The Dream Machine

by Richard Whittle

  Bell-Boeing’s teaming agreement, signed in May 1982, said the companies would remain partners on the JVX until at least five years after they delivered the first one to go into service. Lehman’s decision to break them up sooner drove a wedge between the companies. Executives and engineers at both became wary of sharing all the information they should with a partner they would have to go head-to-head against in just a few years to win production contracts, which offer contractors their biggest profits.

  Lehman presented Bell and Boeing with a bigger surprise in the fall of 1985. In those days, the second stage of major Pentagon procurements, following preliminary design, was called Full Scale Development, referred to as FSD, each letter pronounced individually. In FSD, the company or companies developing an aircraft or other big item would get ready for production by making and buying tools, purchasing parts and supplies, building prototypes and testing them, then redesigning and fixing things that hadn’t worked as expected. FSD was where the government started spending serious money on a program, and where contractors often discovered problems in their design. Bell and Boeing Vertol started negotiating with Navair for an FSD contract in 1984, while their engineers were still designing the Osprey. In July 1985, the companies told Navair they could build six prototypes for flight-testing and four for ground tests for a minimum price of $1.6 billion and a maximum $1.8 billion. They requested the usual terms: “cost plus incentive fee,” meaning the government would cover all costs as the companies built the prototypes, up to the ceiling price of $1.8 billion. If the companies spent less than the ceiling price, they would get a bonus—extra profit. If they ran over it, the government would have to cover the overrun, or else the contractors could quit work, just drop the project.

  Navair agreed to their offer and Bell-Boeing signed a cost-plus contract. All that remained was for Lehman to approve it. Navair and Bell-Boeing figured that was a mere formality, so to keep to the schedule, which envisioned the Osprey making its first flight in 1987, the companies started doing FSD work on their own money. When Navair officials took the contract to Lehman on September 9, 1985, however, they got a shock. He was sick of cost overruns, Lehman told them. He wasn’t going to have another one. Go back and make the Osprey contract “fixed price,” Lehman told the Navair officials. Under a fixed-price contract, the companies would have to finish FSD at their own expense if they busted the ceiling price.

  Lehman wanted something else as well: a “Not to Exceed” price— a cap—on how much Bell-Boeing could charge for each Osprey in the first couple of lots produced, which the companies would be allowed to build together.

  “Sandbagged by SECNAV, ” Spivey wrote in his work diary the next day, using the Pentagon abbreviation for secretary of the Navy.

  Bell president Horner nearly fell off his chair when he heard Lehman’s demands. It would be a huge gamble, Horner knew, for the companies to agree to a fixed price for FSD on an aircraft as complex as the Osprey, a machine incorporating new forms of composites, incredibly complicated computerized flight controls, things the companies weren’t entirely sure yet how to build. All kinds of unforeseeable problems might arise that would increase the cost, things engineers call “unknown unknowns” or “unk-unks.” The companies would be nuts to agree to a fixed price for FSD, Horner thought. Others at Bell and Boeing agreed.

  On October 10, 1985, Horner, Joe Mallen of Boeing Vertol, and two top executives from their parent companies—Beverly Dolan, chief executive officer of Bell corporate parent Textron Inc., and Lionel Alford, a senior vice president of Boeing—went to the Pentagon hoping to reason with Lehman. Harry Bendorf, a retired Air Force general who ran Boeing Vertol’s office in Washington, took them to Lehman’s office and waited in the anteroom. When they emerged a half hour later, Bendorf could tell it hadn’t gone well. The executives stormed out, their faces red. When they stopped to talk in the hall, Textron executive Dolan was particularly irate. Dolan couldn’t believe Lehman’s arrogance. “I’m not sure we need to do this,” he sputtered.

  Horner later gave Spivey and others at Bell an account of what had happened. “John, we’re playing with dynamite here,” Horner remembered telling Lehman. The companies had given Navair a price they thought would cover all the costs of FSD, but it was just an estimate. “Who knows whether we’re right or wrong within ten or fifteen percent—or more?” Horner pleaded. Fixed-price contracts would make sense once the Osprey went into production, but in FSD there were too many unk-unks.

