Boeing and Lockheed Martin lost their challenge to the Pentagon’s choice of Northrop Grumman to build a heavy bomber, although they could still pursue the dispute in court
Boeing and Lockheed Martin lost their challenge to the Pentagon’s choice of Northrop Grumman to build a heavy bomber valued at about $80 billion.
The Government Accountability Office denied the protest filed by the two biggest U.S. defense contractors, the agency said Tuesday. The companies could still pursue the dispute in court, and Boeing didn’t rule that out.
Northrop shares rose 1.7 percent to $184.29. The contract represents an $80 billion to $100 billion sales opportunity for Northrop over the next two decades, with the majority of the earnings benefit coming in the mid-2020s and 2030s, according to Jason Gursky, an aerospace and defense analyst with Citigroup.
Northrop, shut out of prime contracts for U.S. warplanes since the B-2 in the 1980s, was chosen by the Air Force in October to produce the first new bomber since the Cold War and one of the biggest U.S. weapons systems of the next decade. In response to the GAO decision, the Air Force is lifting a stop-work order imposed on Northrop when the protest was filed, service spokeswoman Ann Stefanek said.
Most Read Stories
- Seahawks' Richard Sherman, dozens of athletes respond to Trump's rant against NFL player protests
- GOP’s know-nothing approach to health care is symptom of a bigger disease | Danny Westneat
- Russian hackers tried to access Washington’s voting systems, officials say
- A daring betrayal helped wipe out Cali cocaine cartel
- No. 7 UW Huskies at Colorado: Time, TV, radio, stream, preview
Investors had expected Northrop to prevail, and “some of this good news was already priced” into its shares, Gursky said in a note to clients Tuesday.
While Air Force Secretary Deborah Lee James in October called Northrop’s proposal for the Long-Range Strike Bomber “the best value for our nation,” Lockheed and Boeing sought to keep their joint bid alive by filing a protest with the GAO the next month.
The agency serves as arbiter of federal contract disputes, although the original contract decision can be challenged in court even if the GAO rules it should be upheld.
“We continue to believe that our offering represents the best solution for the Air Force and the nation, and that the government’s selection process was fundamentally and irreparably flawed,” Boeing said in a statement. “We will carefully review the GAO’s decision and decide upon our next steps with regard to the protest in the coming days.”
Boeing shares closed up 3.7 percent at $112.61.
Bill Phelps, a spokesman for Bethesda, Md.-based Lockheed, said the company had no comment beyond Boeing’s statement.
The GAO decision “confirms that the U.S. Air Force conducted an extraordinarily thorough selection process and selected the most capable and affordable solution,” Randy Belote, a spokesman for Falls Church, Va.-based Northrop, said in a statement.
The GAO said in its statement that it “found no basis to sustain or uphold the protest,” concluding that the Air Force’s “technical evaluation, and the evaluation of costs, was reasonable, consistent with the terms of the solicitation, and in accordance with procurement laws and regulations.”
A decision by the GAO to overturn an award is rare but not unprecedented: Boeing won a reversal on an aerial-tanker contract awarded to Northrop and the European parent of Airbus in 2008. Boeing secured the contract in 2011 after fresh bidding.
The Air Force looks “forward to proceeding with the development and fielding of this critical weapon system,” James said Tuesday in a statement underscoring that the new bomber is intended to replace aging aircraft as the air component of the nation’s land-sea-air nuclear triad.
Almost everything about the new plane, including its likely shape and specific capabilities, is classified.
It will join the B-2 in the Air Force fleet and is due to be deployed in the mid-2020s as the successor to the 37-year-old B-1 and the Eisenhower-era B-52. The Air Force wants a durable, stealthy aircraft that can fly deep into enemy territory to attack hidden or mobile targets.
The competing contractors have sniped at each other’s ability to keep the bomber’s cost from soaring as other major weapons systems have.
The GAO review focused on whether the Pentagon followed its own criteria in the bomber contest, not on Northrop’s ability to deliver the plane on budget, said Loren Thompson, a defense analyst with the Lexington Institute, which has received support from Boeing and Lockheed.
“The Air Force accepted a bid that was far below its estimates for what the bomber’s development should cost, so that implies a considerable amount of risk going forward,” Thompson said.
The Air Force has budgeted $12.1 billion through fiscal 2021 for research on the bomber, including $736.2 million this year, with projected increases to $1.3 billion in fiscal 2017 to $3 billion in 2021. It hasn’t disclosed how much it will spend on procurement.
The Air Force’s selection of Northrop was seen as a blow to Boeing’s efforts to find new military contracts to replace its F-15 and F/A-18 fighter-jet assembly lines, which are near the end of production.