WASHINGTON — As the Air Force announced Northrop Grumman will produce the service's next-generation bomber, reactions from industry, Wall Street and the Hill began quickly flowing in.
This article will be updated with comments as they come in.
Hill Reaction
In a comment to Defense News before the contract award, Randy Forbes, R-Va., chairman of the House Seapower and Projection Forces subcommittee, voiced his support for the program as the time for the announcement approached.
"We're 150 percent behind the bomber. It's strategically important to the country," Forbes declared.
"It's incredibly important that we move in this next phase. We're excited they're moving forward with it, whoever wins. Our subcommittee and I believe the full committee is going to be one hundred per behind making sure this becomes a reality."
He later sent out a statement saying he was "pleased" the service had finally made a selection, while his Democratic counterpart, Rep. Joe Courtney of Connecticut, pledged that in "the coming months, Congress must do all it can on a bipartisan basis to support this program, while also providing the necessary oversight to ensure successful execution."
Rep. Jackie Speier, D-Calif., issued a statement promising to continue a push for transparency on the program.
"We need to keep the Long-Range Strike Bomber on track and hold the Pentagon to its promise of delivering a tested, reliable airplane for $550 million a copy," Speier said in a statement.
"The Rapid Capabilities Office has made some good decisions to use proven technology and accept the recommendations of independent weapons testers and auditors in their development process. But there are warning signs, including a clerical discrepancy that resulted in a $16.7 billion misreporting error to Congress.
"Now that the LRS-B is no longer secret, it's Congress's job to ensure the process doesn't go south — especially as we begin looking under the hood and approaching potential risk areas like systems integration and future weapons development," her statement continued. "We must avoid the acquisition malpractice that has shortchanged our national defense in so many other instances."
Sen. Roy Blunt, whose home state of Missouri houses Boeing's St. Louis facility, pledged to "scrutinize" the contract award — a statement that could be read as a precursor to a fight on the Hill as Boeing and Lockheed organize their local delegations for a challenge.
"The history and quality of the Boeing workforce and defense team is a matter of real pride to Missourians. While I am disappointed the Air Force decided to go another way, I fully support this important program. As a member of the Senate Appropriations Subcommittee on Defense, I will closely scrutinize this critically important investment in our nation's security and will ensure the Air Force conducted a fair, objective, and thorough competition."
Industry Reaction
Byron Callan, an analyst with Capital Alpha Partners, noted that Pentagon officials indicated that the industrial base was not a criteria in the selection process. While the announced timeline calls for an initial production of 21 aircraft at a fixed price with initial operating capability in 2025, the number of LRS-B produced could exceed top estimates of 100, he said.
"Assuming this program can hit its unit price objectives, we could see more than 100 bombers being procured but that might not known until a new Administration puts forth its own defense plan for FY18-22. Some independent observers project a need for 150-175 bombers," Callan wrote. And with the LRS-B likely to compete with the F-35 for funding, this could set the stage for some tough funding decisions for the Air Force.
"If more LRS-Bs are purchased than now planned or there are cuts to DoD spending plans over the next ten 10 years, we expect that F-35 would be cut at the expense of LRS-B," he said.
Loren Thompson, a defense-industry consultant and analyst with the Lexington Institute, called the selection a "stunning upset."
"Northrop beat a team with much greater financial resources and recent production experience. For instance, Boeing and Lockheed Martin delivered over 300 military aircraft last year. Northrop delivered nine, none of them manned jets," he said "I'm skeptical that Northrop can execute the bomber program on the aggressive schedule the Air Force has set forth, but any way you slice it this is a huge win."
RBC Capital Management analyst Robert Stallard's initial take suggested that the LRS-B win could add as much as $1 billion to Northrop's 2018 revenue. While the earnings per share is likely to be minimal, "we expect this win to be more significant for investor sentiment. Northrop has won 'the' military aircraft award of the decade, and assuming that it goes to plan this will be a key driver of revenue growth for at least the next ten 10 years," Stallard noted.
The decision shouldn't materially affect Boeing or Lockheed's stock price, he said.
Boeing "now faces the difficult task of working out what to do with the military aircraft business that it bought with McDonnell Douglas. There is no large platform in the backlog to replace the C-17, F-15 and F-18, with the KC-46 being based on the civilian 767 aircraft," he wrote in a note to investors.
The Pentagon could steer Boeing UAV and munition awards (potentially classified) that could help offset the pain of the LRS-B loss, he said.
"Lockheed Martin still has the growing F-35, and whilst there will no doubt be disappointment at the DoD's decision, it still has attractive growth prospects in its Aeronautics division on coming years," he added.
Staff writers Christopher Cavas, Joe Gould and Lara Seligman contributed to this report.
Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.
