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Boeing, Lockheed Cry Foul Over Loss of Huge Stealth Bomber Contract

November 6, 2015, 11:39 PM UTC
A US flag flutters in the wind beside a B-2 Stealth Bomber at the Palmdale Aircraft Integration Center of Excellence in Palmdale, California on July 17, 2014, where the US Air Force and manufacturer of the B-2, Northrop Grumman, celebrated the 25th anniversary of the B-2 Stealth Bomber's first flight. Northrop Grumman is the prime contractor for the US Air Force's B-2 stealth bomber, a key component in the nation's long range strike arsenal and one of the most survivable aircraft in the world. AFP PHOTO/Frederic J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP/Getty Images)

In the run-up to last week’s long-awaited award of a potential $100 billion contract to build America’s new long-range stealth bomber, Guggenheim Partners defense analyst Roman Schweizer penned a little one-liner in a note to investors. “Enough’s enough,” Schweizer wrote. “It’s time to get this contract awarded and under protest.”

It was only half a joke, and this week the industry is getting down to the less-funny side of it. Boeing (“BA”) and Lockheed Martin (“LMT”), whose joint bid lost the long range bomber contract to Northrop Grumman (“NOC”), have formally protested the decision.

They allege that the U.S. Air Force did not accurately assess both the costs and the risks associated with the program, known as the Long Range Strike Bomber, or LRS-B. “Boeing and Lockheed Martin concluded the selection process for the Long Range Strike Bomber was fundamentally flawed,” the companies said in a joint statement. If the protest proves successful the competition could be reopened, giving Boeing and Lockheed another shot at what is expected to be the Pentagon’s last major combat aircraft program for a decade.

Specifically the companies cited concerns over the program’s use of historical cost data from earlier bomber programs to assess the cost of the planes rather than relying on projections provided by the bidding companies. They also reportedly took a shot at Northrop, noting that even though the company built the Air Force’s current fleet of B-2 stealth bombers, it has been a supplier—rather than the lead developer—on military aircraft programs in recent years.

Northrop Grumman quickly returned fire. “Northrop Grumman Corporation is disappointed that its former LRS-B competitors have decided to disrupt a program that is so vital to national security,” Randy Belote, vice president of strategic communications for Northrop Grumman, said in a statement.

The protest itself doesn’t come as much of a surprise (as Schweizer noted), as the loser of the contract was widely expected to protest the award because of the huge amount of money involved and a dearth of large combat aircraft programs in the Pentagon’s pipeline. But it does carry some potential risks, not least of which is annoying the defense industry’s single biggest customer (by a large margin). The Air Force aims to have the first of its new bombers flying by the middle of the next decade, and protests of major acquisition initiatives have been known to tie up programs for years.

Companies typically pull the protest lever when they feel a government contract has been awarded unfairly, generally due to improper evaluation of the criteria set at the beginning of the competition. But as defense spending has tightened in recent years, companies now tend to pull the protest lever more often. The Wall Street Journal reports that the Government Accountability Office, the nonpartisan bureau that evaluates such protests, received 2,500 protests last year. Nearly half were disputed Pentagon contracts.

Overturning the long range bomber award could prove a high hurdle, however. The top secret nature of the program will make it more difficult for Lockheed and Boeing to make their case to the public or leverage their formidable public relations and lobbying machines to their advantage. For its part, the Air Force is also standing by its decision, saying through a spokesman that the service is “confident that the source selection team followed a deliberate, disciplined and impartial process.”

The Government Accountability Office now has 100 days to evaluate the protest and recommend an action, which could include reopening the competition under adjusted requirements.

As it stands now, Northrop was awarded a research and development contract totaling $21.4 billion to develop and produce 21 bombers initially. The Pentagon has not disclosed exactly how many jets it will ultimately purchase, but analysts expect a second production contract for additional bombers to push the overall value of the long range bomber program to as high as $100 billion.

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