[Satellite News 07-21-10] Comtech Mobile Datacom expects the U.S. Army to announce its multi-year $200 million Blue Force Tracking 2 (BFT2) contract winner by end of the month, and one analyst said the Army’s moves indicate that Comtech is the favorite to capture the award.
    “We expect the Army’s decision by the end of July. After the contract is issued, the Army will order initial production volumes of 10,000 to 14,000 units in the first year and ramping up to 20,000 in the second year and leveling off until 100,000 Army vehicles are equipped,” Comtech Blue Force Tracking Program Manager Richard Leach told Satellite News. If Comtech wins the Blue Force Tracking 2 contract, the deal could generate more than $1 billion in revenue for the company by the end of 2010, when combined with the company’s existing BFT/MTS contract vehicles.
    The Blue Force Tracking system, which consists of a network of computers linking GPS satellites, sensors and communication devices with military vehicles and weapons, is the U.S. military’s solution to reduce casualties caused by friendly fire. The Army and Marine Corps deployed more than 50,000 of the first line of Blue Force units, developed by Northrop Grumman in 2003, but with escalating conflicts in Iraq and Afghanistan, the military has voiced an urgent need to upgrade the system. In 2007, the military called on Comtech and its competitor ViaSat to develop the next-generation BFT system.
    While the competition has seen both companies invest heavily in the BFT upgrade, Comtech, the Army’s incumbent Movement Tracking System (MTS) contract holder, has seen its order ceilings increase with the Army to $899.1 million and has received $668.7 million in orders to date. “We have been told that it would be more cost-effective to go with us as the incumbent since our BFT-2 system, BFT-HC, is compatible with legacy systems,” said Leach.
   Raymond James analyst Chris Quilty told Satellite News he has been convinced for the past two years that Comtech would be the sole-sourced BFT-2 winner due to the Army’s current network structure and the demand for Comtech’s products. “The fact is that Comtech, with its current Army contract vehicles, is the incumbent for BFT-2. Comtech is the sole owner of the BFT-1 waveform and the incremental cost involved with switching over to ViaSat’s ArcLight technology is too great. With two wars going on and 100,000 vehicles dependent on this, shifting from one network to another stovetop network is too risky. You don’t want two sets of hardware and two sets of networks.”
    Quilty also believes that the Army would not have increased its MTS ceiling with Comtech so drastically if it was not planning to go with the company’s BFT-2 solution. “MTS was the Army’s original tracking solution and now BFT is pulling the weight. Would the Army have increased its MTS ceiling by $270 million if they weren’t considering Comtech for BFT-2? I don’t think so. The contract ceiling increase would have been $50 million if that were the case. This was a ‘wink-wink’ from the Army. When I saw this develop, I went from being 95 percent sure that Comtech was going to win this to being 98 percent sure.”
    Even ViaSat has gone on the record with projections that Comtech would be selected for the BFT upgrade. During ViaSat’s 2010 fourth quarter financial report conference call, President and COO Rick Baldridge played down his company’s chances when asked about the possibility of winning the BFT-2 award. “If I were a betting man, I’d bet on the incumbent,” Baldridge said.
Quilty said the change in ViaSat’s excitement over BFT-2 has been noticeable. “When ViaSat was initially awarded the first BFT 2 development contract, they talked about themselves winning as a foregone conclusion and a done deal. Since then, they’ve slowly mitigated their enthusiasm. ViaSat originally thought they would win by the end of 2009, while Comtech projected a timeline around Fall 2010. Comtech is now confident they’ll know by the end of the month.”
    When the Army makes its decision, work on BFT-2 will commence immediately. Initial BFT-2 production volumes are currently set at approximately 10,000 units and eventually ramping to 20,000 units annually. A decision to more rapidly replace BFT-1 terminals or the launch of a new vehicle program could cause the value of the contract to grow even further, according to Quilty. “A BFT-2 contract win essentially guarantees that Comtech will win the MTS-2 contract as well. I expect Comtech will receive multi-year BFT/MTS contracts totaling $1 billion or more by the end of 2010.”
    Leach confirmed that a BFT-2 contract win would boost its chances for future MTS work. “Nothing is guaranteed, but winning BFT-2 would put us in a strong position for LTS-2. It’s also important to note that the numbers LTS-2, LTS-1, etc. are applied afterward. We really consider the upcoming LTS program as LTS-3.”