  “Look, I don’t want you to lose money,” Lehman answered. The government was partly to blame for cost overruns; he knew that, he said. Government program offices had a bad habit of changing requirements and making contractors add or upgrade gear as ships and aircraft were being developed. That added cost. This would be the beauty of a fixed-price contract, Lehman told the executives: Navair wouldn’t be able to do that on the Osprey because the companies could just say no to changes that weren’t reasonable, tell Navair they wouldn’t do them without extra money. “Look, you’re going to have to be our policeman on these requirements,” Lehman said. “If you’re ready to fixed-price it, then we can go forward.” If not, the Osprey could stay in preliminary design until the companies were confident enough in their engineering to risk FSD at a fixed price. Look on the bright side, Lehman urged: “If this program is successful, this building will buy more of these airplanes than you can imagine!”

  “Threat—then carrot,” Spivey wrote in his notebook.

  The companies convened a meeting of top executives to decide whether to agree to a fixed-price deal. Subordinates from the Bell and Boeing contract and finance departments presented an analysis showing that, even if all went perfectly, it would probably cost at least $100 million more than the $1.8 billion Bell-Boeing had offered Navair. They had made that offer, of course, when they were talking about a cost-plus contract, under which the government would have to pay for overruns. Now they were talking about their own money.

  Boeing was used to such gambles. Investing money in a new aircraft was normal in the commercial airliner business. Alford, the Boeing senior vice president overseeing the Osprey program for his corporation, was ready to make the deal. “We should be able to perform this contract for one-point-eight billion,” he declared. “If we can’t do that, we shouldn’t be in this business.” Dan McCrary, Bell’s director of government contracts at the time, thought his bosses, Textron CEO Bev Dolan and Bell president Horner, took Alford’s bluster as a challenge to their manhood. Suddenly the issue seemed to be “who’s got the biggest balls,” McCrary remembered. Dolan and Horner seemed to be saying, “Well, we’re big boys, too. Let’s just go do it.” They decided they would.

  Navair and the companies finished renegotiating the contract on March 19, 1986. The new deal set a target price of $1.714 billion and a ceiling price $100 million higher, $1.810 billion, for six Osprey prototypes and other FSD work over the next seven years. If FSD cost more than the target price, the government would pay 60 percent of overruns up to the ceiling price. If FSD cost more than $1.810 billion, the companies would foot the rest of the bill—no matter how much more it was. As Lehman demanded, Bell and Boeing also agreed to give Navair an option to buy the first twelve production model Ospreys for no more than $1.2 billion. The price sounds exorbitant but wasn’t, given what is known in industry as the “learning curve.” Aircraft makers, like shoppers who buy build-it-yourself furniture from stores like Ikea, need a lot more time to build an item the first time they try it than they do after they get the hang of it. Over the life of the program, the average price of the Osprey was expected to be more like $30 million apiece, not the $100 million each contemplated for the first lot of twelve. Since an agency like Navair can never guarantee how many aircraft the government really will buy in the end, it normally pays the full production price from the start, taking savings as the learning curve comes down. Given how many design and engineering problems Bell and Boeing were facing, they couldn’t be sure in 1985 that
they actually could build the first twelve Ospreys for as little as $1.2 billion.

  “One of these days, we’re really going to regret this,” Horner told Spivey when the decision was made. “When we get there, I’ll take the blame for what I did.”

