US Air Force’s New Stealth Bomber Contract Rocks the Military Industrial Complex

Posted on February 19, 2015 Jacob Luiz

The rivalry between two of the world’s leading defense contractors – The Boeing Company (second-largest) and Northrop Grumman Corporation (number three) – will come to a head when the US Air Force decides who will design and manufacture the branch’s new stealth bomber. For this contract, Boeing has enlisted Lockheed Martin (the first-largest defense company) as a subcontractor in its proposal, with Lockheed likely responsible for developing the design and Boeing carrying out manufacturing.

The contract entails procuring up to 100 long-range strike bombers (LRS-B) which will eventually replace the USAF’s fleet of B-1s and B-52s. Air Force officials have stated that the next generation LRS-B will require advanced stealth and heavy payload capabilities. The new bomber should also be able to deploy nuclear weapons, as well as fly as an unmanned aerial vehicle.

With pressure on government budgets due to sequestration, the LRS-B contract will likely be the largest acquisition for the military defense budget for a long time. Worth approximately USD$90 billion, this highly classified project is one of the most expensive in the history of the Pentagon. The contract has already seen controversy when, in July of 2014, the state of California passed legislature which was seen as biased towards Lockheed Martin.

The bill, AB 2389, grants a tax credit worth USD$420 million over 15 years for subcontractors involved in providing advanced strategic aircraft to the USAF. Since Lockheed is the only acting subcontractor in the competition, the tax credit will only apply to them. Palmdale, California within the Mojave Desert is the site of both Lockheed and Northrop’s facilities at Air Force Plant 42 where the companies construct military aircraft.

Ironically, Boeing and Northrop have previously collaborated in providing an earlier stealth bomber to the military. The B-2, first introduced into service in 1997, was developed by Northrop and Boeing was subcontracted for building the aircraft’s wing and aft fuselage. An analyst from Teal Group predicts that the current contract may have significant effects on the aerospace and defense industry itself by incentivizing the acquisition of Northrop Grumman by Boeing.

If Boeing wins, Northrop will lose its status as a prime defense contractor and its aircraft unit may become vulnerable to acquisition. If Boeing loses, the company will still have reason to acquire Northrop in order to remain in the defense contracting game.

The winner of the LRS-B contract is expected to be announced in spring of 2015.

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