Army Secretary Sees `Steady Progress’ on Visit to a BAE Factory

(Bloomberg) -- Army Secretary Mark Esper says he sees “good signals” that BAE Systems Plc is working to resolve quality and management problems at its Pennsylvania facility that risk delaying key military vehicles.

“Steady progress -- it is the trajectory,” as is “continued engagement” with Army leaders, Esper said after spending about four hours at the plant in York on Thursday. “At the end of the day, the proof is in the numbers: Are they meeting cost and schedule and, obviously in this case, performance and quality?”

At stake is whether BAE will be able to meet the Army’s accelerated schedule to deploy a brigade of its new Armored Multi-Purpose Vehicles, or AMPVs, to Europe and to receive eventual approval from the service to enter full production for its self-propelled howitzer in contracts valued at as much as $1.3 billion. The Army denied approval in July because of welding quality deficiencies, delivery halts and delays.

The service wants to buy 576 of the howitzers and accompanying ammunition carriers built by the London-based contractor. And that’s on top of orders for a new Marine Corps combat vehicle and another for the Japanese military.

BAE executives have “the right approach and are eager to make the corrections,” Esper said in an interview while flying back to Washington after his tour of the plant. “I think they are making progress but still, more needs to be done.”

Donning safety goggles and headphones, the Army secretary walked through metal fabrication and assembly halls at the York plant. He received updates on BAE’s capital improvements, including to its welding process after flaws were found in the self-propelled howitzer, the centerpiece of the Army’s artillery. Planned upgrades include introducing robotic welding as well as adding 25 to 30 human welders needed to bend metal in tight spaces that a robot can’t reach.

The Army’s concerns were prompted by a “BAE Manufacturing Capacity Assessment” that was requested by the service and produced by the Defense Contract Management Agency.

The report, dated May 30, said the Pennsylvania facility’s production potential appears “to be inadequate because of welding and machining capability” as demand from the U.S. Army and Marine Corps and the Japanese Ministry of Defense is expected to increase to about 600 vehicles in 2021 from about 200 this year, according to a summary.

The agency’s representative who monitors the plant attended the Esper tour and was asked by the secretary several times to express his views about BAE’s progress at correcting issues, which the representative said was trending in the right direction.

European Deterrence

The new personnel carrier is intended to replace the decades-old M113. Last year, the Army boosted the initial number of vehicles it wants to 551 from 289. It has set a goal to start deploying them overseas by late next year as part of the Pentagon’s European Deterrence Initiative to counter Russia.

The May assessment also raised questions about BAE’s capability to hire and train an adequate workforce to support the surge in vehicles, according to the summary.

Jerry DeMuro, chief executive officer of BAE Systems Inc., the company’s U.S. subsidiary, told reporters the company began planned improvements to ramp up production based for the Army’s ground combat vehicle modernization strategy even before the Defense Contract Management Agency’s assessment.

But “it certainly was a reminder to us” that progress wasn’t coming fast enough so the company “accelerated a number of things,” including leadership changes, DeMuro said.

Lieutenant Colonel Michael Andrews, a Pentagon spokesman, and Army spokeswoman Ashley John said in a joint statement that the study was initiated to evaluate the York facility’s “capability and capacity” to “ensure the needs of the U.S. Army and U.S. Marine Corps are met as multiple platforms progress through production.”

There were no “stark conclusions” about BAE’s manufacturing capability, and the assessment “identified many of the same issues that we have seen in production startups of combat vehicles,” they said. The assessment “enabled actions to be taken on many issues prior to their maturation into major problems.”

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

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

©2018 Bloomberg L.P.