VXX Presidential Helicopter: Background and Issues for Congress

CRS Report for Congress
VXX Presidential Helicopter: Background and
Issues for Congress
Christopher Bolkcom
Specialist in National Defense
Foreign Affairs, Defense, & Trade Division
Summary
On January 28, 2005, Navy officials announced the award of the VXX helicopter
contract to Lockheed Martin Corp. Officials stated that the VXX contract was awarded
on a “best value” basis. Opponents of the award raised concerns about the effect on the
U.S. defense industrial base, U.S. trade, and whether Buy American statutes apply.
Some question whether the competition was fair. Legislation has been introduced
regarding some of these issues. This report will be updated as warranted.
Background
On January 28, 2005, Assistant Secretary of the Navy John Young announced that
Lockheed Martin Corp. had won a competition against Sikorsky Aircraft Corp. to develop
the VXX presidential helicopter. Estimated at $6.1 billion, this program will replace
today’s 13 VH-3D and eight VH-60N helicopters. Approximately $1.6 billion has been
budgeted since FY2004 to begin buying 23 helicopters. Initial operational capability is
planned for 2009. The Navy said the Lockheed approach was chosen because it was the
most likely to meet the needs on time and at a lower cost, among other factors. Some
criticized the award to purchase Lockheed’s US101, partly because the winning team
includes foreign companies (from the United Kingdom and Italy). Sikorsky had stated it
would build the VXX entirely in the United States. Others report that Sikorsky had higher
performance scores.¹ Some allege that the Department of Defense (DOD) awarded the
contract to Lockheed Martin’s international team to reward Italy and the UK for their
support of the war in Iraq. DOD denies this claim.

¹ Michael Bruno, “After Heated Briefing, Lawmakers Vow to Challenge Navy Over VXX,”
Aerospace Daily & Defense Report, Feb. 11, 2005.
Congressional Research Service ˜ The Library of Congress

Potential Issues for Congress
On February 1, 2005, Representative Rosa DeLauro introduced H.R. 459 “Marine
One Made in American Act.” On March 1, 2005 Sen Lieberman introduced a related bill,
S. 486. As Congress considers these bills, and potentially other legislation on the VXX
program, several issues are likely to be raised. First, whether the competition was held
fairly, as DOD asserts, or whether there were procedural irregularities, as critics contend.
Second, the possible impact the decision might have on the U.S. defense industrial base.
Third, and relatedly, the effect the decision could have on U.S. trade The final issue
pertains to compliance with existing Buy American statutes.
Fairness of the Competition. In a January 28 news briefing, Navy officials
stated that the VXX contract was awarded on a “best value” basis, and that consistent with
government rules, the proposals were evaluated solely on “technical, past performance,
experience, and cost factors.”² Some have questioned, however, the relative weight
placed on these factors, and whether the VXX needs to be procured on the time schedule
DOD desires.
Urgency. Government officials have consistently maintained that principally owing^th
to post-September 11 security issues, replacing the current Marine One fleet is urgent.
It has been reported that White House officials urged DOD to accelerate the VXX³
program, proposing an initial operational capability by 2007. Some argue that by
responding to this perceived urgency with an aggressive acquisition schedule, DOD has
pursued a strategy that is unnecessarily risky. Navy Assistant Secretary John Young
commented on the risk associated with pursuing the VXX on an urgent time line: “The
requirements of the program are very demanding. The volume of work to be completed
in this program is substantial....However, the need to improve the capability and security⁴
level provided to the president is urgent and demands that we move expeditiously.”
DOD’s Director of Operational Test and Evaluation reportedly disapproved of the VXX
schedule, calling it overly aggressive and inconsistent with “fly before buy principles.”
He reportedly found that the VXX test schedule was “not executable.”⁵
The Navy indicated that “The Lockheed streamlining proposal was selected because
it was judged more likely to meet these government requirements on schedule, with lesser
risk, and at a lower cost....we can’t let the traditional acquisition process impede the need⁶
to meet the President’s security requirements now.” Some believe, however that one
outcome of this schedule was to make the competition more favorable to Lockheed
Martin and less favorable to Sikorsky.

