Lockheed Wins Fighter Contract
Lockheed Martin was tapped by the Pentagon on Friday to design and build as many as 3,000 jet fighters that will form a key leg of U.S. military strength over future decades, dealing a serious blow to rival Boeing Co.
The award, which could be the biggest military contract ever at a projected $200 billion, culminates an intense four-year battle between two of the world’s largest defense contractors.
Variants of the plane will be supplied to the Air Force, Navy and Marine Corps, as well as Britain’s Royal Air Force and Royal Navy. Potential foreign sales are estimated at an additional $200 billion.
The program also carries enormous economic consequences across the U.S., creating thousands of jobs at Lockheed’s plant in Fort Worth as well as at major subcontractors in Southern California. Boeing acknowledged Friday that it may have to lay off employees at its military aircraft unit, headquartered in St. Louis.
Versions of the Lockheed jet, equipped with state-of-the-art radar-evading technology, can take off on short runways, reach supersonic speed and then land vertically--a set of capabilities that no current fighter aircraft has.
It eventually will replace the aging fleet of U.S. fighter jets, including the Air Force’s F-16, the Navy’s F/A-18 and the Marine Corps’ AV-8B, and it will be the only new aircraft to enter production in the next decade.
“This really is the contract of the millennium,” said Christopher Hellman, analyst with the Center for Defense Information. “Nothing has or will come close.”
Lockheed will receive an initial $19-billion contract to build 21 prototype aircraft over the next four years, during what is termed the engineering and manufacturing development phase. Full-scale production will not begin until 2008, which will require funding approval from Congress. A separate $4-billion contract was awarded to Pratt & Whitney to develop the engines for the aircraft.
Because of its size and with no other new fighter program planned for the foreseeable future, analysts believe the contract will set the agenda for the aerospace industry for several decades.
“This program is so big that it rearranges the entire landscape in the military aircraft business,” said Loren Thompson, managing director of the Lexington Institute, an Arlington, Va., defense policy think tank. “Lockheed will dominate the sector, and Boeing will become an afterthought.”
Pentagon officials said they picked Lockheed’s contender, the X-35, over Boeing’s X-32 because it was a “clear winner.”
“I would not characterize it [the race] as a squeaker at all, nor would I say by a mile,” said Secretary of the Air Force Jim Roche, who made the final decision. “It became clear as we went through this process that the case built more and more strongly that the Lockheed Martin team was a clear winner from the point of view of best value for the government.”
Though Lockheed plans to assemble the plane, to be known as the F-35, in Fort Worth, Southern California aerospace companies are heavily tied to its design and production.
Amid all the layoff announcements, particularly among technology firms, “this will provide a nice boost,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.
The competing planes were developed at Palmdale’s Air Force Plant 42, and Lockheed and Boeing conducted concept demonstration flights there and at Edwards Air Force Base over the last year.
“It’s the largest purchase of fighter aircraft ever,” said Rep. Jerry Lewis (R-Redlands). “And it’s going to have a very positive impact on the California economy, particularly among the state’s aerospace subcontractors.”
Rep. Howard P. “Buck” McKeon (R-Santa Clarita), whose northern Los Angeles County district is home to the Lockheed’s famed Skunk Works where the X-35 was developed, said the selection of the Lockheed team will mean more jobs for California than would have been created if Boeing had won the contract.
“We knew there would be winners and losers,” McKeon said.
Those jobs will include engineers, designers and craftspeople, who will design software, engineer new stealth technologies and fabricate parts for the aircraft.
Century City-based Northrop Grumman Corp. will be responsible for 20% of the work on the aircraft, meaning its work has a projected value of $40 billion, which would be a huge program in the defense industry by almost any standard.
Northrop said it will need to hire 1,600 people in California, of which 1,200 will be based in the Southland, over the next 18 months. Northrop, which will build the center section of the fuselage and the weapons bay, as well as developing computer software and other electronic equipment, will locate the jobs in El Segundo, Hawthorne or Palmdale.
“It’s a fabulous win,” Northrop Chairman Kent Kresa said. “What can I say, it’s the largest defense program ever. We’re delighted.”
Other Southland firms that will benefit include Parker Aerospace in Irvine, which will make hydraulic equipment and other components, and hundreds of smaller firms that will supply parts, analysts said.
