The Boeing Corp. BA has been inundated with press attention in recent months, thanks to the ongoing trials and travails of its grounded 737 MAX jet plane. However, Boeing faces a number of challenges outside of its commercial aircraft manufacturing business. Its lucrative defense arm is also feeling the heat.
Indeed, the venerable aerospace and defense company faces a tough fight to get back in the race to provide the U.S. military with its next-generation of ground-based nuclear missiles.
America’s next top nuclear deterrent
The Minuteman III intercontinental ballistic missile (ICBM) has been the mainstay of the U.S. military’s ground-based nuclear arsenal since the 1960s. Multiple technological and engineering refreshes have kept the Minuteman ICBMs operational over the years, but their operational life is finally approaching its end. By 2028, they will be phased out in favor of a new ICBM weapons system dubbed the Ground Based Strategic Deterrent (GBSD).
On the July 16, the Air Force Nuclear Weapons Center (AFNWC) issued a public procurement notice:
“The Air Force Nuclear Weapons Center expects to award the contract in the fourth quarter of fiscal year 2020… ‘The GBSD will be designed to be adaptable and responsive to the challenges posed by the pace of technological change and new threat environments,’ said Maj. Gen. Shaun Morris, AFNWC commander and the Air Force program executive officer for strategic systems. ‘After a complete evaluation of the proposals, the EMD contract will be awarded to the company which will provide the best overall value to the warfighter and taxpayers.’”
A lucrative prize
Military procurement contracts are usually awarded on a competitive basis. However, with only a tiny number of potential providers, this competition is highly limited at best.
In 2017, the Air Force reduced the potential competition for the GBSD contract to just two companies, Boeing and Northrop Grumman Corp. NOC. At the time, it awarded Boeing $349.2 million and Northrop Grumman $328 million to develop competing offers.
These awards represent merely the tip of the iceberg. The GBSD program is projected to cost more than $85 billion over the next couple decades, representing a massive prize for any aerospace contractor.
Boeing pulls out
In its July 16 call for bids, the Air Force laid out a number of specifications required of the future GBSD, with the aim of minimizing cost. Unfortunately for Boeing, this seemed to favor Northrop Grumman and its in-house rocket motor arm, which the latter obtained in 2018 through the acquisition of Orbital ATK.
Boeing was clearly displeased with the Air Force’s call for bids. On July 23, the company’s defense chief, Jeanne Caret, expressed her displeasure in a letter to senior government procurement officials:
“[The request for bids] takes no steps to mitigate Northrop’s anticompetitive and inherently unfair cost, resource and integration advantages ... We believe there are other procurement structures that could provide this capability more rapidly at less cost, and we will look for ways to leverage the work that we are performing [under earlier contracts] to help support this critical national security mission.”
On July 24, Boeing spokesman Todd Blecher announced that the company had officially withdrawn from the bidding process:
“'After numerous attempts to resolve concerns within the procurement process, Boeing has informed the Air Force that it will not bid Ground Based Strategic Deterrent (GBSD) Engineering and Manufacturing Development (EMD) under the current acquisition approach,' said Todd Blecher, a spokesman with Boeing’s defense, space and security division. 'We’ve evaluated these issues extensively, and determined that the current acquisition approach does not provide a level playing field for fair competition.'”
A case of sour grapes
The problem facing Boeing is that it simply cannot compete with Northrop Grumman on price. With Orbital ATK under its banner, Northrop Grumman is the dominant producer of solid rocket motors. That gives it obvious cost advantages. Boeing has claimed this represents an anticompetitive practice, yet it is anything but. The Air Force needs a company to build its next generation of rockets; a company that can manufacture both rockets and motors is a potential boon for taxpayers.
Thanks to the fallout from the 737 MAX debacle, Boeing has fewer friends on Capitol Hill. It may have trouble finding a sympathetic ear for its complaints, especially when they boil down to the argument that it is unfair that Northrop Grumman can do the job more cheaply. Cost-conscious legislators are not likely to be overly impressed with such arguments.
Disclosure: Author is short Boeing.
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