² DOD News Briefing, John Young, Assistant Secretary of the Navy for Research, Development
and Acquisition and Thomas Laux, Program Executive Officer, Jan. 28, 2005 - 5:01 p.m.
³ Christopher Castelli, “Facing Criticism From Christie, Young Defends Rapid VXX Schedule,”
Inside the Navy, Feb. 7, 2005.
⁴ DOD News Briefing, op. cit.
⁵ Castelli, op. cit.
⁶ DOD News Briefing, op. cit.

Opponents of the contract award argue that the vast majority of presidential
helicopter flights are short (e.g. from the White House to Andrews AFB, or to Camp
David), and take place in very secure airspace. From their perspective, regular combat
air patrols by F-16 aircraft, and standard defensive countermeasures should provide the
President with adequate security regardless of the helicopter flown. If improvements to
the President’s security are urgently needed, critics ask, what is being done to improve
security until the VXX is fielded?
Supporters of the Navy’s position are likely to argue that a key lesson of the terrorist
attacks of September 11^th is that tomorrow’s security challenges are difficult to predict
and that the President urgently needs more capability to address scenarios outside the
norm. Also, some argue, the consequences of not providing the President with improved
capabilities are potentially dire; such as ineffective crisis response, or even a discontinuity
of government. Therefore, they maintain that an aggressive schedule is warranted.
Technical Factors. The issue of the relative weights placed on safety and cabin area⁷
features in this competition has arisen.
Sikorsky officials argue that safety considerations were valued less in the
competition than other factors, such as cabin size.⁸ According to press reports, Lockheed
Martin’s helicopter has experienced five “Class A” mishaps; the most serious kind of
aviation accident. Sikorsky’s helicopter has reportedly never experienced a Class A⁹
mishap. Sikorsky’s helicopter has been FAA certified more recently than the EH-101,
and therefore has had to comply with higher safety standards. Among the S-92 safety
features are fuel tanks external to the cabin area. Lockheed Martin disputes claims that
the US101 is less safe than the S-92. Unlike the S-92, they say, theirs is a battle tested
helicopter designed to military specifications. Further, they say, US101 is safer than the
S-92 because it has three engines rather than two. In the January 28 news briefing,
however, Navy officials said they had no data supporting the argument that helicopters
with three engines are safer than those with two. A helicopter with three engines will cost
more to operate than a helicopter with two. One source has estimated the H-92’s hourly
direct maintenance cost at $900.00 and the EH-101’s at $1,500.00.¹⁰
Industry sources agree that the US101’s larger cabin is an advantage over the S-92,¹¹
but Sikorsky supporters contend that too much weight was placed on cabin size, some
60% of the technical score, unfairly favoring Lockheed Martin. They maintain the S-92
met the VXX program’s cabin size requirement with a larger cabin than the helicopters it
will replace. Considering that the amount of time that the President will spend in the

⁷ John M. Moran, “Size Guided Copter Choice,” Hartford Courant, Feb. 9, 2005.
Michael Bruno, “After Heated Briefing, Lawmakers Vow to Challenge Navy over VXX,.”
Aerospace Daily & Defense Report,. Feb. 11, 2005
⁸ Meeting with CRS, Feb. 17, 2005.
⁹ [http://www.ntsb.gov/ntsb/query.asp#query_start]. NTSB Accident Database and Synopses

1962-Apr.1, 2005.

¹⁰ Conklin & de Decker, The Aircraft Cost Evaluator, Spring 2003. [http://www.conklindd.com/
cgi-bin/softcart.exe/?E+scstore]. (2005 figure for EH-101 $1,617. H-92 figure unavailable.)
¹¹ Lockheed Martin and Sikorsky meetings with CRS, Sept. 28, 2004 and Feb. 17, 2005.

