GovernmentExecutive.com

Two defense behemoths, Lockheed Martin Corp. and Boeing Co., created the industry's version of a dream team when they announced plans last week to collaborate on the Air Force's next-generation bomber.

But some budget watchers are wondering whether the powerhouse duo, armed with the portfolios and the political clout to edge out even the most formidable of competitors, could become a taxpayer nightmare.

In an industry subject to rampant consolidation, which has made competition increasingly scarce, two defense giants might not necessarily be better than one.

"It's like putting all the Red Sox and Yankees together on one baseball team," said Keith Ashdown of Taxpayers for Common Sense. "They'd be unbeatable."

A major industry announcement such as this typically raises concerns that "the fix is in and the decision's already been made before you have a fair and open competitive bid on this," Ashdown added.

The Air Force announced its plans for a next-generation bomber to augment its aging fleet two years ago, but service officials have not yet outlined their objectives or specified how large the program will be. Funding for the bomber, meanwhile, likely will not begin in earnest until fiscal 2010.

But Air Force Chief of Staff Michael Moseley has told Congress that the bomber, which the service intends to fly by 2018, is one of his top five procurement priorities -- a designation that put the program near the head of the line for available resources and raised expectations of big-dollar contracts for defense firms.

"Frankly, the introduction of the next-generation bomber is one of those energies that is energizing the engineering functions from St. Louis to Los Angeles," Air Force Secretary Michael Wynne told the Senate Defense Appropriations Subcommittee last year.

To be sure, defense firms like Northrop Grumman Corp., prime contractor for the B-2 stealth bomber, will certainly not sit on the sidelines and simply let two industry rivals grab a lucrative contract.

A spokesman for the Los Angeles-based company said officials are "waiting to see what the program is going to look like, what sort of shape it is going to take." But make no mistake about it: Northrop is "prepared to compete," the spokesman added.

Despite its expertise with the B-2, Northrop would be competing at a distinct disadvantage now that Lockheed Martin and Boeing have taken off without waiting for the Air Force to decide what it wants.

"There are three players and ... the guys in a two-person team are going to have an advantage in terms of sheer political and technical throw weight," said Richard Aboulafia, an aircraft analyst with the Teal Group in Fairfax, Va.

After all, Chicago-based Boeing performed a significant amount of work on the B-2 and also built both the venerable B-52 and World War II-era B-17 bombers.

Lockheed Martin, based in Bethesda, Md., is the prime contractor on the F-22 Raptor, a stealthy aircraft designed for both air-to-air combat and strikes at ground targets.

During a teleconference with reporters last week, Boeing and Lockheed Martin officials, who actually agreed to the partnership a year ago but kept it quiet, touted their companies' backgrounds and their individual areas of expertise.

The firms have formed "a national team to be able to bring in the best products, most affordably, to make that 2018 date," said Darryl Davis, president of Boeing Advanced Systems.

"This journey is a low-risk journey because we have been talking so long," chimed in Frank Cappuccio, Lockheed Martin's executive vice president for advanced development programs.

Jacques Gansler, a former Pentagon acquisition chief, said the announcement of the pairing was reminiscent of efforts he thwarted during the Clinton administration, when the country's top shipbuilders teamed up with Lockheed Martin for a $25 billion destroyer program for the Navy.

"I stopped that because I thought competition was better than collusion," Gansler said. "I feel the same way in this case, but the good news is they haven't yet gotten Northrop on [the] team," he added.

The mindset for defense firms intent on forming coalitions with one another, Gansler said, is that "half a pie is better than zero, if you don't win."

That same thinking might garner support on Capitol Hill, where lawmakers "don't want to pick between [their] two favorite children," Ashdown said. In short, they can "put both big dogs in the same contract."

But for the Defense Department, which must write the checks, competition undoubtedly yields better ideas and lower costs, analysts said.

John Pike, a defense expert at GlobalSecurity.org, said there was a strong basis for concerns that Lockheed Martin and Boeing could potentially run away with the contract without much of a fight.

"If you found a member of Congress up there who was not friendly to either Lockheed or Boeing, you'd be talking about an office that wasn't paying attention," Pike said.

But he cautioned that programs in the classified "black budget" that the administration has kept under wraps might provide a dark-horse for the contract.

Who knows, Pike wondered aloud, which firms -- large or small -- have developed aircraft technology out of public eye that the Air Force could tap for its next bomber?

"Maybe Burt Rutan [the aerospace engineer and entrepreneur] is going to win the contract," Pike mused. "There are some unknown unknowns."

COMMENTS

• I remember, a long time ago, when Howard Hughes was forced to divest a major airline he had just purchased because he already owned two major airlines. Not too many years later, the anti-monopoly laws seem to have been either watered down, or just plain ignored by the various administrations. America was built, and made strong, on COMPETITION between companies, NOT on collaboration (supposedly illegal, at least at one time) between companies. We have administrations claiming that competition will fix what's wrong with the economy, but those same administrations allow actions that reduce competition, instead of doing anything to increase competition between American companies. "They have to move their operations overseas in order to compete" is the claim. Okay!!! If that's so, then who are they competing against? Not other American companies, and the salaries are not being paid in the United States (which means Income Taxes, etc. are not being paid in or to the United States on those salaries (and probably not on the corporate profits as well, since there are separate laws for income made outside the United States)). Larry R. Doane Posted January 31, 2008 8:51 AM
• If this "teaming" effort works as well as the Navy's LCS program, the Air Force will end up with a flying pig that costs three times what they wanted to spend. Paul Posted January 31, 2008 5:55 AM