The U.S. Army Is About to Make a Huge Mistake

After 44 years of honorable service, the U.S. Army may soon scrap its entire fleet of OH-58 Kiowa Warrior scout helicopters.

U.S. Army OH-58D Kiowa Warriors. Destined for the scrapheap? Source: Wikimedia Commons

That's the upshot of a story on DefenseNews website this week, which reports that the Army is mulling plans to retire all 338 Kiowas in active service -- and 30 more serving in the National Guard, as well. According to Defense News, the aim is to streamline the number of different kinds of aircraft that the Army is flying... and that it must buy parts for... and must train its mechanics to keep flying, as well. All of this costs money, and in a still-constrained defense spending environment, every nickel counts.

Counting nickels
Which is not to say that scrapping the Kiowa would save money.

Col. Frank Tate, the Army's chief of aviation force development, says that killing the Kiowa would save the Army "approximately $1 billion a year in direct operating and sustainment cost," plus unspecified savings farther down the line.

There is, however, a catch.

Upon taking Kiowas out of its inventory, the Army would find itself without a light helicopter suited to the Kiowa's traditional fire support and reconnaissance roles. The Army says it can press Apache attack helicopters into these missions temporarily, pulling these helos from the Guard, and replacing them with Black Hawks.

According to the Logistics Management Institute, however, the cost of fueling and maintaining Apaches, rather than Kiowas, can run as high as an extra $400 million a year. Other estimates put the cost of fielding Apaches at 50% greater than the cost of keeping Kiowas in place -- and that's not counting the cost of switching the Guard's helo force over to Black Hawks. Roughly seven times as heavy as a Kiowa, you have to figure the Black Hawks would be commensurately more expensive to fuel.

Counting time
Granted, an Apache-Black Hawk solution would be only temporary -- in theory. The Army is currently developing an "Armed Aerial Scout," also known as an "Armed Reconnaissance Helicopter", or ARH, to replace the Kiowa. Most major defense contractors are bidding on the work -- Textron (NYSE: TXT  ) , which builds the Kiowa, and also Lockheed Martin (NYSE: LMT  ) , Boeing (NYSE: BA  ) , United Technologies (NYSE: UTX  ) , AgustaWestland, and even Airbus parent EADS.

But there's no guarantee ARH will ever get built. A previous attempt by Boeing and UTC's Sikorsky unit to build a replacement scout, the "Comanche," was canceled over cost-overruns in 2004... after burning through $7 billion in taxpayer dollars. The current ARH effort, meanwhile, is at risk of cancellation due to the same budget cuts that now have the Army talking about killing the Kiowa!

What it means to you
All of this seems to argue against retiring the Kiowa -- or in any event suggests savings from such a move may be much less than the Army is counting on. A further argument against killing the Kiowa is that the Army just finished upgrading every last one of the birds in 2011. One would think that the best time to retire the Kiowas -- if that's the way to go -- was before investing tens of millions of dollars to upgrade them.

So how should stock investors be looking at the situation?

First, understand that the decision to kill the Kiowa is not set in stone. Defense News reported that the decision is "all but done," but that was before Congress announced its deal Wednesday to roll back part of the sequester. If Kiowa survives the Army's attempts to kill it, this whole discussion could become moot.

But if the Kiowa does get dumped, that's probably bad news for Textron, which will lose a big part of its services business. It will be better news for Boeing and United Technologies, who will see their Apaches and Black Hawks (respectively) get more flight time, and consequently require more maintenance work and spare parts.

And farther down the road... the gap created in the Army's aerial capability by lacking a dedicated scout helicopter must be filled. A return of funds previously thought lost to sequester, combined with a clear need for a new aircraft, could breathe new life into the ARH program. It would also mean billions of dollars for whichever company is eventually tapped to build it.

Retiring the Kiowa turns logic on its head. Source: Wikimedia Commons

Invest ahead of the news
If the Army announces a decision to keep the Kiowa, investors will immediately recognize it as good news for Textron, the helicopter's maker. But not all good news is quite so public. Our top technology analyst recently infiltrated one of Wall Street's most exclusive gatherings and left with three incredible investment opportunities, straight from the CEOs. These are profit-building strategies Main Street isn't meant to hear about -- so you must act now before someone shuts us up. Click if you want "industry insider" earnings -- now!