  * * *

  Lehman soon threw the companies another curve. The Osprey was going to need engines designed to function smoothly when vertical, horizontal, and at all angles in between. Navair’s plan was to hold a competition for a new, more advanced gas turbine engine than existing ones, then buy the engines and give them to Bell to install in the Osprey’s nacelles. Three companies were in the running for the contract. Two—a Pratt & Whitney division in Florida and a General Electric division in Massachusetts—offered new engines they were developing under an Army program aimed at getting a lighter, cheaper, more fuel-efficient turbine for helicopters. The Pratt and GE engines weren’t quite ready for prime time, but either promised to carry an aircraft much farther on less fuel than existing engines. They were also compact, as turbine engines go, which held down their weight. The third bidder, the Indiana-based Allison Gas Turbine Division of General Motors, offered a descendant of its T56, a venerable turboprop engine used in C-130 cargo planes and P-3 surveillance aircraft for decades. Allison’s proposed T406 wouldn’t be as fuel-efficient as the Pratt or GE entries, but it was proven technology, so the company could offer the Navy a great price. The Allison engine’s design also left a lot of room to boost its horsepower if necessary.

  Among those following the competition, the smart money was on GE. Its entry weighed about 850 pounds and promised great “specific fuel consumption,” or SFC, the term engineers use to describe how many pounds of fuel an engine burns per hour to produce a given amount of horsepower. Bell’s engineers figured the Osprey’s engines would need the best SFC possible to meet its range requirements. With weight such a problem, lighter engines would be better, too. Bell didn’t have enough engineers with the required expertise to design nacelles for all three engine candidates, so they had been focusing on designs for the GE engine. They had done some work on nacelles to hold Pratt’s engine, too, but more or less written off Allison’s. At 1,050 pounds, Allison’s entry seemed far too heavy, and with its higher SFC far too “thirsty.”

  Navair evaluated the entries in the fall of 1985. Its experts largely agreed with Bell that the GE engine seemed the best choice, though some favored the Allison engine because of its extra potential power. Navair officials went to Lehman’s office to brief him in December, expecting him to ratify their recommendation to go with the GE engine. Lehman listened, then said to give Allison the contract at a firm fixed price—the government wouldn’t pay anything for overruns. The Allison engine would be cheaper because it was based on proven technology, Lehman said, and while its SFC wasn’t as good as GE’s and Pratt’s, there was a silver lining in that. Allison’s engine was thirstier partly because it burned fuel at lower temperatures than the other engines. That would make Allison’s engine last longer, and if necessary, its power output could be increased by “turning up the wick.” That would be a good feature, Lehman said, if the Osprey’s weight increased in coming years, as aircraft weights always did. Navair gave Allison the contract for $76.4 million, far less than the prices GE and Pratt had offered.

  Bell’s engineers were stunned. Now they had to redesign the Osprey’s engine mounts, redesign how its fuel lines would connect to the engines, alter the shape of the nacelles. Worst of all, the Allison engines would add 600 pounds to the Osprey, including design changes to accommodate it. What had gotten into Lehman, they wondered? Was he giving Allison the contract to keep it in the military aircraft engine business, to protect the “defense industrial base?” Had someone at General Motors influenced him? Had he decided it was better to tick off both GE and Pratt, two political powerhouses, rather than favor one over the other? Theories and rumors ran rampant.

  “That’s just fantasy,” Lehman told me. “For political reasons, Allison would have been the dumbest choice. GM-Allison had virtually no clout on the Hill or with the White House, whereas GE and Pratt were very powerful, and every time I made a decision against one or the other I’d hear from the White House, I’d hear from OSD [the Office of the Secretary of Defense], because their lobbyists or their chairmen would raise hell about it.”

  Lehman sided with the Navair engineers who believed the Osprey was going to get heavier and would need more power in the future, he said. “Purely and simply, I agreed with them, and that’s why I picked the Allison engine.”

  Whatever his reasons, Lehman’s decision had just added to the Osprey’s biggest problems: weight and schedule. The Osprey was still way too heavy, and what with all the design difficulties, what with Boeing’s fight with Navair over what composites could be used in the fuse-lage, and now with the engine switch, the program was falling behind schedule. The first flight had been planned for 1987. Soon it was rescheduled for 1988.

  * * *

  One day in March 1985, Spivey wrote in his MIT notebook:

  Ask Not . . .

  Can We Afford JVX (V-22)?

  But instead . . .

  Can we afford NOT to field the V-22?

