Richard Aboulafia, an analyst with the Teal Group, said Northrop Grumman’s victory means “they'll be the second biggest combat aircraft prime, and possibly the only survivor other than Lockheed Martin by the time the next generation of combat aircraft competitions arrive. As for Boeing, they can either gradually return to being the mostly civil jetliner company they were before they bought McDonnell Douglas, or they can make a bid for Northrop's combat aircraft unit.”
But recent comments by Pentagon acquisition chief Frank Kendall on consolidation among primes threw icewater on the suggestion that Boeing would move to buy Northrop now that it won the contract, Callan said.
“Wall Street will still speculate that [because] Northrop won, it will get taken over,” he said. “That’s implausible, at this point, as long as current leadership is around. It’s just not clear to that a new set of people in 2017 are going to have radically different views than Kendall and company.”
Unsurprisingly, the two competitors released statements reflecting the results.
“The Air Force has made the right decision for our nation’s security,” Wes Bush, chairman, chief executive officer and president of Northrop Grumman, said in a statement. “As the company that developed and delivered the B-2 Spirit stealth bomber, we look forward to providing the Air Force with a highly-capable and affordable next-generation Long-Range Strike Bomber.
“Our team has the resources in place to execute this important program, and we’re ready to get to work,” Bush added in the statement.
Boeing and Lockheed, meanwhile, said they were "disappointed by today’s announcement."
"We will have further discussions with our customer before determining our next steps," the statement said. "We are interested in knowing how the competition was scored in terms of price and risk, as we believe that the combination of Boeing and Lockheed Martin offers unparalleled experience, capability and resources for this critically important recapitalization program."
Protest Likely
So what’s next?
For the Pentagon, the hard part is about to begin. A bid protest seems inevitable given that LRS-B is the first major military aircraft acquisition program since the JSF award in 2001, and likely the last until the sixth-generation fighter next decade. A lengthy protest period could not only delay the program’s start, but also set up a nasty public relations fight.
Boeing and Lockheed will likely wage intense lobbying campaigns to rally support for a protest. Boeing is expected to tap the Missouri delegation, including influential Democratic Sen. Claire McCaskill and Republican Sen. Roy Blunt, while Lockheed will look to the Texas delegation, particularly Fort Worth’s Republican Rep. Kay Granger and House Armed Services Committee Chairman Rep. William "Mac" Thornberry, also a Republican.
Earlier on Tuesday, before the announcement and after a hearing on streamlining defense acquisitions, Thornberry acknowledged concerns over a possible LSR-B protest and the litigious nature of acquisitions in general.
"It's part of the way acquisition culture has developed that every bid award has protests, and you're expected to protest – basically with no penalty," he told reporters. "So, a number of members have had ideas about improving that situation, and it's something that we will continue to discuss."
One expert predicted the Missouri and Texas delegations will come out swinging for the Boeing-Lockheed team.
"McCaskill will go to war for this and Texas will back it," one defense analyst told Defense News.
Of the two, Boeing clearly has the most at stake. While Lockheed’s position is safe, with the JSF about to ramp up production, Northrop’s win could squeeze Boeing out of the combat-aircraft manufacturing market. Most of the company’s products are commercial derivatives, like the KC-46A tanker, and its two remaining military aircraft lines are coming to a close. The last Navy F/A-18 will be delivered in 2018, and the final Air Force F-15 will be delivered in early 2019. After that, the company’s St. Louis factory may be shuttered.
To keep the St. Louis facility afloat, the US Navy could opt to extend the F/A-18 line for up to 10 years, a move that could bridge the gap between now and the sixth-generation fighter, which is expected to go into production in the late 2020s. Winning a contract to build the Air Force’s new fleet of trainers could also hold St. Louis over, but as one of several competitors, Boeing can’t bank on a positive outcome.
Boeing potentially has another option: It could try to buy Northrop’s aerospace unit. Once Northrop has completed the LRS-B design, divesting the business to another party might make sense to investors, according to analysts who spoke to Defense News on background to talk openly about the contract award.
On the other hand, some analysts say
of the business of designing and producing combat aircraft. The company does not need an LRS-B victory to stay in business and has not signaled that it would rethink its business strategy based on the recent contract award, Callan said.
LRS-B is unusually mature for a program at this stage of development, as the Air Force has already completed much of the testing and risk reduction. Although there are no indications a complete prototype has flown, the team has already built component prototypes and scale models for testing. LaPlante recently indicated the plane could begin flying relatively soon after selection.
The next challenge for Northrop will be integrating the mature technologies already developed in LRS-B’s pre-award phase. The main areas of risk are integrating the engines and placing antennas onto the airframe, officials have said.
Part of the reason the LRS-B program is so advanced at this stage is due to being handled by the Rapid Capabilities Office, a small group inside Air Force acquisitions that handles secretive programs such as the X-37B space plane. Right now, there is no plan to change the LRS-B program management, officials have said, but the Pentagon may re-evaluate as the program moves forward.
The Air Force plans to buy 80 to 100 Long Range Strike-Bombers to replace its aging B-52s and B-1s, which the service plans to retire in the mid-2040s. The new aircraft will be significantly stealthier than the B-2, capable of carrying conventional and nuclear weapons. Initial operating capability is slated for the mid-2020s, with nuclear certification planned two years after that.
The target price is $550 million per plane in 2010 dollars. To help achieve that price point, the Air Force is looking to draw on available, mature technologies, rather than launching new developments. At the same time, the Air Force will use an open-architecture approach to design a plane that can be easily upgraded with new technologies over its lifetime.
