The simmering war between major primes, mid-sized contractors and government depots over the management and execution of military aviation support appears to be heating up.

A September 2011 report by a National Academy of Sciences (NAS) panel called for major changes in Air Force management of sustainment, including stronger management, consistent metrics (which are currently absent) and a total overhaul of its parts supply system. Some witnesses warned of a “sustainment train wreck” in the near future as an aging and diverse fleet puts steadily increasing demands on an inefficient system, at the same time as new and complex Joint Strike Fighters start to join the force in large numbers. Aviation Week's MRO Military conference, held here earlier this month, highlighted the urgency of the issue and the tensions among some of the players—even though all realize they will have to work together to resolve pressing problems.

Primes are touting their ability to provide efficient performance-based logistics (PBL) systems, analogous to the “power-by-the-hour” deals now standard in the commercial world, and believe that military and political opposition to PBLs has weakened. “The need for affordability means that PBLs are back in vogue,” says Rod Skotty, president of Maritime Helicopter Support Co. (MHSCo.), a Lockheed Martin/Sikorsky joint venture that provides PBL services to the U.S. Navy's H-60 helicopter fleet.

Lockheed Martin has hired the co-leader of the NAS report team, Lt. Gen (ret.) Mike Zettler, to lead and promote the largest PBL in the military world, the F-35 Joint Strike Fighter's Automated Logistics Information System (ALIS).

ALIS is key to the JSF program's plans to bring down cost per flight-hour, which the latest Pentagon selected acquisition report estimates at 42% more than for the USAF's current F-16C/D—versus 20% less as advertised as recently as 2008. “We can deliver performance outcomes at less cost than legacy if we are allowed to execute our program of record,” Zettler told the conference.

Issues in PBLs include whether contracts should be fixed-price or cost-plus. The former allows for more stable budgeting but the customer has to accept that the contractor may reap large profits by driving costs down. One executive at a prime recalls being told by a service contracting officer that profit constituted waste. “I said, 'Thank you, comrade,'” he told the meeting.

Examples can be found on both sides. Northrop Grumman provides support to the E-8C Joint Stars fleet through a 20-year cost-plus contract that started in 2000. The company's fee is based on performance, measured through custom-built software called Wiscrs (Web-Based Incentive Strategy Collection and Reporting System). Conversely, MHSCo is operating on five-year contracts with a firm, fixed price per flight- hour, and Skotty calls such arrangements “essential” for PBL. MHSCo. reduced its cost per flight-hour by 17% in its second contract term, which started in December 2010, despite the fact that the incoming MH-60R/S versions are more costly than the aircraft they replace.

Another argument is over data rights and transparency. MHSCo. has been asked to report its costs when it negotiates its next contract, and has agreed to do so subject to a stipulation that the data not be used to cap or claw back profits as the basis for a renegotiation.

Primes and MRO contractors argue for long-term contracts that support investment in tooling and allow processes and the supply chain to be made more efficient year-over-year, although customers may worry that such contracts reduce competitive pressures on the prime.

Lower-tier suppliers fret that prime-led PBLs such as ALIS leave the prime with enormous power and incentives to generate competition at their level. “We see the platform guys squeezing costs, without regard to suppliers,” comments Scott Gunnufson, Rockwell Collins vice president for service solutions.

Standard Aero's vice president for defense marketing, Dan Gonzales, notes a push to shorten contract terms. However, he says, “we have realized that the way to get costs out is a systems approach to whatever we are working on, optimizing the value chain and the entire facility.” This takes time, but he claims that Standard's T56 engines last twice as long between removals as those of competitors.

At the same time, current law mandates that 50% of maintenance funding be provided to depots, although the exact metrics are not clear. Mid-level military MRO contractors are complaining, however, that government depots not only provide more job stability and greater benefits than they can afford, but pay higher salaries, too—a factor that further increases political pressure to sustain the depots.

Depots are also criticized for work practices, which are not standardized. “A lot of us have knots on our heads from banging our heads against the wall, challenging the use of new parts on engines that are 20 years old when there are alternatives available at a 70-80% discount,” says Don Wetekam, AAR Corp. senior vice president of defense business development.