The Real Winners of the Air Force Bomber Contest

Members of the 354th Fighter Wing inspection team walk toward first responders Jan. 26, 2015, during a major accident response exercise at Eielson Air Force Base, Alaska.

U.S. Air Force photo/Staff Sgt. Joshua Turner

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Members of the 354th Fighter Wing inspection team walk toward first responders Jan. 26, 2015, during a major accident response exercise at Eielson Air Force Base, Alaska.

The Air Force’s selection of Northrop Grumman to build a new stealth bomber is the first major award in years to withstand a government audit and, for some, a win for Pentagon reforms.

In a ruling Tuesday, government auditors upheld the U.S. Air Force’s decision to award an $80 billion classified contract to Northrop Grumman for a new long-range stealth bomber.

While their rejection of a protest filed by Boeing and Lockheed Martin — the world’s two largest defense firms — is being touted as a financial boon for Northrop, the unseen winners are the Air Force’s arms buyers who worked behind the scenes evaluating the bids.

“We’re pleased with the decision and we’re anxious to get started on the program,” Frank Kendall, the Defense Department’s top arms buyer, said in a statement provided by a spokesman.

For the past nine years, the Air Force’s acquisition corps has been living in the shadows of two huge contracts the Government Accountability Office said it bungled:  a $15 billion deal in 2007 to buy a new fleet of search-and-rescue helicopters and a $35 billion award in 2008 to buy a new aerial tanker that could refuel planes in flight. Both contracts were canceled. When DoD rebid them, neither of the two had to undergo the kind of scrutiny just given to Northrop’s bomber contract win. When Boeing won the tanker contract in 2011, the loser, Airbus, did not contest the deal. For the search-and-rescue helicopters in 2014, Sikorsky was the only bidder.

The stealth bomber competition is the first real high-profile test for Air Force arms buyers, who had to evaluate two competing bids from the world’s largest defense firms. They chose Northrop Grumman to build the new plane in October. Days later, the Boeing-Lockheed team filed a protest with the Government Accountability Office, which audits contract awards.

GAO reviewed the challenges to the selection decision raised by Boeing and has found no basis to sustain or uphold the protest,” the office said in a statement today. “In denying Boeing’s protest, GAO concluded that the technical evaluation, and the evaluation of costs, was reasonable, consistent with the terms of the solicitation, and in accordance with procurement laws and regulations.”

Since the program is highly classified, the Air Force has not said why the Northrop bid stood out compared to Boeing and Lockheed, just that it “was the best value for the warfighter and the taxpayer,” in the words of Lt. Gen. Arnold Bunch, the service’s top uniformed procurement official.

Since the collapse of the Air Force helicopter and tanker competitions in 2007 and 2008, Kendall and his predecessor, Ash Carter, who is now defense secretary, have ordered significant acquisition reforms for Pentagon arms buyers which seem to have paid off.

“The GAO decision suggests that [Defense Department] assessment of major program bid submissions may have improved,” Byron Callan, an analyst with investment research firm Capital Alpha Partners, wrote in a note to investors.

Tuesday’s ruling may not be the final chapter for the bomber award. Following the ruling, Boeing issued a sternly worded statement that didn’t rule out taking the Pentagon to court.

“We continue to believe that our offering represents the best solution for the Air Force and the nation, and that the government’s selection process was fundamentally and irreparably flawed,” the company said. “We will carefully review the GAO’s decision and decide upon our next steps with regard to the protest in the coming days.”

Boeing has reason to want to protest. Winning the bomber would have injected new life into  the firm’s combat aircraft business. While the company has stability — Boeing produces the Air Force’s KC-46 tanker, the Navy’s P-8 submarine-hunting plane, as well as Army helicopter projects — its two fighter jets, the F/A-18 Super Hornet and F-15 Eagle, could see a production freeze at the end of the decade without additional Pentagon or overseas orders. The two fighter projects “will need lifelines from U.S. and foreign sales,” Roman Schweizer, an analyst with Guggenheim, said in his own note to investors.

“For Boeing, this places more pressure on the company to secure an F/A-18 sale to Kuwait and another of F-15s to Qatar,” Callan said. “Israeli opposition in both instances may be a factor complicating these deals.”

The U.S. Navy and Australia’s military are still buying Super Hornets and Boeing has been actively pitching the warplane on the international market. Boeing also is still making new Eagles for Saudi Arabia.

The stealth bomber contract loss is less of a big deal for Boeing’s partner in the bid, Lockheed, which is expecting to see an increase in orders for its F-35 fighter in the coming years.

“We believe Lockheed Martin will continue to benefit from the F-35 ramp up, missile defense, munitions and other lines of business,” Schweizer said.

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