15
March
2017

Why so many big defense companies are bowing out of this $16.3B Air Force competition

Why so many big defense companies are bowing out of this $16.3B Air Force competition

The Air Force’s future $16.3 billion program to replace its training aircraft has seen each of the so-called “Big Five” defense contractors express an interest in the competition.

It has also seen three of them drop out of the running.

Of those defense giants, only The Boeing Co. (NYSE: BA) and Lockheed Martin Corp. (NYSE: LMT) remain in the Air Force’s Trainer-X competition. General Dynamics Corp. (NYSE: GD) first bowed out in April 2015, with Raytheon Co. (NYSE: RTN) announcing its exit in January and Northrop Grumman Corp. (NYSE: NOC) abandoning the program the week after. Textron Airland also announced that it too would not enter the fray, Defense News reported Tuesday.

So, why do the majority of big name defense companies want out? Given that the Air Force has already awarded contracts for the fighter, tanker and bomber— with not many major programs out on the horizon — one would think they would be clamoring to build the 350 trainers.

Richard Aboulafia, vice president of analysis at the Fairfax-based Teal Group and an aviation consultant, argued that the dearth of major future Air Force programs may actually be what’s behind all these companies leaving the field.

The Air Force, he said, likely took note of this environment marked with "not many aircraft contests" where "everyone is eager to win something” in drafting the request for proposals, allowing it to “extract the best possible terms based on the acquisition side.”

“They basically put forth a contract where you’re not reimbursed for development,” Aboulafia said. “It’s a price-shootout with a little window dressing. You get an incentive for performance but in the broader context of the cost of the program it’s almost insignificant.”

Tags Boeing, Korea Aerospace Industries, Lockheed Martin, South Korea, T-X Media Outlet: Washington Business Journal Featured Analyst Richard L. Aboulafia

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