  Soon, PA&E chief David Chu wasn’t the only one asking the first question. In late 1985, House Armed Services Committee aide Douglas Necessary decided to do a study for members and staff on whether the Osprey was really the best buy for the Marine Corps. Necessary finished his study in early spring 1986 and circulated copies to other committee aides. He titled it “The V-22 Osprey: Is the Case for Tilt Rotor Tilted?”

  “We may be acquiring the wrong aircraft at the wrong time for the wrong reasons,” Necessary wrote. “The question isn’t, ‘Can the tiltrotor be developed to do the job?’ But can the helicopter do the job for significantly less money?” Necessary questioned whether the Marines really needed the Osprey’s range for amphibious assaults, the reason they said they wanted it. The Osprey might be able to carry troops to an assault point 230 miles away, he noted, but the helicopters needed to carry artillery and other heavy equipment still would be limited to 150 miles. So would the Marines’ helicopter gunships, which the Osprey might need as armed escorts, at least for the foreseeable future. Some Marine planners envisioned a day when the Osprey, a transport by now expected to be armed for self-defense with one gun at best, might be escorted by tiltrotor gunships, but no actual plan to build any existed. “The V-22-borne troops would be without firepower, or ‘naked,’ until the rest of the team arrives,” Necessary wrote. In amphibious assaults launched within ranges helicopters could handle, he added, the Osprey’s extra speed would be no advantage.

  Someone gave the Marine Corps a copy of his study, and Necessary soon started hearing from fellow House staffers that the Marines didn’t think much of the study, or of him. Action officers in the Marine Corps aviation branch were furious, in fact. They had spent hours explaining to Necessary that in an amphibious assault, the Marines in the first wave couldn’t come ashore with artillery in any event. It had long been Marine Corps doctrine to rely on fighter-bombers, not artillery, to attack enemy formations in the early part of an assault. This was why they’d bought the Harrier jump jet. Necessary seemed to ignore that fact. He was unqualified, unprofessional, and didn’t know what he was doing, those action officers were telling people on the Hill.

  Clearly, Necessary thought, he’d struck a nerve. He was sure of it in early April, when Bell and Boeing Vertol sent defense reporters a thirty-one-page rebuttal to his twenty-one-page study. The rebuttal said Necessary’s was “not a careful analysis” and was “based on old, incomplete data.”

  “Why are they responding in such a paranoid manner?” Necessary plaintively asked in an interview with Defense News, a newspaper focused on military affairs.

  Part of the answer was timing. Necessary’s report happened to start circulating about the same time that PA&E, the green-eyeshade office run by David Chu, was using a similar analysis to try to stop the
Osprey program in its tracks. Before Full Scale Development could start, the Navy Department needed approval from a high-level Pentagon committee called the Defense Systems Acquisition Review Council. The DSARC—insiders called it “the DEE-sark”—made its decision on April 17. In that meeting, Chu cited studies done for the Marines by a federally funded research center called the Center for Naval Analyses. One concluded that while the Osprey would be more effective than helicopters at bringing troops ashore, the tiltrotor would cost far more. Based on that and PA&E’s own analysis, Chu suggested the Marines buy Black Hawk helicopters to carry troops instead. Lehman and Commandant Kelley argued against him at the DSARC and FSD was approved. The Marines and Bell-Boeing were beginning to see, though, that they were going to have to fight to keep the Osprey alive, and the simple idea that the tiltrotor would get Marines to shore faster from farther at sea in an amphibious assault wasn’t going to be enough ammunition.

  The Osprey program’s manager at Navair in those days, Marine Colonel Harry Blot, issued that warning in an interview with the journal Amphibious Warfare Review after the DSARC approved FSD. Blot said Necessary’s study had asked “a legitimate question” about the Osprey. “We Marines, however, were caught unprepared for his challenge. In our own minds, we knew very well how we were going to employ the aircraft once ashore, however, all we justified and explained was how the aircraft was to be employed in the ship-to-shore movement during an amphibious operation.” Blot said the Marines actually had a list of thirty missions the Osprey could do for them.