helicopter is typically measured in minutes, rather than hours, some contend too much
weight was placed on the cabin size decision criterion. At the January 28 news briefing
the cabin size factor was addressed. John Young said that “both cabins met the
requirements, so that wasn’t a total discriminating factor.” Program Executive Officer
Thomas Laux, however, said that “the overall size of the 101 clearly was a factor in terms
of their capabilities.”¹² Subsequent to the January 28 press conference, Navy officials
have denied that cabin size received any more weight in the VXX decision than other
technical factors, including safety.
U.S. Defense Industrial Base Issues. The VXX decision may have
implications for to the U.S. industrial base such as jobs, and competitiveness.
Jobs Created or Lost Within the United States. The net effect of the VXX award
on the number of jobs in the U.S. helicopter industry is unclear. Various estimates put the
number of new jobs created by the US101 program at approximately 1,050, in New York
and Texas. If Sikorsky had received the VXX contract, it may be that fewer new jobs
would have been created in the United States because Sikorsky’s S-92 is already primarily
built in the United States. (The EH-101, upon which the US101 will be built, is today
primarily built in Europe.) However, Sikorsky had said it planned to eliminate foreign
suppliers and build the VXX entirely in the United States. It is unclear how many U.S. jobs
may be affected, if any, due to reduced orders for the S-92 following the VXX decision.
Opponents of the US101 program say it will send offshore key aircraft design,
manufacture and support activities and that new jobs created by the US101will be
assembly line jobs that do little to sustain or nurture the U.S. industrial base.¹³
Future Competitiveness. One VXX issue frequently discussed is the potential for
the award of this contract to influence other military helicopter competitions. Several
new military helicopter contracts are expected to be awarded in the near term —
potentially up to $40 billion in value. Prominent among these new programs is the Air
Force’s Personnel Recovery Vehicle (PRV) which will replace its HH-60G combat search
and rescue helicopters. Sikorsky and its supporters say that the VXX contract could harm
the future competitiveness of the U.S. helicopter industry. They fear that the VXX will
form the basis for the next generation of U.S. medium helicopters; just as H-60
helicopters formed the basis for the last generation. They also argue that the S-92 is better
positioned than Lockheed’s helicopter to compete internationally, due in part to lower¹⁴
costs.
Lockheed supporters dispute claims about negative effects the VXX award might
have on the U.S. helicopter industry. In his January 28 briefing, Assistant Secretary of
the Navy John Young stated that the design and performance demands of presidential
transportation are “a fairly unique opportunity ... very different” from other military
requirements. There is no guarantee that the winner of the VXX helicopter competition

¹² DOD News Briefing, op. cit.
¹³ Dave Ahearn, “Marine One and Buy American: A Debate,” Defense Today, Nov. 10, 1004.
¹⁴ The VXX contract is a prestigious award. By choosing a helicopter that was designed and
engineered by Europeans, Sikorsky supporters argue, the U.S. Navy is making a vote of “no
confidence” in the U.S. helicopter industry.

will win future military helicopter contracts. They further argue that DoD’s Industrial
Capabilities Report to Congress found no major industrial base problems, and dispute
claims that the U.S. is too dependent on foreign suppliers.¹⁵ S-92 supporters counter that
requirements for military helicopters are fluid, and it is unknown whether the VXX
contract is unique, since future helicopter requirements could grow to mirror VXX
requirements. Others, argue that Sikorsky is a “shoo in” to win the PRV award, because,
after canceling the RAH-66 Comanche helicopter, DOD would not risk Sikorsky’s future
by denying it the PRV contract.¹⁶
“Winner Takes All” Contract. Like many other military procurements, only one
company was awarded a contract for Marine One. While funding two or more contracts
typically costs more than funding one, in some instances increased cost has been justified
to protect the industrial base. Some have suggested that awarding the VXX contract on
a shared basis between the two competitors would have helped preserve the U.S. defense
industrial base. On the other hand, Sikorsky officials have reportedly said that they hold
orders for the delivery of 59 S-92 helicopters with options for another 30.¹⁷
Trade Issues¹⁸. Some suggest that the VXX decision may signal growing
transatlantic industrial cooperation, and a more open DOD procurement policy concerning
foreign suppliers. Only 4.1% of DOD procurement went to foreign contractors in 2003.
On the other hand, this decision could spur some in Congress to support additional
restrictions on foreign defense suppliers. Some observers state that if European suppliers
are deemed good enough to make the President’s helicopter, then the rest of DOD may
be more inclined to consider foreign bids for a range of military contracts. Doing so, it
could be argued, may make economic sense as foreign contractors increase the supply of
contract bids, presenting opportunities to keep down procurement costs, and to take
advantage of technology found in a global marketplace. It has been asserted that a more
open sourcing policy for foreign suppliers could also make foreign governments more
willing to buy from U.S. defense suppliers.
Others suggest that the decision could foster a backlash against a more open policy
for defense procurement. Combined with the record U.S. trade deficit in 2004 and the
possible European Union’s lifting of its arms embargo on China, some worry that the
United States could become more dependent on foreign suppliers. Others argue that the
U.S. taxpayers who foot the bill for the strongest military in the world should have the
right to supply it. Still others raise concerns about the risk of losing proprietary
technology by shipping sensitive blueprints overseas and the need to assure tight security
for offshore manufacturing and assembly (e.g. “Yankee White” security clearances).

