Northrop wins, Boeing/Lockheed lose bomber contract

Oct. 27, 2015: Northrop Grumman, builder of the B-2 bomber in the USAF inventory, was awarded the contract to build the next generation long-range bomber, which is yet to be named. For the moment, we’ll call it the “B-3.” For now it’s official name is the Long Range Strike Bomber (LRSB).

The Seattle Times has this story.

This is a big blow to Boeing, whose declining defense business was already in trouble from defense cutbacks and previous contract losses. The contract is worth $80bn.

Boeing’s strategy in acquiring McDonnell Douglas Corp back in 1997 was to even the revenue stream between commercial and military, in which Boeing then had a small portion and MDC was predominately military. Boeing was a sub-contractor to Northrop on the B-2, gaining a lot of its composite experience there which ultimately benefited development of the 787.

Unless Boeing finds grounds to challenge the contract award, prevails and wins a second competition, its Defense unit will continue to shrink.

Goldman Sachs, as with many other investment banks, called this a big win for Northrop.

Northrop won the Long Range Strike Bomber. We think this win, along with the existing already very strong investment merits, could drive NOC to be one of the best performing stocks in all of Industrials over the next several years, but do so with substantial visibility and limited volatility. We think this company is now very well positioned, for a long time. NOC remains the largest sub on the Pentagon’s largest growth program, the F-35. It is the strongest player in large unmanned, with Triton and Global Hawk. It should benefit from Space asset recapitalization. And it now owns the Bomber. We think NOC will grow revenue 7-10% at least 2017-2020 and potentially longer, making it essentially a growth company, but with significant visibility. And we think it will generate a ton of cash in the process; potentially moving above $20/share in free cash by the end of the decade.

Credit Suisse expects Boeing to protest.

While we expect BA/LMT to protest, the two companies noted in a joint release that they will have further discussions with the customer before determining next steps.  Protests must be filed within 10 calendar days of a post-award debrief, which could be scheduled for Friday of this week.

We believe consensus leaned toward BA win: Although both teams likely offered technically comparable candidate aircraft, we have felt for some time that consensus favored a BA win. While a NOC win spreads risk, as BA, LMT and NOC each now possess one of USAF’s top 3 programs (Tanker, F-35 and LRS-B), it raises the question of what will happen to BA’s St Louis facility with the sunsetting F-18/F-15 programs. DOD affirmed today industrial base was not a consideration in the source selection.

48 Comments on “Northrop wins, Boeing/Lockheed lose bomber contract

  1. Keep calm and carry on

    Defense is a high risk/reward kind of business. Dennis Muilenburg was part of the X-32 program, I believe, and probably understands the challenges quite well. They should pour a lot of resources into a ‘LRS-B lessons learned’ effort, though.

    The good thing for BA is that there will be new opportunities. The KC-46 program can swell considerably, replacing the KC-10, and the P-8 just received more export orders. And there’s the T-X trainer coming up, which can swell both domestically and internationally too. And beyond airplanes, there’s military and commercial satellites, which I believe probably have a rather decent profit margin.

  2. Very interesting to see what happens. And how the aircraft will look. Good for US aerospace infrastructure that Northrop remains a independent full integrator next to LM & Boeing.

    Probably Northrop will outsource sizeable chunks to “neutralize” the other two?

  3. This is the best thing that could happen to the American aviation industry. Boeing has a long history of being over budget and behind schedule with every project they deal with and that includes both commercial and military projects. I hope Boeing doesn’t protest because than this will turn into another embarrassing protest fiasco that we witnessed in the KC-10 replacement competition between the A330 MRTT and KC-46. All those wasted taxpayers $ and years lost debating back and forth. Boeing is the perfect poster child for a sore loser…

    • @Tim K: you said this:
      “I hope Boeing doesn’t protest because than this will turn into another embarrassing protest fiasco that we witnessed in the KC-10 replacement competition between the A330 MRTT and KC-46.”

      Wow…..in order to get your anti-Boeing rant out there, you can’t even get the program right.

      Besides the KC-X protest, can you please show the class al the other mil projects that Boeing did that were, in your words, “Boeing has a long history of being over budget and behind schedule with every project they deal with and that includes both commercial and military projects’ ?

      Remember you said EVERY project they deal with…mil and commercial. Would love to see the facts on that. I’m not defending Boeing, but you make a pretty strong and definitive statement that begs citation.

      Good effort by NG. IMO, win was influenced in no small part by the fact that the DoD couldn’t let every major aircraft program reside in the hands of LM and Boeing for the next 30 years. (Although DoD will say industrial base considerations had nothing to do with it. Yeah, right)

      • As I recall Boeing bailed Northrop out when they were messing up the B2.

        Boeing will probably get a sizable chunk of the pieces.

