In a big blow to Boeing, the Pentagon has picked Northrop Grumman to design and build the new top-secret Long Range Strike Bomber for the Air Force.
The Pentagon has picked Northrop Grumman to design and build the new top-secret Long Range Strike Bomber for the U.S. Air Force, beating out a team led by Boeing for the most significant military-aircraft contract since Boeing lost the Joint Strike Fighter contract in 2001.
It’s a huge blow to Boeing, which has a long history of building U.S. bombers.
The contract announced Tuesday is worth about $80 billion in today’s dollars — about $23.5 billion for the development phase and $56.4 billion more for the production of 100 aircraft.
With Boeing now shut out of design and manufacturing work on any of the nation’s next-generation jet fighters and bombers, the company’s ailing defense side is likely to shrink further in the years ahead.
The Long Range Strike (LRS) Bomber is designed to penetrate all defenses and strike an enemy target anywhere on Earth at short notice. The first aircraft are expected to be operational in the mid-2020s.
At the news conference announcing the contract winner, Defense Secretary Ash Carter said the new bomber — designed to carry both conventional and nuclear weapons — will be “the backbone of the Air Force’s future strike and deterrent capabilities.”
The Pentagon gave few details as to why Northrop was chosen, although Air Force Secretary Deborah Lee James said the decision “provides the best value for our nation.”
Rebecca Grant, president of defense consultancy IRIS, said that suggests Northrop offered a lower price.
Most Read Business Stories
- Porsche blunder puts $148,000 sports car on sale for just $18,000
- REI lays off 8% of HQ workers to hedge against 'increasing uncertainty'
- Boeing bids farewell to its final 747-8 at Everett plant
- Amazon reports net loss of $2.7 billion for 2022
- Noncompete agreements cost Seattle-area man a new job, lawsuit says
At Northrop and its systems suppliers, the bomber work will secure many thousands of engineering jobs over the next decade and tens of thousands of production jobs even longer.
“We’re ready to get to work,” said Northrop Chief Executive Wes Bush in a statement.
Impact on Boeing
Losing the bomber means Boeing — with Lockheed Martin as its junior partner — misses out on that opportunity.
Boeing’s defense facilities in St. Louis, where the F/A-18 and F-15 jet-fighter assembly lines will wind down in the next few years, are likely to be hardest hit.
Grant said the selection of Northrop “does cast a question over Boeing’s continued production, particularly in St. Louis, and whether Boeing will stay robust in future military aircraft development.”
RBC Capital Markets analyst Rob Stallard in a note to clients Tuesday wrote that Boeing “now faces the difficult task of working out what to do with the military aircraft business that it bought with McDonnell Douglas. There is no large platform in the backlog to replace the C-17, F-15 and F-18.”
Defense analyst Loren Thompson of the Lexington Institute said that “slowly but surely the walls are closing in on Boeing’s military aircraft operations in St. Louis.”
The contract award ends a storied Boeing bomber history that included building in Seattle almost 7,000 B-17 Flying Fortresses for World War II and supplying the B-52s that are still part of the country’s aging bomber fleet today.
U.S. bombers designed or built by Boeing since World War II
Even though Northrop was the prime contractor on the last bomber, the B-2, Boeing and this region played a huge role in manufacturing it.
As a major B-2 subcontractor, Boeing built much of the jet’s bat-wing airframe. At the project’s peak in 1991, about 12,000 Boeing employees worked on the B-2 in Seattle.
While revenue at Boeing’s defense division is essentially the same as 10 years ago, at an expected $30 billion in 2015, the military side’s share of total revenue has fallen from 56 percent to a projected 25 percent.
Meanwhile, employment on Boeing’s defense side has shrunk by a third, from more than 75,000 people to just over 50,000 today.
With Boeing’s pipeline of next-generation military planes including only derivatives of its passenger jets, further shrinkage now seems inevitable.
After Boeing is debriefed by the Air Force, as soon as Friday, it has the option within 100 days to file a protest that could put the project on hold.
Protests by losing bidders have become the norm in big defense contracts; that’s how Boeing in 2011 grabbed the KC-46 air-refueling tanker award from Airbus.
In a statement, Boeing expressed disappointment at the bomber decision and said it will have further discussions with the Air Force before determining next steps.
“We are interested in knowing how the competition was scored in terms of price and risk,” Boeing said.
Some analysts have speculated that a Boeing loss could spur management to seek a major defense acquisition — with Boeing perhaps even buying Northrop to preserve its business.
However, the Pentagon would likely block any such move.
Defense Secretary Carter in September said he opposed further consolidation among the large defense contractors because it would reduce competition.
At Boeing’s investor conference in May, an analyst asked company Chairman Jim McNerney to contemplate the implications of losing the bomber contract and also a pending trainer-jet contract.
