BAE Howitzer Production Flawed as Army Readies $1.3 Billion Buy

(Bloomberg) -- BAE Systems Plc’s manufacture of the U.S. Army’s new howitzer is hobbled by poor welding, supply chain problems and delivery delays even as the service nears a $1.3 billion decision on full production, according to the Pentagon’s contract management agency.

Among the setbacks have been a six-month halt in deliveries last year because of welding flaws and the return of 50 of 86 vehicles that had already been delivered due to repair production deficiencies.

Nevertheless, Army officials plan to meet on Thursday to decide on approval of full-rate production, the most lucrative phase for London-based BAE. That would trigger $1.3 billion in contract options and increase vehicle production to about 60 from 48 a year, according to a Pentagon program assessment.

The Pentagon’s Defense Contract Management Agency “assesses that BAE is currently experiencing significant supply-chain, part quality and delivery issues,” spokesman Mark Woodbury said in an email. “DCMA’s assessment has been shared with” the Army and “could potentially aid the program office’s final decision to proceed” to full-rate production, he said.

Not Delaying

But Ashley Givens, an Army spokeswoman, said “we are not considering delaying” the review. “BAE’s current production/quality issues will be discussed during the meeting. We expect BAE to deliver vehicles in accordance with the contract no matter the rate of production.” She said BAE has “implemented process improvements that are expected to address the recent quality problems.”

The Army has oversight of the program and its key milestones, but Ellen Lord, the undersecretary for acquisition and sustainment, “is concerned that current production problems” at the BAE’s facility in York, Pennsylvania, “could impact performance and delivery on other combat vehicle programs,” a spokesman, Air Force Lieutenant Colonel Michael Andrews, said in an email.

The Pentagon office charged with analyzing program performance “is completing an independent assessment to advise” Army acquisition officials before full-rate production, he said.

Eventual $8.1 Billion

The Army eventually wants to buy 576 howitzers and ammunition carriers in an $8.1 billion program.

“BAE Systems has a rigorous inspection process to ensure we deliver the highest quality products to the customer,” company spokeswoman Alicia Gray said in an email.

The contractor’s Paladin Integrated Management system is made up of the self-propelled M109A6 howitzer and an accompanying vehicle that carries stores of ammunition. It’s a key element in the Army’s “long-range precision strike” program, which tops the service’s list of modernization priorities.

BAE received its first contract in 2013. An initial $413.7 million contract laying the groundwork for full production was awarded in December.

A Defense Department corporate assessment of BAE in May said the “continuing production challenges pose a risk” to meeting the howitzer program’s September 2020 target date to be fully combat-ready.

‘Minor Discrepancies’

BAE’s Gray said the company performed a detailed inspection of all vehicles in July 2017 “and modified aspects of our welding practices.” The changes “do not impact our weld processes, and the minor discrepancies identified do not materially impact the vehicles,” she said in an email.

The Army’s return of 50 already-delivered howitzers called for reinspection because of undercut or undersized welds and a “lack of fusion,” according to the Defense Contract Management Agency. The recall and ongoing repairs have caused delays to BAE’s current delivery schedules that won’t get back on track until February 2019, it said.

BAE’s factory quality is a priority for the Army because it wants to increase production through 2023, not only for the howitzer system but also the other major vehicles BAE builds: the Armored Multi-Purpose Vehicle, the Bradley Fighting Vehicle and the M88A2 tank recovery vehicle. The Army plans to surge production of the Armored Multi-Purpose Vehicle for deployment to Europe as part of the U.S.’s deterrence buildup against Russia.

Sections of the howitzers are initially produced at BAE’s York facility with final assembly in Elgin, Oklahoma. The howitzer program has a strong advocate in Senator Jim Inhofe of Oklahoma, the No. 2 Republican on the Senate Armed Services Committee. In its version of the fiscal 2019 defense policy bill, the panel authorized spending $110 million more than the $351.8 million requested.

BAE Systems “has a strong capital investment strategy that prepares our facilities to handle current and future workloads,” Gray said. “We share our current and future plans with the DOD and the Army to help them understand the capacity of our manufacturing network, to include our production site in York and other BAE Systems sites, as well as the supplier base.”

She said the company is investing “approximately $125 million in upgrading equipment in our various manufacturing facilities to be prepared for an expanded production portfolio and accommodate the expected surge in customer requirements.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert

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