Nearly an hour after close of trading Tuesday, the U.S. Department of Defense dropped a bombshell on the market:
The Long Range Strike Bomber contract has been awarded, and the winner is Northrop Grumman .
Continue Reading Below
Northrop Grumman "veiled" a new stealth bomber at last year's Super Bowl. And on Tuesday, the U.S. Pentagon "unveiled" Northrop Grumman as the winner of the B-3 bomber contract. Image source: Northrop Grummanvideo still.
The contractThe U.S. Air Force initially targeted a price of $500 million per aircraft on average, in 2010 dollars, across a fleet of 100 aircraft. After inflation, that works out to about $545 million in today's dollars. In announcing the contract award, the Pentagon says that its estimate has since crept up to $511 million per aircraft (again in 2010 dollars) across the fleet. That's $558 million in today-dollars, or $55.8 billion total for the complete anticipated fleet.
(The Pentagon also revealed, in a press conference announcing the award, that it's counting on a unit cost of $564 million in projected 2016 dollars.)
Development costs for the LRSB -- the plane that many in the military community are now calling the "B-3" -- will be funded separately at $21.4 billion in 2010 dollars -- $23.4 billion in today-dollars.
So the total value of the two-part B-3 bomber contract announced Tuesday? That would be $79.2 billion -- if everything goes as planned. (But until these costs shake out, I'm still sticking with my prediction of $90 billion, give or take.)
What it means to the losers Boeing and Lockheed Martin formed a team to contest Northrop Grumman for the B-3 bomber contract. These two companies are now the losers -- although there is a very good chance they will appeal the Pentagon's decision to award LRSB to Northrop. Given the multiple setbacks that one member of this team -- Boeing -- has suffered in the fighter jets market of late, some analysts have argued that the company will be unable to maintain a separate defense division without LRSB. This makes a challenge to Tuesday's award virtually assured.
Indeed, the Pentagon addressed the possibility of a protest being filed, and appears to be resigned to the fact that despite having awarded Northrop Grumman the LRSB contract today, the company may not be able to begin work on getting the plane ready for 100 more days (the minimum time it will take for a Government Accountability Office protest to work its way through the system).
What it means to Northrop GrummanBuilding the B-3 bomber fleet is expected to cost U.S. taxpayers a minimum of $79.2 billion for a force of 100 long-range stealth bombers. The bulk of these funds will now go to the contract's primary contractor, Northrop Grumman.
That's incredibly good news for Northrop -- and it may be even better news for Northrop shareholders. In addition to winning the contract, which should already do good things for the company's stock price, there's a very real possibility that Boeing might be tempted to acquire Northrop Grumman, paying a big premium for the privilege. Thus, Boeing could end up winning the LRSB contract... despite losing it.
Is it a far-fetched theory? Certainly. But it has the curious twist of giving Boeing a way to "win" LRSB, to keep all of the money for itself (via its new subsidiary) -- and of not having to share the loot with Lockheed Martin. Strange as it may sound, the decision to finally award the LRSB contract could be not the end of this story, but only the beginning.
The article News Flash: Northrop Grumman Wins the B-3 Bomber Contract originally appeared on Fool.com.
Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him on our public stockpicking service,Motley Fool CAPS, where he picks and pans stocks under the handleTMFDitty, and currently ranks No. 280 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.