        Lockheed, well its best they stick with trying to turn the F-35 turkey into something viable.

        I don’t buy that NG was not picked as part of the industrial base desires (not out of place but don’t smoke me either)

  4. ” While we expect BA/LMT to protest, the two companies noted in a joint release that they will have further discussions with the customer before determining next steps.”

    Back in the day, when BA had leaders like Bill Allen and Ed Wells, Even though they got screwed, They would not complain or ask for a Mulligan.
    A famous example was TFX ( later known as the Turkey F-111 do all airplane- to heavy for Navy etc ). GD pushed ONE airplane, BA pushed 2 airframes with using miracle Titanium parts. McNamara didn’t believe in either the metal or the low bid. It was such a cluster*** that a major investigation was held, and BA was given a chance for a do over. Allen went to congress and made it clear he was there under duress, and explained he was disappointed, but that he( BA ) did not ask for an investigation or complain. Though he did offer to build two or 4 prototypes at a then very low price fro a fly off.

    Fast forward to the MDC buyout and installation of the Jack welch Mismanagemt school and related minions. Tanker one ( 2001-2002) mess, Japan and Italian 767 Tankers mess late , Tanker 2 ( current) screwups with wiring and other issues, 7 late 7 still with battery issues, etc.

    but lets not forget that most of the B-2 wings and fuselage, and some feathers, etc were designed and built by Boeing- before the MDC buyout, which also resulted in the first assembly line shutdown in 97 or so.

    BA will survive- but they were ‘ winning’ when I was there :-PPP

    • And a little addition to the above. Bill allen made it known to managment and executives that any such person who made a public statement or comment that we ( BA) got screwed would no longer be a Boeing employee.

      Leadership, integrity, honesty, and plain talk was typical with him.

      • Has Boeing-St. Louis actually won anything of importance since the MDC buyout.?

        Or – quoting Ike: If you give me a few weeks, I may be able to think of something. 🙂

        • Nope, they keep eeeking along on the F22 too costly, then the F35 even more too costly for a lot less capability.

          On the other hand, quantity has a quality of its own.

          Boeing military aircraft, the last one was the B-52?

          Typhoon might be a good one for them to make!

          Something about the culture.

          • The F-22 and F-35 are Boeing products? Regardless I would say they were of huge importance.

  5. The new bomber is 80B, 200 tankers is 50B?, 21 B-2 are 400B. How many B-3s does 80B buy?

    • Sorry, 21 B-2 are 40 B. Anyway, 1/4 B for a tanker, 2B for a B-2, how much for a new bomber?

        • If they stick to that price it would be a huge bargain compared with the B-2.

          • But if they cancelled all but 20 of the first 100 ( similar to b-2) and put all the development charges against the3 remaining 20

      • $250 mill for tanker (KC-46)??
        List price for the slightly bigger 767-300F is around $199 mill before discounts.
        The reason maybe Boeing not getting LRB, is they would have charged too much

        • Since Boeing took write-offs on the KC-46 totaling over $1 billion and the $3 billion KC-46 contract is fixed price, only you think this.

          Anyone looking at the financials knows that Boeing’s bid was too low.

          The KC-46 contract required extensive work to make the A/C more survivable and it is very different from the KC-767s or other 767 coming off the line.

          The only silver lining is Boeing will be able to lock in maintenance contracts and contracts for the eventual replacements of the Rivet Joint, Cobra Ball, E-3s, and all the other assorted 707/C-135 aircraft-based A/C out there (plus the inside track on replacing the KC-10).

          http://www.seattletimes.com/business/boeing-faces-8-month-delay-on-3b-tanker-contracts/

          • That they cant do a straightforward development of an existing plane, for which they are paid handsomely by the pentagon by the way, is a reason to ‘let it go’?
            And why should the Pentagon pay even more to let them come out with other versions when the the first one couldn’t be done properly.

            Cant see the KC46 be used for the other missions you mention, “too big” – which you remember was a major problem with the A330 tanker.

          • While there is truth to some of that, as I recall Boeing underbid Airbus by 10%, so its more than a stretch that they “charged too much”

          • The KC-46 is a single digit percentage larger than the KC-135. Many of the RC-135s and derivatives were based on larger ex-airliner 707s so they are about the same size. Also, for many of the RC-135 mission, its not the size that’s important, its range or loiter depending on the A/C and its mission.

            http://www.globalsecurity.org/military/systems/aircraft/images/kc-x-image01.gif

            I don’t argue this from a Boeing vs. Airbus proposition. I argue this from a Boeing vs. taxpayer and the taxpayers won–finally.

            I see no valid reason to duplicate costly engineering for the XC-135/E-3 fleet once its paid for because Boeing management messed up the bid and the oversight for the KC-46. Boeing engineering still does a 1st rate job and is delivering to the standard stipulated in the contract.