But the biggest winner will be Fort Worth, where city officials estimated the program would create 32,000 jobs. On Friday, hundreds of Lockheed employees watched the announcement on television at the company’s massive aircraft plant.
For their part, executives of Chicago-based Boeing insisted that losing the contract would not harm the company’s military business. They noted that Congress has been pushing to build a new aerial tanker based on its 767 jetliner and to make more C-17 cargo planes.
“It won’t have a big impact in the near term,” Boeing Vice Chairman Harry Stonecipher said in a recent briefing with reporters. “It will have an emotional impact. It will have a stock impact.”
After winning the contract, Lockheed immediately extended an olive branch to Boeing, saying it will allow Boeing to participate in the program if the Pentagon requests it. Defense analysts and some members of Congress have raised concerns that the winner-take-all contest could eventually leave the nation with only one maker of fighter aircraft and erode competition.
“We have focused until now on winning the program. Going forward, if the government believes it is in the best interests of the country, the taxpayers and the services for Boeing to participate, then we will do what the government wants us to do,” said Dain Hancock, president of Lockheed Martin Aeronautics Co. during a conference call with reporters.
Although losing the contest would have virtually meant that Lockheed would have left the aircraft manufacturing business altogether, Boeing has other military programs to buttress the loss, analysts said.
Still, one of the big fallouts for Boeing will be the loss of funding for design and engineering of fighter aircraft, which often helps with innovation in other airplane developments such as its commercial jetliners.
“The competition for the Joint Strike Fighter really helped push the envelop for aircraft design and equally important for aircraft manufacturing,” said John B. Goodman, partner in the aerospace and defense practice at research firm Accenture.
The contest to build the airplane already had started to alter the defense industry. Shortly after being eliminated in the first round of JSF competition in 1996, McDonnell Douglas Corp. was acquired by Boeing.
But the Pentagon’s undersecretary for acquisition, Edward “Pete” Aldridge, insisted there is “plenty of work” for prime contractors such as Boeing and that the Pentagon opposes legislation forcing contractors to work together.
In addition to Lockheed’s F-22 fighter, which will be in production for another decade, the Pentagon is planning to develop unmanned aircraft and a next generation long-range strike aircraft to replace the B-2 stealth bomber.
Such programs could provide the loser with the incentive to keep its fighter research and development teams together, he said.
“So, it was our view that this winner-take-all strategy was not going to interfere with a long-term competitive role for the fighter aircraft,” Aldridge said.
Moreover, continued funding for the program is not assured. The Sept. 11 terrorist attacks and subsequent U.S. military campaign in Afghanistan may drain resources from the program, analysts said.
“Current expectations are for 3,000 Joint Strike Fighters for the U.S. and possibly another 3,000 for non-U.S. customers,” said Byron K. Callan, a defense analyst with Merrill Lynch & Co. “We would not be surprised to see a figure that is ultimately one-half or less of this total.”
But even at half, the total value of the contract would still exceed the $63 billion the U.S. is expected to spend on F-22 production and $65 billion for the new Virginia class of attack submarines, Hellman said.
In the competition for the contract, Lockheed and Boeing developed radically different versions of the JSF.
In 1994, with the prospects for shrinking defense budget, the Pentagon pushed the idea of a new fighter with a universal design that could be customized for the needs of the three services.
Pentagon planners figured that on their own, each service could not develop a plane by itself. As such, the fighters would have to have the ability to fly supersonic, land vertically and on short runways.
Lockheed opted for a new technology in which a large horizontal lift fan just behind the pilot of the Marine Corps version provides the thrust for the plane to hover and land. A shaft from the jet engine turns the fan.
Boeing decided to improve on a 30-year-old approach similar to the British-made Harrier, in which the exhaust from the jet engine is diverted to nozzles underneath the plane to provide the vertical thrust.
And while Lockheed stuck to a design similar to that of the F-22, Boeing produced a plane with a radically different look.
The decision was announced after the stock markets closed as Pentagon officials sought to prevent volatility of either stock, but investors had been betting on Lockheed to win the contract.
Still Lockheed shares should get a major boost Monday when the stock market reopens. In after-hours trading Friday, Lockheed stock was up 6% to $52.60. Lockheed shares had climbed nearly 30% since Sept. 11 on expectations of a military buildup.
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Times staff writer Andrew Blankstein in Los Angeles contributed to this report.