¹⁵ Sharon Weinberger, “Annual Report Paints Rosy Picture of Defense Industrial Base,” Defense
Daily, Mar. 28, 2005.
¹⁶ Robert Wall, “Sea Change,” Aviation Week & Space Technology, Feb. 7, 2005.
¹⁷ Andrew Doyle, “Sikorsky Shrugs Off VXX Shock,” Flight International, Feb. 8, 2005.
¹⁸ This section written by Raymond J. Ahearn, Specialist in Trade Relations, Foreign Affairs,
Defense, & Trade Division.

Buy American Issues¹⁹. The VXX procurement is subject to two domestic
content statutes, The Buy American Act²⁰ and the Berry Amendment.²¹ The Buy
American Act attempts to protect domestic labor by providing a preference for American
goods in government purchases. In determining what are American goods, the place of
mining, production, or manufacture is controlling. The nationality of the contractor is not
considered.²² The domestic preference requirement of the act is broad in scope. The
federal government is required to buy domestic “articles, materials, and supplies” when
they are acquired for public use unless a specific exemption applies.²³ The test of origin²⁴
is applied to supplies delivered to the government as “end products.” Manufactured
articles are considered domestic if they have been manufactured in the United States from
components, “substantially all” of which have been mined, produced, or manufactured
in the United States.²⁵ Substantially all means that the cost of foreign components does²⁶
not exceed 50% of the cost of all components.
There are exceptions to the Buy American Act. The act does not apply (1) where its
application would be inconsistent with the public interest or unreasonable in cost, (2) to
procurement of products for use outside the United States, (3) to products not produced
or manufactured in the United States in sufficient and reasonably available commercial²⁷²⁸
quantities and of satisfactory quality, or (4) to procurements under $2,500. The Berry
Amendment requires that 100% of food, clothing, fabrics, specialty metals, and hand or²⁹
measuring tools in a DOD procurement be of domestic origin. Any VXX fabrics or
specialty metals would have to be of 100% domestic origin. The cost of the fabric and
specialty metal components are used in the Buy American 50+% determination.

¹⁹ This section written by John R. Luckey, Legislative Attorney, American Law Division.
²⁰ 41 U.S.C. §§ 10a through 10d. For more on the Buy American Act, see CRS Report 97-765,
The Buy American Act: Requiring Government Procurements to Come from Domestic Sources.
²¹ 10 U.S.C. § 2533a. For more on the Berry Amendment, see CRS Report RL31236, The Berry
Amendment: Requiring Defense Procurement To Come From Domestic Sources.
²² See, E-Systems, Inc., 61 Comp. Gen. 431 (1982); and Patterson Pump Co., B-200165, 80-2
CPD ¶ 453 (1980).
²³ 41 U.S.C. §§ 10a & 10b. The act applies to leases as well as purchases. National Office
Equipment Co., B-191003, 78-1 CPD ¶ 413 (1978).
²⁴ FAR § 25.101.
²⁵ 41 U.S.C. §§ 10a & 10b. This test is only applied to end products or construction materials.
A component is of domestic origin if it was manufactured in the United States, regardless of
where its components were made. Hamilton Watch Co., B-179939, 74-1 CPD ¶ 306 (1974).
²⁶ FAR § 25.101; and E.O. 10582, 19 Fed. Reg. 8723 (1954).
²⁷ 41 U.S.C. § 10a.
²⁸ Pub. L. No. 103-355, 108 Stat. 3346-7, 103^rd Cong., 2^nd Sess. (1994) codified at 41 U.S.C. 10a.
²⁹ 10 U.S.C. § 2533a. Exceptions are contained in subsections (c) through (I).