Stakes on ATF Pact Were Enormously High
The advanced tactical fighter contract, awarded Tuesday by the Air Force, is a watershed in the aerospace-defense business.
It’s a big job to begin with: $95 billion for 650 planes that will serve as the chief Air Force fighter until at least 2025.
But the significance is greater because the ATF may be the last big military aircraft order in this century. The ATF award may signal a new phase of consolidation in the aerospace industry, a reduction in the number of aircraft contractors.
Nothing dramatic will happen immediately; the new plane won’t go into production until 1998 or so. No company will go out of business because it lost the ATF competition, and the winners won’t enjoy an immediate bonanza.
But over time, the winners will continue developing their skills and have a future in the aircraft business. And the losers will shrink or seek other kinds of work, or possibly merge into other companies.
The contract winners, Lockheed, Boeing and General Dynamics, will pursue engineering and development on the new fighter for most of the ‘90s, and then begin production.
The Pratt & Whitney division of United Technologies, which won the engine contract--worth $12 billion of the total--secured a future in military work with its victory. P&W; now makes engines for the F-15 and F-16 fighters, which will be phased out.
The losers in the competition, Northrop and McDonnell Douglas, are not hurting for work immediately. Northrop makes the B-2 bomber, which has been criticized but will probably be produced for most of this decade as U.S. strategic requirements are realized.
McDonnell Douglas currently produces the F-18 fighter and the C-17 transport. But it has now lost three new jobs, the ATF, the LH helicopter and the A-12 Navy plane, which was canceled by Defense Secretary Dick Cheney in January. Ironically, McDonnell’s long-term future in military aircraft, long seen as the firm’s strength, is clouded even though prospects for its commercial aircraft division are picking up with new prospects in China.
General Electric lost the engine bidding, but it supplies engines to both the F-18 and B-2 and is the world’s leading engine builder for commercial aircraft.
All the losing contractors, and others such as Grumman, may try for a big job on a new Navy fighter in a couple of years.
But there’s the rub. There may not be a new Navy plane. Cuts in the defense budget are a certainty for the years ahead. Even with the ATF, the Air Force at the last minute cut back the number of planes from 750 to 650 and total program-cost estimate from $110 billion to $95 billion.
The simple fact is that with military bases closing around the country and the armed forces scheduled for a 25% reduction in personnel--500,000 people--weapons spending will be cut back.
Defense budgets have been cut before--by 40% between 1968 and 1976 when the Cold War was still on. And the aerospace industry has seen plane makers leave the business. Names such as North American Aviation, now part of Rockwell International, Republic Aircraft, Fairchild, Chance Vought and Martin left plane-making in earlier times.
Tuesday’s losing bidders may enjoy extended orders on planes they now make, or they may become subcontractors. One factor shadowing the losers’ future, analyst Wolfgang Demisch of UBS Securities points out, is that all the ATF bidders laid out at least $200 million of their own funds to build prototypes for the competition. “Now they don’t have too many other new ideas to fall back on.”
Questions arise when the Defense Department proposes to spend $95 billion on a new plane, although in the wake of Desert Storm there is greater recognition that the United States will have to keep up a defense capability. In Northrop’s case, the strategic need for a plane that can fly a long distance and evade radar--using Stealth technology--will favor production of the B-2 bomber.
But there is more than a new weapon involved in the ATF. The project represents an advance of knowledge for all industry. The prime contractor, in this case Lockheed, wins much more than the right to fasten sheet metal and install an engine. It will continue developing the essential skill of the aerospace business, which is project management on an unequaled scale.
The aerospace industry is not a few giant contractors but a universe of 4,000 companies, making everything from nuts and bolts, to engine parts made out of materials that are being invented even as the work goes on.
The work is not done in one community but in many. There is rejoicing today in Marietta. Ga.--home of Lockheed’s plant--and in Ft. Worth and Wichita, Kan., where General Dynamics and Boeing will do some of their ATF work. But there should also be rejoicing in those companies’ headquarters--Calabasas, and St. Louis and Seattle--because that is where engineers and computer programmers and others are assured good jobs on the new fighter.
And not only jobs for today. The contract awarded on Tuesday ensures advances in aeronautics, electronics and industrial management for decades to come.
