Wide Political Fallout Expected From Massive Nuclear Bomber Deal

In a few weeks, the Pentagon will announce the companies picked to develop America’s next bomber jet, sparking a budget war that will last for years and reshape the defense industry, experts say.

The Long Range Strike Bomber, which will probably be called the B-3, will provide more bang for the buck than several fighter jets. But it won’t be cheap. It is likely to cost at least $111 billion to acquire 100 planes, says Todd Harrison of the Center for Strategic and Budgetary Assessments. That’s almost twice the amount the Air Force has quoted before, and it assumes no cost overruns. The higher price tag is due to the service previously understating the costs, not to any real hike in expenses, Harrison says.

Adding the cost to operate the planes more than doubles the price tag yet again to in excess of $200 billion, experts say. Plus, the B-3s are expected to only replace the oldest U.S. bombers, the B-1s and B-52s. An additional program will probably be required in a couple of decades to replace the younger bombers, the B-2s, the experts say.

“It’s a huge procurement,” says Jeff Sessions, R-Ala., chairman of the Senate Armed Services Subcommittee on Strategic Forces. “We will pay much more attention to it as we move forward.”

The B-3 bomber is just one of several multi-billion-dollar weapons to be produced in the 2020s, and advocates for those ships and planes will fight each other tooth and nail, analysts say. The bomber program will also be a test case on Capitol Hill for whether the Pentagon can buy major weapons without massive cost overruns and schedule delays.

The bomber contract decision will lead to changes in the companies bidding for it. If the team that includes Lockheed Martin Corp. wins, it could give that one company unrivaled—and perhaps unhealthy—power as a central player in all three of the newest U.S. warplane programs—the bomber plus the F-22 and F-35 fighter jets—on top of the company’s newly expanded role in the military helicopter market.

What’s more, the bomber award may result in the losing bidder being purchased by another company or at least entering new markets or selling parts of its business. That in turn could reorder which politicians are champions of which companies in the coming budget battles.

“We shouldn’t underestimate how consequential this contract award is going to be for the future of this sector of the aerospace industry,” says Harrison.

Awaiting Word

A partly classified development program is already underway in the Air Force to design the new B-3. The stealthy warplane is expected to be able to penetrate enemy air defenses and deliver conventional and nuclear weapons. It also must be designed so that it can be flown without a pilot.

The Defense Department is expected to announce the contract winner sometime in September. The main contractor will either be Northrop Grumman Corp. or a team led by Boeing Co. that includes Lockheed Martin as the aircraft designer.

Boeing, the Pentagon’s No. 2 defense contractor, built the B-52 bomber during the Eisenhower administration. Boeing later bought the defense businesses of Rockwell International Corp., which built the B-1 during the Reagan presidency.

Northrop Grumman, the No. 6 contractor today, developed the B-2 bomber in the late 1970s and fielded it in the late 1990s. The company now maintains the planes.

Even if a contract announcement is made in September, it could be several months before the final decision comes, if the losing bidder files a protest. And a protest is likely if there seems a chance it might work.

“It’s a high value program with so much at stake for all the companies,” says Roman Schweizer, an analyst with Guggenheim Securities LLC. “What’s to lose?”

Industry Fallout

Whenever the decision comes, it will be a big deal—for the U.S. military, for lawmakers and for the companies that vied for the contract.

If the Boeing/Lockheed Martin team loses, Boeing would be left without any military-unique aircraft programs, once its dwindling orders for F-18 and F-15 fighter jets end. Instead, Boeing would just provide the U.S. military with derivations of its commercial aircraft, as it has for the KC-46 midair refueling tanker and P-8 Poseidon maritime warfare and intelligence jet.

If, on the other hand, the Boeing-led team wins, it would be Northrop Grumman that would find itself outside looking in at the business of building major new U.S. warplanes. Northrop Grumman still makes part of the fuselages for F-35 fighter jets, as well as radars and other so-called subsystems for those planes and F-22 fighter jets, not to mention unmanned planes such as the Global Hawk surveillance drone.

The loser in the bomber competition might find itself at a competitive disadvantage when, in a decade or more, it comes time to design and then build the U.S. military’s next fighter jet or other combat aircraft.

Moreover, the bomber award could trigger changes in the bidders, though they may not happen overnight, experts say.

If Northrop Grumman were to lose, the value of its parts may appear greater than that of its whole to investors, who may pressure the company to sell off some or all of its component businesses, says Richard Aboulafia, an industry analyst with the Teal Group Corp.

If Northrop Grumman loses, it could also become a target for other companies—led by Boeing—to try to buy, assuming the Pentagon would allow it, analysts say.

Northrop Grumman executives declined to speculate on what a potential loss of the contract might mean.

Lockheed Martin's Clout

A Boeing-Lockheed Martin victory would put Lockheed Martin in the driver’s seat as designer and builder of all three major new U.S. warplanes. Some observers—and not just those aligned with Northrop Grumman—worry that a hack of Lockheed Martin’s computers (of the sort that has already hit the F-35 program) could have ripple effects throughout U.S. military aviation.

Plus, some say, a Lockheed Martin win in the bomber competition would give the company inordinate clout with the government in contract talks.

“They would have all kinds of leverage in negotiations for the next fighter or bomber plane down the road,” says Dan Grazier, an analyst with the Project on Government Oversight.

Lockheed Martin announced this month it will buy Sikorsky Aircraft, the top maker of U.S. military helicopters, solidifying the company's hold on that aircraft market as well.

“Lockheed Martin is absolutely in the best position of major defense companies in terms of future profits,” says Loren Thompson, chief operating officer of the Lexington Institute think tank and a consultant to Lockheed Martin and Boeing.

Lockheed Martin executives had not responded to a query by press time.

If, on the other hand, Boeing were to lose, it would have to reassess its future with the Pentagon, especially in military aviation. Aboulafia and others think it’s possible that Boeing could respond to a losing bomber bid by trying to buy Northrop Grumman to stay in the warplane game.

Boeing executives insist they wouldn’t look to make significant changes in the event they were to lose the bomber deal. The company’s then chief executive, Jim McNerney, told investors in May the company would be smaller if it didn’t win the bomber contract, but not dramatically so.

“We would not overreact and feel that we had to get big again right away, because we've got Boeing Commercial Airplanes," McNerney said. "We've got this great aerospace company and BCA, arguably the strongest business within aerospace industry."

Still, big fighter competitions have led to unforeseen industry shakeups before—for earlier embodiments of the very same companies anxiously awaiting the September bomber announcement.

The 1991 Advanced Tactical Fighter decision killed off Northrop’s hopes of landing a new aircraft program, helping to create the Northrop Grumman merger, Aboulafia notes.  And McDonnell Douglas's loss in the 1996 Joint Advanced Strike Technology competition helped lead to the company's absorption into Boeing.

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