Read/Post Comments (7) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2013, at 3:54 AM, elfraed wrote:

    When you think of scouts, you think fast and maneuverable. Not the Kiowa. They are already being co-opted by squadrons of drones. I know. My son is a Kiowa pilot.

  • Report this Comment On December 15, 2013, at 8:26 AM, Germese wrote:

    With all due respect, the Kiowa is very maneuverable. A scout doesn't need to be fast because any scouting speed greater than 60 knots is counter productive and you're going to miss something. As for drones in a squadron, there is only one squadron like that in the army. The rest of the Kiowa squadrons are still Kiowa pure. The Kiowa can pick up feeds from UAV and PTDS balloons that are already on the battlefield. They cannot control the movements of drones. I should know... I've been flying them for 14 years including 5 combat deployments.

    This is a huge mistake laced with the persistent short-sightedness prevalent in bean counters only. There is absolutely no tactical savvy in utilizing a gunship for a scout mission. The army will lose money. The Apache is an expensive beast to fly and maintain. There is no possible way an Apache can fly 100 hrs a month per airframe and maintain the readiness rate a Kiowa can either.

  • Report this Comment On December 15, 2013, at 11:54 AM, blazedmet wrote:

    Thought the United States military had the replacement for the Bell OH-58 Kiowa already in service.

    The Eurocopter UH-72 Lakota is the US Army's answer to light utility helicopter duties. The manufacturer has been awarded a contract for 300+ helos in 2006, and received over 200 already.

    The Lakota might be serviceable as a scout with modification, as the twin engine and operational weight (unloaded and fully loaded) might be demanding on fuel. The only main drawback as the speed and range seems to be comparable. There is a proposed variant for the Armed Aerial Scout program that seems to have performed above the requirements.

    The Special Forces has the MH-6 Little Bird in use. It outperforms the Kiowa, and can be customized to the mission. Unsure the reason that it can not be used as a potential replacement for the Kiowa as it seems to have the history of successful operation and usage (for maintenance and training). The United States has limited stock as it is limited for Special Forces.

  • Report this Comment On December 15, 2013, at 5:44 PM, Punisher71 wrote:

    The lakota was never meant to be a Kiowa replacement-the Boeing Little Bird is actually the best bet(and a better aircraft)-it's quick, reliable, and is still in service with SOAR. Oh, and every pilot whose flown one, prefers it as a scout.

  • Report this Comment On December 15, 2013, at 6:24 PM, brenden15s wrote:

    The Kiowa has been an invaluable asset to the troops on the ground, both ours and foreign troops. The Kiowas, thanks to the hard work and dedication of its maintainers and pilots have been able to put up unmatched readiness rating and operational tempos that no other airframe could possibly touch. I challenge anyone to produce an airframe that has been able to stand up to the abuse we have put the aircraft through. I personally maintain Kiowas and have close friends who owe their lives to these aircraft. Kiowa units have put up nearly one million hours in the war on terror in the Iraq and Afghanistan areas with only a handful on units deployed at a time. Each of the 9 Kiowa squadrons put up tens of thousands of hours overseas in support of troops on the ground both US and our allies. The crews do things no other airframe can and will do to support the boys on the ground. The army has four airframes for a reason they have four roles to fill that each one can do. If they army really wants to eliminate an airframe get rid of the god awful airframe that is the Apache and replace it with 60s with DAPS not only can they carry as much ordinance as an Apache and still take some packs along for the ride. There is where the cuts need to be made the Army has poured money at the Apache and has gotten poor results. I have and always will support the Kiowas and all that they do.

  • Report this Comment On December 16, 2013, at 4:36 AM, rreader wrote:

    This is the price the military has to pay when everyone is awarded food stamps. When America is attacked again, who are the food stamp awardees going to blame. Did Clinton not cut security funds which ultimately led in cuts in intelligence which led to 9-11? Ever notice when the Democrats are in office, the military, and Social security has very little cost of living increases. By the way, Clinton used those cuts to brag about the surplus he saved while cutting our naval fleet? Keep voting for the Demos and soon we will be flying the communist colors. The commies don't issue food stamps, they put you to work to earn them. Whether you like it or not! Get ready that day is coming sooner than you think!

  • Report this Comment On December 16, 2013, at 4:00 PM, wadester33 wrote:

    I call bullssh*t,,when has the governments defense spending ever been "constrained"?

Add your comment.

DocumentId: 2764671, ~/Articles/ArticleHandler.aspx, 4/19/2014 2:58:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...