Aerospace & Defense

Boeing, Lockheed: Mano a Mano for Air Force T-X Contract?

Just last week one of five potential bidders dropped out of the race for a $16 billion U.S. Air Force contract to supply 350 new T-X training jets. On Wednesday, another potential bidder did the same thing.

Northrop Grumman Corp. (NYSE: NOC) and its partner BAE Systems said in a brief statement: “The companies have decided not to submit a proposal for the T-X Trainer program, as it would not be in the best interest of the companies and their shareholders.”

Raytheon Corp. (NYSE: RTN) and its Italy-based partner Leonardo pulled out last week after the two companies could not agree on the business details of their partnership.

The Northrop decision leaves just Boeing Co. (NYSE: BA) and Lockheed Martin Corp. (NYSE: LMT) as the remaining confirmed bidders on for the contract, although privately held Sierra Nevada is said to be working on an entry, and Textron Inc. (NYSE: TXT) may be looking at doing so as well.

Perhaps the most interesting thing about Northrop Grumman’s decision is that the company has already spent money developing a flying prototype. Although the company offered no details, it is possible that the Air Force’s final request for proposal in December included a requirement that the Northrop plane doesn’t meet and can’t meet without costly rework.

And cost is becoming what this competition is all about. President Donald Trump has made it clear that he is watching spending and is prepared to hammer defense contractors whose costs he believes are too high.

Both the Raytheon and Northrop planes were based on existing designs and were believed to be aiming at a low-cost target. Of the remaining competitors, Boeing has offered a clean-sheet design, while Lockheed Martin is going with a modified version of Korea’s T-50. Sierra Nevada has been reported to be considering a modified Turkish plane, but neither it nor Textron is willing to say definitively whether it either will submit a bid.