U.S. Army eyes big cost cut in 5-year Apache deal with Boeing

By Andrea Shalal

WASHINGTON (Reuters) - The U.S. Army on Monday said it expected to secure a 10-percent or greater cost reduction as part of a five-year agreement with Boeing Co for more Apache AH-64 attack helicopters that it hopes to negotiate for fiscal year 2017 and beyond.

U.S. Army Colonel Jeff Hager, Apache program manager, told reporters the Army still needed approval from Pentagon leaders to proceed, but such a deal would provide greater stability to Army leaders, Boeing and the larger industrial base.

"Our business case analysis does show that we will be able to achieve, working heavily with Boeing ... and Boeing with their suppliers, a minimum of 10 percent savings for the U.S. government," Hager said at the annual meeting of the Association of the U.S. Army (AUSA) conference.

U.S. law requires the requesting agency to demonstrate that a multi-year acquisition contract would result in "significant" savings over buying the aircraft one year at a time, but 10 percent savings are generally seen as a key threshold.

Hager said the Army was starting to lay the groundwork for the lengthy negotiations to finalize a multi-year agreement if it received approval from Defense Secretary Chuck Hagel to proceed.

The five-year agreement would include 48 helicopters each year for the U.S. government, Hager said.

Details are still being worked out, but the deal could also include options for up to 36 more helicopters to cover possible foreign orders, according to one source familiar with the plans.

Indonesia, India and Qatar have expressed interest in buying the helicopters, Hager said. The company is already delivering Apache helicopters to Saudi Arabia, and will begin deliveries to South Korea of another 36 airplanes in 2015.

Hager said Iraq had let a formal letter of acceptance from the U.S. government lapse without providing the needed funding. He said no further requests had been received from the country.

Kim Smith, Boeing vice president for attack helicopter programs, said Boeing was committed to generating the savings needed to justify a multi-year agreement. "It's important to us that we keep pushing the envelope," she told reporters.

Hager said the company had delivered the first 30 aircraft included in a full-rate production contract on time and within budget. He said the aircraft were performing well in combat, and had already amassed just over 9,500 combat flight hours.

The Army had recently tested the ability of the Apaches to team with unmanned aircraft, and initial feedback was positive. Further tests were likely, Hager said.

(Reporting by Andrea Shalal; Editing by Ken Wills)