Northrop Grumman to build next long-range bomber

(REUTERS) - Northrop Grumman Corp, maker of the stealth B-2 bomber, beat out a team made up of Boeing Co and Lockheed Martin Corp to develop and build a next-generation long-range strike bomber, the U.S. Defense Department said on Tuesday (Oct 27).  

The announcement ended months of anticipation and marked the biggest contract award by the Pentagon in over a decade, a deal analysts have said could be valued at up to $80 billion if the U.S. Air Force buys all 100 stealth bombers now planned.  

Air Force Assistant Secretary Bill LaPlante told reporters the service hoped to beat independent estimates that it would cost $23.5 billion to develop the new bomber, which will be able to deliver both conventional and nuclear weapons.

It will cost an average of $564 million per plane to build the aircraft, with both sums expressed in fiscal 2016 dollars.

"Building this bomber is a strategic investment in the next 50 years," U.S. Defense Secretary Ash Carter told reporters.

"It demonstrates our commitment to our allies and our determination to potential adversaries, making it crystal clear that the United States will continue to retain the ability to project power throughout the globe long into the future."  

The award marks the Air Force's second drive to start replacing its aging B-52 and B-1 bombers in recent years. Former Defense Secretary Robert Gates canceled the first program in 2010 because he thought it was too ambitious and expensive.  

Mr Gates relaunched the classified program a year later with a strict cost cap of $550 million per aircraft in 2010 dollars or $606 million in fiscal 2016 dollars.

The Northrop plane will cost $511 million in 2010 dollars, Mr LaPlante said.  The Air Force had hoped to select a winner during the spring, but the award was delayed several times.  

The program remains classified and the Air Force released few details about the aircraft, which company would build the engine, or any of its key characteristics. The Air Force also provided no artistic renderings of the new plane.

Mr LaPlante told reporters last week the new bomber would use some components that were already in use in other secret programs, which would help reduce the risk of technology problems later on and keep the program on track.  

The losing team may protest the contract action given the high stakes involved and the dearth of new programs in the current budget climate, said defense consultant Jim McAleese.

Air Force officials said any company has the right to file a protest about the awarding of the contract.  Boeing and Lockheed issued a joint statement saying they were disappointed by the decision and wanted answers on how the bids were scored in terms of price and risk.  

"We will have further discussions with our customer before determining our next steps," the companies said in a joint statement after the Air Force announced the contract winner.  Northrop Chief Executive Wes Bush hailed the news.

"Our team has the resources in place to execute this important program, and we're ready to get to work," Bush said.

Mr McAleese said the contract would "give Northrop a fundamentally new lease on life and would return them immediately to growth."  

The company's shares surged 6 percent in after-market trading after closing nearly unchanged at $180.60.  The contract loss marked a significant blow for Boeing's defense business, which is facing an end to production of its F/A-18E/F and EA-18G fighter jets in the coming years.

"The damage to Boeing is significant but not life-threatening because 75 percent of the value of the company's value is driven by commercial (aircraft production)," Mr McAleese said.  

He also mentioned that the likely renewal of the U.S. Export-Import Bank would also help Boeing weather the loss.