          • Garret: Size does equate to range and loiter time.

            Boeing may well have an inside track but it is not going to be the 767, its going to be the 737.

            Things are shrinking. Grumman or Lockheed is proposing a Bombardier aircraft for that surveillance mission.

            Frankly as all 3 major defuse companies have screwed up major programs I have no confidence in any of them doing anything right.

            What programs are done right is purely a roll of the dice, right people in the right place at the right time but I has nothing to do with the Corporate structure which is aligned for up management glory and not execution.

          • The KC-46 is a substantially heavier plane, being around 30% higher max takeoff weight. Wingspan is 20% bigger too. Strange to hear somebody describe it ‘ under 10% larger’. In reality the KC-135 is a close to length of the B 717 (MD95) and similar fuselage diameter.

        • From the Seattle Times, “The Air Force requirement is for delivery of 179 planes by 2027, valued at about $50 billion.”

          So, 280 million per KC-46.

          • The $50 billion is the price USAF has to pay for the complete tanker with crew training and other things. Boeing will get about $35 billion.

  6. Everyone has an interest to keep the prices low now, until the point of no return.

    Then spreading fear & flag waving take over and new frontiers in terms of budgets are boldly overcome..

    -> $1.3 billion/ac at #50.

    • B-2, 21 out of 165 initial plan
      F-22, 187 out of 750 initial plan

      “ac #50” out of 100? I applaud your optimism.

      • The USAF cut the B-52 fleet and rotated the surviving air-frames in/out of service to prolong the program and they are all near fatigue-life limits. The USAF did the same with the B-1 to prolong its life. Congress cut the B-2 to a token force. The B-52 is dead in 10-15 years. The B-1 is done 5 years after that and the B-2 should be retired once there is a cheaper A/C serving the same mission profile (although the USAF keeps the B-2 in its strategic bomber projections as this point).

        There is no alternative to LRS-B other than subs and silos. Realism is not optimism. It is also an open invitation for cost overruns and for the USAF sling a ton of costly new tech into the platform so long as Congress agrees that a long range bomber is in the national interest.

        I expect a bigger LRS-B buy than is presently being forecast. I think it will assume part of the F-15E’s mission (because of a lack of alternatives) and eventually assume the long range electronic reconnaissance mission (EP-3 et al). The other part of the F-15E’s mission will be handed to an FB-22 variant that uses the F-35’s integrated radar/EW suite which I suspect was the reason why the F-22 buy was cut in the first place while Lockheed was required to retain all the tooling.

        • It seems to me that land missiles and sea missiles are just fine.

          Do we really want to risk a 500 million dollar bird over (whoever?)

  7. Northrop-Grumman is the correct choice to build USAmerica’s next LRSB.

    They’ve got the pedigree, the history and experience of designing cutting edge aircraft. From the F89 to the F14, the B2 and the revolutionary YF23 (what a plane that was), NG’s got the know-how and wherewithal.

    What’s more, they will enlist the help of us Europeans (like they did with the KC 45, clearly a superior platform than Boeing’s KC 46) to provide the USAF with the best bomber money can buy.

    • Boeing was the right choice to build the KC46, they had the pedigree, they have maintained the KC135 fleet, they built 8 767 tankers for Italy and Japan.

      Nice corporate spin but it is meaningless.

      Replace that with “Good Program Execution”. Not so much.

      • Does Boeing earn more money with maintaining KC-135 or building KC-46 on time?

        The tanker for Japan and Italy were late – about 5 years behind schedule.

      • The right choice for whom? Boeing shareholders or the USAF (i.e. the US taxpayer)? Like I said the KC 45 was (is) a superior platform, newer, proven and ready.

        What’s more NG and Airbus (formerly EADS) would’ve built this aircraft in Alabama, so it had the sticker ‘made in the US’. As it is, you’re stuck with an ‘old banger’ tanker with no thrust-reversers or winglets, built on the cheap and late, judging from the experience of deliveries to Japan and Italy as pointed out by MHalblaub below.

        You better make sure the same doesn’t happen with your LRS-B.

        • Gus:

          You are wrong. The right platform is what congress is willing to pay for.

          You neatly forget that the Air Force requewt was to replace the KC135, not the KC10. The nearest sized aircraft is the 767

          Airbus quit making the A300 so that was not available.

          You also forget that the US has its own requirement and the current A330MRT does not meet those.

          They also had to build a factory in Alabama.

          they then would have had to execute on the US specs. They may well have screwed up wiring separation as Boeing did.

          Said A330MRT just got the full clearance in Australia for the original mission. took what, 5 years?

          What happened was the Air Force asked for one thing and decided on something else, very typical of the air force, they killed the C-27 which is a great aircraft for the mission and fly C130s instead.

