The Air Force's Future Starts Now

The strike bomber contract could consolidate the defense industry. Or preserve competition.

Remember when the B-1 was cool?

Photographer: Douglas C. Brunelle/U.S. Air Force via Getty Images

Late Tuesday afternoon, the Pentagon is expected to answer a question of vital importance to three big military contractors and of no small significance to the rest of America: Who will build the next generation of long-range tactical bombers?

The Air Force has made a persuasive case for the new contract, known as the Long Range Strike Bomber: Despite what you may hear about Cold War obsolescence, America's tactical nuclear deterrent is as important as ever. The supersonic B-1 Lancer and bat-winged B-2 Spirit bombers, which looked so futuristic when introduced in the 1980s and '90s, now seem like rejects from the next Star Wars movie. The U.S. has 83 of them combined, and while they can carry nuclear and non-nuclear payloads thousands of miles, their technology has been rapidly outpaced by the ground defenses of potential adversaries like Russia (which happily sells such systems to Iran). The surviving 76 B-52's, still the workhorses of the fleet after 60 years, can be kept in the air until 2040, but are neither stealthy nor fast and extremely vulnerable in contested airspace.

In 2011, the military decided to purchase 80 to 100 new bombers, and two teams jumped into the contracting contest: Northrop Grumman and a joint bid by Lockheed Martin and Boeing. On Friday, Frank Kendall, the undersecretary of defense for acquisition, informed the top brass of his decision. In a novel twist for the Pentagon, Kendall is supposed to make per-unit cost as high a priority as capability. The first 20 bombers are supposed to be delivered at a fixed price -- around $550 million each -- no matter how many overruns the manufacturer incurs. (I would urge the Pentagon to look long and hard at whether all 100 are necessary. It has a hard time asking this question, for example regarding its next aircraft carrier.)

While all details of the proposals are top secret, the smart money is on Lockheed and Boeing. Lockheed is building the new F-35 Joint Strike Fighter, the biggest military contract in history at $1.5 trillion, and while that process has been plagued by overruns and delays that were extreme even by Pentagon standards, the military seems pleased with the end product. Boeing makes the third major new Air Force spending priority, the K-46 Pegasus refueling tanker.

Lockheed Martin and Boeing are the top two federal contractors. Northrop is significantly smaller, with about half the market capitalization of Lockheed and a third that of Boeing. Its apparent advantage is incumbency: It built the B-2, the last major bomber contract, although that craft has not aged particularly well.  

But there is another consideration when it comes to Northrop, which may or may not sway the Pentagon. If it loses out on the bomber, it may close its combat-aircraft shop. That would leave the U.S. with just two major domestic manufacturers, who now show they are willing to work together, raising legitimate concerns of a contracting monopoly. It would also give us fewer engineers and scientists innovating on air technology. 

Some are speculating that a loss could even lead to a general breakup of Northrop as a company, with Boeing swooping in to absorb its aircraft units. Others think that if Boeing loses, it may just buy the victorious Northrop. Either way this would lead to a troubling loss of competition across the "military industrial base." 

There is a way around this conundrum: Even if Lockheed-Boeing is the better sales pitch, the Pentagon could split the contract. This is usually a disaster, as we have seen with the Navy's littoral combat ship, a vital craft being developed, and botched, by both General Dynamics and a partnership between Lockheed and the Australian ship maker Austal. But the importance of keeping at least three companies in the combat-aircraft game cannot be ignored. At the very least, one hopes that if Lockheed and Boeing win, Northrop can become a major subcontractor.

The contract announcement is likely to leave most of the sexy, classified technological questions unanswered: How fast and far will it fly? Will it have drone-like unmanned capabilities? What new stealth technologies have the defense wizards dreamed up? But in just letting us know who will build, the Pentagon will be telling us a lot about the future of the national defense.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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