Defense Taps 2 Finalists for Jet Contract

The Defense Department on Saturday picked Lockheed Martin Corp. and Boeing Co. as the finalists in a competition to build a new generation of jet fighters, an 11-year project that could bring the eventual winner more than $200 billion to produce 3,000 aircraft.

The competition to build the “joint strike fighter” will be a major factor in determining which companies emerge as the dominant aerospace firms of the 21st century. In the aftermath of the Cold War, this may be the last new jet fighter ordered for decades.

A third competitor, McDonnell Douglas Corp., was eliminated from the competition. The St. Louis-based firm headed a development team that included Northrop Grumman Corp. of Los Angeles, and both firms now face a less secure future. They are likely to experience diminishing orders and will be hard-pressed to maintain their strong market shares, analysts said. McDonnell Douglas said it does not expect to lay off any workers.

The Pentagon’s decision is a mixed blessing for Southern California. Elimination of the McDonnell Douglas team precludes what could have been thousands of new jobs in communities such as El Segundo, Hawthorne and Palmdale.

However, Lockheed Martin will create 800 jobs at its Skunk Works in Palmdale to produce two test models of the fighter over the next 51 months.

Under the contracts announced Saturday, Lockheed Martin and Boeing each will receive about $1.1 billion to develop “demonstrator aircraft” for the armed services. Seattle-based Boeing will manufacture its version at Puget Sound. The government will choose between the two competing prototypes in 2001.

The winner of the final production contract will supply the military with the dominant fighter aircraft of the early 21st century, with the first jets to be delivered in 2008. The new aircraft will eventually replace five different jets currently used by the Air Force, Navy, Marines and the British Royal Navy.

The new jet will enable the United States to dominate the air over battlefields, said Defense Secretary William J. Perry. Control of the air was a key aspect of the Persian Gulf War. “We had it, we liked it and we are going to keep it,” Perry said at a Pentagon news conference Saturday.

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Compared to today’s fighters, Perry said, the new jet “brings a more lethal package into the theater” of war.

The planes will cost an average of about $70 million each, including development and production.

Each of the military services will have a different design and use for the aircraft. Even so, 70% to 90% of the equipment and parts will be the same in all versions of the plane in order to hold down the cost of maintenance and supply. Pratt & Whitney will supply the main engines for both versions.

For the Air Force, the plane will serve as a fighter and light bomber. For the Navy, it is designed to serve as a “first day of war” strike fighter. The Marines and the Royal Navy want jets that can take off and land vertically.

Saturday’s winning proposals represented the “best value to the government,” said Air Force Lt. Gen. George K. Muellner.

About 100 employees are now working on the joint strike fighter at Lockheed Martin’s Palmdale facility. Hiring is expected to increase steadily, reaching a peak of 900 during the first quarter of 1998. An additional 450 jobs are scheduled to go to facilities in Texas.

The first test plane will be rolled out at Palmdale in May 1998, with the initial flight set for March 2000 at Edwards Air Force Base.

“Our schedule is ambitious, but this is precisely the type of work that has earned the Skunk Works its world-renowned reputation for rapid prototyping,” said Skunk Works President Jack Gordon.

Lockheed Martin, based in Bethesda, Md., already builds the F-16 fighter for the Air Force and has won the contract for the F-22 fighter.

Lockheed Martin “is clearly the incumbent,” said Wolfgang Demisch, aerospace analyst for Bankers Trust Research. He predicted that the company will try to “maximize” common elements between the F-22 and the joint strike fighter to make the new aircraft “as inexpensive as possible.”

Besides Pratt & Whitney, Rolls-Royce and Allison Development will also work with Lockheed Martin to build a special fan system for the vertical-landing versions of the jets designed for the Marines and the Royal Navy.

Saturday’s announcement leaves only one California-oriented competitor from the original three bidders, but if Lockheed Martin wins the final contract, it is unclear whether the company would locate any production at the Skunk Works. In the past, the company has transferred programs from the Skunk Works to plants in other states after the design work.

Saturday’s award is a big boost for Boeing as well as Lockheed Martin. The leader in production of commercial jetliners, Boeing has not won a major military aircraft contract since the B-52, more than 40 years ago. However, the firm has done work on the B-2 bomber and the F-22.

“This is a very substantial plus. It returns Boeing to their roots as a combat aircraft builder,” Demisch said.

It was a “meaningful setback for McDonnell Douglas,” he added. The company “is going to be forced to take more vigorous steps to remain in the forefront of fighter and combat competition in the future.” The company is still the biggest producer of tactical combat aircraft in the world.

“We believed we had a novel and good solution,” McDonnell Douglas President Harry Stonecipher said. “Obviously the judgment of the selection committee went against us, and we’re not very happy about it.”

The McDonnell Douglas team, which also included British Aerospace, may have fallen short because of concerns about the jet’s vertical-landing system, Stonecipher said. It requires two engines instead of one in the Boeing and Lockheed Martin systems.

“The sense I have been given to this point is that the propulsion system we proposed was considered to be higher risk,” he said.

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After the government chooses between Lockheed Martin and Boeing for the production phase in 2001, the final price tag could reach $219 billion for delivery of 3,000 aircraft, according to estimates by the Congressional Budget Office. About 2,000 of the planes will go to the Air Force.

Experts believe that as many as 1,000 more planes could be sold in the export market.

The common use of engines, avionics equipment, and repair and maintenance parts will enable the government to save $18 billion in the development phase of the fighter and $60 billion over the 20-year life cycle of the aircraft, according to Paul Kaminski, undersecretary of defense for acquisition and technology.

“We are forging a new approach to buying weapons systems,” Kaminski said during the Pentagon news conference. “This is clearly not business as usual.”

Rosenblatt reported from Washington and Vartabedian from Los Angeles. Times wire services contributed to this story.