McNerney responded that the defense side could remain healthy building commercial-jet derivatives such as the Air Force tanker and the Navy’s P-8 submarine hunter, and also by leveraging the commercial-airplanes unit’s international sales connections.
“We don’t have to panic,” he said, while acknowledging the defense unit “would be smaller than it is today.”
The bomber itself remains top-secret and is likely to stay mysterious for years.
In a Pentagon media briefing last week, William LaPlante, assistant secretary of the Air Force for acquisition, said the plane’s capabilities and specifications will remain classified “so that adversaries can’t already be trying to build defenses against it.”
So we don’t even know what the plane will look like.
However, to make it stealthy — invisible to radar — engineers are likely to create another bat-wing-style flying triangle similar to the B-2.
Initially, and anytime the bomber is carrying nuclear weapons, it will have pilots aboard. The Pentagon has said it wants a built-in option to upgrade the plane’s systems so it could fly unmanned in future years.
Northrop is a leader in unmanned systems and has developed large unmanned surveillance aircraft such as the RQ-4 Global Hawk and the secret, stealthy RQ-180.
With its corporate headquarters in Falls Church, Va., Northrop runs its aerospace unit out of Redondo Beach, Calif.
Some design and manufacturing work on the bomber is likely to be done at Northrop plants in Florida and California.
Defense analyst Thompson said he expects final assembly of the airplane and integration of its systems will be done away from prying eyes at Air Force Plant 42 in Palmdale, Calif., the secure aircraft-manufacturing complex where Northrop assembled the B-2 bombers.
In last week’s briefing, LaPlante said this bomber program can stick to its budget and its schedule — unlike previous programs such as the F-22 and F-35 fighters and the B-2 bomber.
The Air Force originally wanted 132 B-2s, but costs ballooned, acquisition funds were cut, and in the end only 21 were built at the staggering cost of more than $2 billion apiece.
Because both Northrop and the Boeing/Lockheed team have worked on their competing concepts for three years, work on the LRS is already well advanced, said LaPlante. A first flight is “not necessarily that long from now.”
The Pentagon said Tuesday that it has spent about $1.9 billion in the concept phase leading up to the contract award.
The initial Air Force contract Northrop has won covers design and development of the bomber and then production of the first 21 aircraft.
In this development phase, Northrop will be paid the costs it incurs plus an incentive fee that depends on hitting performance targets.
During production, when the Pentagon says it plans to build seven or eight bombers per year, Northrop will be paid on a fixed-price basis, with an added incentive margin for meeting targets.
Todd Harrison, director of defense-budget analysis at the Washington, D.C.-based Center for Strategic and International Studies, issued a detailed estimate Tuesday for the total cost of the bomber program as planned, adjusted for inflation over the next 20 years when the airplane will be produced.
“When the effects of inflation and other development costs are included, … the Air Force’s total program cost will likely be more than $100 billion,” Harrison wrote.
However, Harrison cautioned that the ultimate cost could be even higher if things don’t go according to plan.
“It’s exceedingly rare that a major acquisition program ever comes in anywhere close to its initial cost,” he said.
Why a new bomber?
The current active U.S. bomber fleet — only a portion of it ready to fly at short notice — consists of 161 aging aircraft:
• 76 Boeing B-52s, all now more than 50 years old.
• 66 Rockwell B-1Bs, the latest built in 1988. (Boeing later bought Rockwell and now provides maintenance support for these jets.)
• 19 Northrop B-2 stealth bombers.
Explaining the strategic need for a new bomber, Air Force Secretary James said, “The future threat will evolve through the introduction of advanced air defense systems and development of more capable surface-to-air missile systems.”
Lt. Gen. Arnold Bunch last week said potential adversaries have already developed new technologies aimed at keeping the U.S. military at bay.
For example, the Chinese Dong Feng 21D anti-ship ballistic missile — a so-called “carrier killer” — is designed to prevent naval battle groups from coming close to Chinese waters in any conflict.
“Our adversaries … continue to evolve to make us stand off more. They try to minimize our capabilities to strike targets,” said Bunch.
The LRS bomber — able to evade the newest defenses through advances in stealth technology, and capable of striking both highly mobile and deeply buried targets — will provide anew “the option to strike any target, any time,” he said.
Defense Secretary Carter said that “over the past century, no nation has used air power to accomplish its global reach — to compress time and space — like the United States. Today, it’s vital to innovate and reinvest … (to) allow America’s military to be dominant in the second aerospace century.”
To keep production costs down to $564 million per airplane, the contending defense contractors were directed to use existing, mature technologies for communications and sensor systems, stealth and weapons on the new plane.
Nonetheless, LaPlante said, the new bomber could include “something that is incredible, something that the public doesn’t even know about.”