in Europe, analysts say. Military training and simulation markets in the region are expected to expand over the next decade.

For fiscal 2007, the market for European military training and simulation was $1.35 billion, a figure that is projected to rise 34 percent to $1.82 billion by fiscal 2015.

In the United States, military training revenue reached $5.78 billion in fiscal 2007 and is expected to rise to $6.39 billion by fiscal 2013, according to research by Frost & Sullivan.

“Many of these countries are putting out opportunities for industry players to come partner with them on a variety of [aircraft] models,” Ms. Martin said. “[It’s] simply another tool in the toolbox for obtaining training capabilities through partnering with industry, [and] using a variety of finance models that meets each customer’s needs.”


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