A contract that's too big to lose

Future of Lockheed as warplane maker is held to be at risk

Thousands of jobs at stake

Pentagon questions competition in which the winner takes all

Joint Strike Fighter

April 02, 2000|By Robert Little | Robert Little,SUN STAFF

The biggest fighter program in history has yet to put a plane in the air, but the Pentagon is worrying that it could soon kill one of the largest defense contractors in the world.

The Department of Defense is expected to determine as early as this week whether a $200 billion contract to design and build a new Joint Strike Fighter will be awarded primarily to one company or shared among several.

For the nation's two top defense contractors, Lockheed Martin Corp. and Boeing Co., the decision will shape their futures.

And particularly for Bethesda-based Lockheed Martin, whose F-16 Fighting Falcon is nearing the end of its life-span and whose F-22 Raptor faces an uncertain future in Congress, the decision could determine whether the company has a future in the airplane business at all.

"This is it -- if a company wants to be producing military aircraft, it will have to be producing Joint Strike Fighters," said Richard L. Aboulafia, director of aviation for Teal Group Corp., a Washington-area consulting firm.

And the Pentagon's decision whether to share the contract will be neither a military one nor even a financial one, Aboulafia said.

"This is the ultimate, de facto industrial-base consolidation decision," he said. "If it all goes to one company the other one will be out."

Lockheed Martin and Boeing are each leading a team of companies competing to design and build the primary fighter aircraft for the American military over the next two decades. The Joint Strike Fighter is expected to be the largest aircraft production contract ever -- as many as 6,000 planes, once foreign sales are considered.

Each team is developing a prototype for the aircraft, and both are expected to begin test flights this summer. Next March, the Pentagon plans to select the best design and award a contract for more detailed engineering work. Production of fully equipped aircraft is not expected until 2008.

Unlike most previous fighter planes, which were built to accomplish specific missions of one branch of the military, the Joint Strike Fighter was conceived as an inexpensive way to satisfy them all. Three versions of the winning design will be built -- one each for the Air Force, Navy and Marines -- all with similar components and interchangeable parts.

The Air Force wants more than 1,700 conventional Joint Strike Fighters to replace its F-16s and A-10 Thunderbolts. The Navy wants 480 carrier-launched versions for the "first-day-of-the-war" strike role, and the Marines expect to buy 609 vertical-landing versions to replace the AV-8 Harrier.

The fighters will serve primarily as air-to-ground weapons, equipped with modern technology, capable of supersonic speeds and with radar-evading stealth characteristics. But the Pentagon also wants them cheap -- single-engine, single-seat aircraft with an inflation-adjusted price-tag of between $28 million and $38 million apiece, depending on the model.

One way it plans to keep them cheap: by quickly buying a lot of them. The United States and the United Kingdom plan to order 3,002 Joint Strike Fighters, and foreign countries are expected to order a like amount later in the plane's life span.

So large is the contract that the Pentagon is debating whether awarding it all to one company will force the loser out of the fighter business -- thereby eroding the U.S. defense-industrial base and compromising the nation's ability to design more advanced planes in the future.

The Joint Strike Fighter already has a few corporate kills on its resume. When the Pentagon eliminated a proposed design from McDonnell Douglas Corp. in 1996, the company was quickly swallowed by Boeing.

And its partner in the failed bid, Northrop Grumman Corp., fell out of the aircraft business as a prime contractor and later tried to merge with Lockheed Martin.

Earlier this year, the Defense Department's acquisitions chief, Jacques Gansler, appointed a panel to study the impact that a "winner-take-all" contract for the Joint Strike Fighter might have on the losers. Pentagon officials will not comment on the study.

But the study was expected to be completed by this weekend, with Gansler reviewing it and preparing a possible response. Said one Pentagon official: "This is going to get input from the very top. It's a huge deal."

Defense industry watchers have speculated about several possible outcomes.

The Pentagon could ask Lockheed Martin and Boeing to each build a piece of the Joint Strike Fighter and assemble the aircraft at a central plant, as they do with the F-22. Or one company could build the conventional versions while another builds the vertical-land and aircraft-carrier versions.

But few expect the contract to remain as it is, if only because of the consequences for whatever company doesn't get a piece.

"I don't think they can take that big of a program and just give it all to one company -- you'd be killing the other guy," said Todd B. Ernst, an analyst for Prudential Securities in New York.

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