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Exclusive: U.S. Army officials said to back new scout helicopter

By Andrea Shalal-Esa

WASHINGTON (Reuters) - U.S. Army officials this week backed a plan to buy new armed scout helicopters instead of extending the life of the Army's aging fleet of OH-58 Kiowa Warrior helicopters, sources familiar with the Army's plans told Reuters on Friday.

Army acquisition chief Heidi Shyu and other officials agreed to start the new acquisition program for the smaller military helicopter at a meeting on Thursday, but senior Army and Pentagon officials must still sign off on the new acquisition program, said the sources, who were not authorized to speak publicly.

It will be the Army's third attempt to start replacing the OH-58 helicopters, which were built by Bell Helicopter, a unit of Textron Inc. The basic OH-58 airframe dates back to the Vietnam War era, although it has been upgraded and modernized several times since then to keep it current.

Army spokesman Dov Schwartz declined to comment on the outcome of the meeting. On Wednesday he told Reuters the Army was not expected to announce a decision until next year.

The Army's decision to recommend a new acquisition program is good news for a host of weapons makers that hope to bid for a contract that could eventually be worth $6 billion to $8 billion. It represents one of few new acquisition programs on the horizon for defense companies at a time when the defense budget is expected to shrink for the first time after a decade of unbridled growth.

Boeing Co has said it plans to offer a version of its AH-6 Little Bird if the competition is launched, as an armed scout, while Sikorsky Aircraft, a unit of United Technologies Corp and the North American unit of Europe's EADS, have each invested heavily to develop new, more capable helicopters for a possible competition.

Bell Helicopter; AgustaWestland, a unit of Italy's Finmeccanica SpA; MD Helicopters; and AVX Aircraft are also interested in the program.

The Army, at pains to avoid another disastrous acquisition program and under mounting pressure to reduce its budget, last year said it would hold off on deciding whether to upgrade the current helicopters or buy new ones until after a series of flight demonstrations by potential bidders this year.

It completed those demonstrations -- and visits to the factories of companies that did not have a prototype available -- this summer and early fall. Army officials have said they are determined to avoid the long and complicated development efforts that have plagued their acquisition programs in the past.

The Pentagon's chief weapons buyer, Frank Kendall, told an investor conference this week that Army officials believed they could afford a new procurement program, but the answer would depend on the service's future budget levels.

Shyu is due to brief senior Army leaders about the acquisition plans on December 18, ahead of a Army weapons portfolio revenue the next day, the sources said.

It was unclear when Kendall would be asked to sign off on the Army's new acquisition plan.

It may depend on whether U.S. lawmakers are able to avert an additional $500 billion in defense spending cuts over 10 years that are slated to start taking effect on January 2., although the sources said some Army officials are confident that the program could be funded regardless of those negotiations.

If the new "Armed Aerial Scout" program survives the budget process, it would be the latest in a string of Army efforts to buy a new fleet of armed light helicopters that began in 2004 after cancellation of the Comanche helicopter program.

The Army canceled the first contract for an armed reconnaissance helicopter with Bell Helicopter in 2008 after costs rose sharply on that program.

Then it launched a new program, the Armed Aerial Scout, only to reassess that program as well.

If it proceeds, the new acquisition program will face tough scrutiny from Kendall, who just launched a new initiative aimed at improving acquisition processes and ensuring that affordability is baked in to weapons programs from the start.

Kendall has said that mounting budget pressures make it difficult to start new programs, but this week he also expressed concern about maintaining a healthy industrial base in the military helicopter market.

(Reporting By Andrea Shalal-Esa; editing by Carol Bishopric)

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