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Cyclone delays have cost Sikorsky $86 million in fines

July 5, 2013  By The National Post

July 5, 2013, Ottawa - U.S. aerospace giant Sikorsky has racked up almost $86-million in penalties for failing to deliver Cyclone helicopters to Canada’s military but has yet to pay the money.

There is also still no word when the helicopters, already more than
four years late, will be delivered to the Royal Canadian Air Force.

But Public Works did confirm in an email that, “as of June 14, 2013,
the total amount of liquidated damages accrued for late delivery is
$85.7-million.” The maximum amount of damages that Sikorsky could be hit
with is $88.6-million, the email added.

“When the government signs a contract with a supplier, it expects
their obligations under the contract to be met,” the email noted.


Public Works, however, will not say why the penalties have not been
paid. Sikorsky spokesman Paul Jackson said the company is in discussions
with Public Works and the Defence Department about “contractual
disputes” and will not comment.

The original contract called for the first Sikorsky Cyclone
helicopter to be delivered in November 2008, with deliveries of all 28
helicopters completed by early 2011. But Sikorsky has yet to turn over a
single helicopter to Canada under the $5.7-billion program. The Cyclone
is supposed to replace the military’s aging Sea King helicopters.

The Conservatives have laid blame on the Liberals for the
problem-plagued program because Paul Martin’s government awarded the
contract to Sikorsky in 2004. Liberals have countered that the
mismanagement has occurred under Conservative watch. Liberals have
pointed out there are substantial penalties in the original contract the
government has not enforced.

Government documents obtained by the Ottawa Citizen show that the
Conservative government could have hit Sikorsky with up to $89-million
in fines earlier on in the program for missing its deadlines, but it
decided to waive those penalties.

Instead, the government renegotiated with Sikorsky and, under a new
deal, Canada is to pay Sikorsky $117-million extra for improvements to
be made to the Cyclone, as well as changes to the long-term in-service
support package for the aircraft. Delivery times were also renegotiated,
but Sikorsky failed to meet those.

Now that the maximum amount of penalties has almost been reached, the
government has few other avenues to punish Sikorsky for late deliveries
of the helicopters, say military and industry officials. The
alternative would be to cancel the project, but the Defence Department
has recommended against that course of action.

Jackson said the Cyclone program “continues to show good progress.”

Three helicopters are in Shearwater, N.S., but have not been turned
over to the military since more testing is needed. Jackson said that as
many as 565 Sikorsky employees and contractors are devoting significant
amounts of time to the design, testing, production and certification
required to deliver the helicopters. “We will continue to work with
Public Works and the Department of National Defence to move the program
forward and hope to begin pilot training very soon.”

In December 2012, Louis Chenevert, chairman of the corporation that
owns Sikorsky, said the firm planned to deliver eight Cyclones to Canada
in 2013.

Jackson told the Ottawa Citizen in December there was no definite
schedule for when the deliveries were going to take place this year.
That is the subject of ongoing discussions with the Canadian government,
he added.

Air force officers have continued to portray the program in a
positive light, claiming the Cyclone, when delivered, will be a
cutting-edge aircraft.

In April, air force commander Lt.-Gen. Yvan Blondin also told a senate defence committee he wasn’t concerned about the delays.

“Every time I get through a program or a fleet, there are always some
delays,” he explained. “No matter what fleet you will be talking about,
the fleet that does not have a delay is an exception.”

Blondin told senators he did not know when the Cyclones would be
delivered. But he added that he is “comfortable in flying the Sea King
for the next five years.”

Last year, Defence Minister Peter MacKay acknowledged the ongoing
problems with the program and said he hoped “we will be back on track in
the fall and taking regular delivery of Cyclone helicopters from
Sikorsky.” That never happened.

Sikorsky is the prime contractor for the maritime helicopter project,
while General Dynamics Canada Ltd. of Ottawa, and L-3 MAS of Mirabel,
Que., are principal sub-contractors.

In its attempts to help Sikorsky along, DND officials reduced the
criteria for an interim aircraft — a basic Cyclone — to receive a
military airworthiness certification. But even with that, Sikorsky
failed to meet its delivery timetable, according to a November 2010
briefing note written for MacKay. Postmedia News obtained that note
through the Access to Information law.


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