          Its called Big Eye syndrome. Bigger is better.

          So, in reality we don’t know how well a US KC45 would have gone and the 767 fills the KC135 slot, plain and simple.

          • So according to your comment the best next bomber would be a bomber that fits inside a B-52’s hanger and on its parking space? The next bomber should also weight about the same as the old B-52…

            I did never understand the argument about the KC-767 / KC-46 being closer to the KC-135. There is no big bomber fleet of B-52s left to fill them up on their way to the USSR. Today the USAF is ruining its valuable but thirsty C-17 by moving around bottled water and over small but necessary items for US troops.

            The Australian KC-30A is fully operational ready today. The KC-46 is far away from IOC. The Airbus plant in Mobil is already producing A320.

            For the US taxpayers the late delivery of the KC-46 will cost more than the 10 % price difference. The first Northrop-Grumman KC-45 could have been in service now.

          • After all the fanboy- coulda, shoulda, woulda- please keep in mind

            He who HAS the gold- makes the rules.

            Right or wrong or partially either or both- there are many more things to consider than total fuel load and range

            For example both the B2 and the 767 based tankers CAN land and takeoff at almost ANY commercial in the world re wingspan and gross weight limits. Most 767 parts are available worldwide. And a long long record of ETOPS for 767.

          • Dear Don,
            According to the ICAO Aerodrome Reference Code Boeing 767 can operate from D aerodromes while the A330 needs Code Letter E aerodromes. The 767 successor 787 is also Code Letter E. How many airports are excluded from operating the 787 which could have operated a 767?

            Code letter D starts from a runway length of 1.800 m. Due to the bigger wing span the A330 needs less runway length to take up the same payload.

            Most parts for an A330 will be available far longer because the A330NEO will be still in production until the last KC-46 will be delivered to USAF. I am not aware how many parts of the 767-2C’ airframe are unique to this type of aircraft. You may remember the rewiring issue.

            KC-767 lost most recent competitions also because the national carriers already did operate A330. So minimum spare parts and maintenance capacity is already available.

  8. The Seattle Times article quotes a unit price of $564 million per airplane…but history has proven that those types of initial estimates are on the low side – way low. So I figure $2 Billion/aircraft, easy: I thinks that’s more realistic. And, of course, the Air Force will make sure that this bomber never fights anyone with a real ant-strike capabilities (I mean, the Air Force almost had a Hissy Fit in Vietnam 40 years ago when a few B-52s were shot down by a third-rate Vietnamese air force).

    So…this means the LRSBs primary job will be to bomb…people who aren’t well armed – which the B-52s could do now and for the foreseeable future. So…$2 Billion for a new Bomber seems like a lot of money just to hammer some recalcitrant peasants, doesn’t it?

  9. Well, I guess we can make the T-X announcement now:
    “And the winner is … Boeing”

    😉

  10. Boeing has little to worry about. The tanker program will grow considerably, the Air Force 1 Program is theirs, They may get awarded TX to redistribute the industrial base (Korea buying Airbus tankers doomed the KAI T50 IMHO)

  11. Mmm $80Billion for a new Long Range bomber. I would have guessed a figure 3 time that.

    However- it is possible that the Air Force is playing it safe by asking for a enhanced current design and not anything radically new. They could also perhaps relax the military specs slightly and use existing passenger engine designs, given that some convergence between the two has already happened.

    • I can´t help wondering how much B2 might be recycled in this program. That makes Northrop the only choice.

      • The B-2 is 30 years old by now, the state of the art has advanced considerably and very little of the B-2 is likely recycled into this program. The real influence on the program is likely the still secret RQ-180 program which is an all aspect stealth drone with a believed to be but not verified endurance of at least 24 hours and a range in excess of 1,000 miles. The RQ-180 combines most of the qualities needed for the LRS-B: stealth, range, endurance, sensors, efficiency, etc, but in a smaller unmanned vehicle that entered low rate production in 2013. The RQ-180 program (which has a reported 130 foot wingspan) likely gave DoD a lot of confidence that Northrop could develop the larger and more capable LRS-B.

        • Lot of talk about existing technologies and with only $20bn development budget? This doesn´t look like a clean sheet to me, coating and engines might change but something must be the same to fit this price tag. You can´t even do a comon widebody airliner for that.

        • Lot of talk about existing technologies and with only $20bn development budget? This doesn´t look like a clean sheet to me, coating and engines might change but something must be the same to fit this price tag. You can´t even do a common widebody airliner for that.

    • Please do a minimum amount of reserach for examp0le wiki

      The Boeing KC-135 Stratotanker is a military aerial refueling aircraft. It and the Boeing 707 airliner were developed from the Boeing 367-80 prototype. The KC-135 was the US Air Force’s first jet-powered refueling tanker and replaced the KC-97

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