How's USAF Going To Manage That Bomber Deal, Anyway? We Still Don't Know

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In case you have been living under a rock, the Air Force announced its long-awaited winner for the next-generation bomber contest Oct. 27. I was not living under a rock, but having been on leave as a journalist during such a major decision could feel like about the same thing.

But, my absence for the big show afforded me a luxury I’ve not had as I have covered other major downselect decisions. I got to watch the story play out from afar. And, in doing so, I have drawn some conclusions and still – characteristically – have lots of questions.

Many are couching Northrop Grumman’s win of the U.S. Air Force’s Long Range Strike Bomber competition as an upset. I’m not so sure it was. I’m also not so sure it wasn’t. But, I question the value of putting this win in this context. This line of thought overlooks key questions that still remain about this massive, $80 billion program to field 100 new bombers. In fact, how can we know who should have been favored since we don’t actually know the requirements and how they were weighed in selecting a winner?

The conventional thinking leading into the competition was that Northrop, the smaller company, and Boeing/Lockheed Martin, were locked in David and Goliath duel. Some couched Boeing and Lockheed Martin as a dream team.

I’m not saying that is wrong to assume. But, I think the situation warrants further thought and is more nuanced than that.

Northrop released this shrouded image in a Superbowl commercial that garnered much attention but gave little information about its LRSB bid. 

Perhaps our best chance of getting a peek behind the procurement is if Boeing and Lockheed Martin opt to protest their loss, triggering some public disclosure once the auditors rule on the protest’s merits. Having been briefed on it last Friday, the team technically has until Nov. 6 to file an objection with the Government Accountability Office. Murmurs around the aerospace community are that the team was duped on cost, that Northrop Grumman bet the company and bought into the project. But there are no official sources to back that. This could be a whisper campaign to save face for the losers. Or, of course, it could be true.

But, back to this idea that a Northrop win was an upset …

Boeing and Lockheed Martin never publicly disclosed the true nature of their relationship. Some suggested that Lockheed Martin would lead on the design and Boeing would lead on production, but this was never officially validated. Workshare and cost share were not … shared.

The pairing was received as odd at the outset – an arranged marriage between Phantom Works and Skunk Works rivals --  and I’m not sure it ever got less odd, at least from an outsider’s view.

Many analysts assumed the two combined – the world’s largest aircraft manufacturer and the world’s largest defense contractor --  would be unstoppable. Why would they team if together they hadn’t had the recipe for the secret sauce? But, dare I suggest: Does size really matter here? The Air Force was looking for a low-cost, low-risk, stealthy bomber. The capacity to build hundreds of aircraft is not necessarily relevant. And, it is reasonable to question how two large on one contract could lower cost – as both likely demand a serious piece of the profits.

The dream team theory has never been validated by fact – or actual information coming from the Boeing/Lockheed Martin team. Perhaps this was a marriage of convenience. Perhaps they teamed because alone they figured they could not win, so a joint bid was a less risky approach. Boeing has never won or built a large order of stealthy aircraft. Lockheed has, but perhaps they teamed because the likelihood Lockheed Martin could win alone was slim, given it is largely focused on transitioning the F-35 from development into production – not to mention giving two such major programs to a single contractor could be a challenge for the Pentagon, which is always watchful of its industrial base balance.

Meanwhile, among Northrop Grumman’s key focus areas since the development of the B-2 have been to develop and hone all-aspect stealth capabilities. The company also is a key player in the electronic systems for stealthy aircraft for such programs as the F-35; developing stealthy electronics, sensors and communications are as critical in cloaking an aircraft as its shape and coatings. With its 2007 purchase of Scaled Composites, founded by Burt Rutan and known for its rapid prototyping prowess and radical design concepts, the company was able to tap into a outside-the-box thinking cadre of engineer in terms of design and, potentially, maintainability.

Northrop Grumman also kept its stealth skills sharp with the X-47B Unmanned Combat Air System Demonstrator, a stealthy, carrier-based pair of test aircraft funded by the Navy and the RQ-180, the Air Force’s secret, stealthy penetrating intelligence collection aircraft. Sources suggest Boeing and Lockheed had losing designs for that program, though the Air Force has not disclosed the bidders for the RQ-180.

This is not to say Northrop had a leg up. I raise this to note that perhaps it was unfair for analysts to suggest the company was an underdog up against a sure thing from the big boys at Boeing and Lockheed. Again, without knowing the requirements, how can we gauge who had an advantage?

Back to cost. That is one thing the Air Force has disclosed -- some. One key performance parameter – Pentagon speak for requirement – was the per-unit flyaway cost of each bomber would have to be less than $606 million in fiscal year 2016 dollars ($550 million in fiscal year 2010 money, a goal set by former Defense Secretary Robert Gates). The Pentagon’s independent cost estimate includes a target of $564 million apiece in ’16 dollars. To get there – and to meet the fixed price requirements for the first five production lots – development would have to be managed tightly. Either team “buying in” would be risky, as a flawed development program leads to high cost in early production models.

Production for this bomber cannot get a solid fiscal footing if development is fraught with delays, technical problems and cost overruns. The development contract is cost reimbursable, meaning the government will pay for allowable overages as spelled out in the contract. But, we don’t even yet know the price of the contract. All that the Air Force has released is the Pentagon’s independent cost estimate for the development program of $23.543 billion, but this includes government costs such as running the program office.

The Air Force also has not disclosed what costs could be allowable for reimbursement or what incentive milestones are written into the deal to ensure the contractor stays focused on the right things as development progresses. But, this contract was written in the shadow of more than a decade of multi-billion overruns for cost reimbursable contracts, such as the F-35 and Space-Based Infrared System.

Under this contract type, the government bears the burden or overages, providing some relief to Northrop if problems are encountered in development. But, it is not a blank check and relief would be temporary, as errors in development will haunt the company once it begins delivering fixed-price production aircraft.

We are simply left to hope that lessons from the past decade or so of poorly written cost reimbursable contracts are reflected in the bomber deal.

Both teams were focusing on reducing lifecycle costs and production costs across the program portfolios. Boeing’s edge would be to draw on lessons from its lucrative commercial line of business and its MRO work. But, both teams have baggage in this area. Northrop’s included the high operating cost of the Global Hawk, while Lockheed continues to struggle with the cost of operating the F-22 and is trying to lower the high operating price of the F-35, which raises eyebrows among its partner nations.

We can’t yet say why Northrop won. We can speculate. Performance requirements for the program – range, speed and payload among them, have been kept secret, and Air Force officials have not said how they weighed factors that we do know about, such as cost. So, I think wrapping this up as an upset detracts from the fact that the real issue is the Air Force still has a lot of explaining to do to back its claims that this program will be run smarter, better and cleaner than its past efforts.

I think the focus should be on continuing to peel back the layers of this program, not to reveal classified capabilities, but to hold the service accountable for managing this crucial project despite a tattered past.

 

 

 

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What's Ares?

Aviation Week editors blog their personal views on the defense industry.

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