The U.S. Air Force has selected Northrop Grumman Corp. (NOC - Free Report) as its company of choice for replacing the nation’s aging intercontinental ballistic missile (ICBM) system. Consequently, Northrop secured a $13.3 billion deal for performing the engineering and manufacturing development (EMD) phase of the Ground Based Strategic Deterrent (GBSD) program.
Notably, Boeing’s (BA - Free Report) Minuteman II ICBM was thus far the United States’ chosen land-based nuclear deterrent.
What Led to Northrop’s Win?
Northrop won the EMD award for GBSD program after completing a highly successful three-year technology maturation and risk reduction (TMRR) phase-one effort as part of the competition. Notably, the team of highly-experienced defense majors involved in the GBSD program, including Lockheed (LMT - Free Report) , Textron (TXT - Free Report) and L3Harris Technologies (LHX - Free Report) , has achieved all TMRR design review milestones on time and on cost.
Moreover, per USSTRATCOM’s Statement to Congress, the GBSD Analysis of Alternatives provided decisive analysis that continued life extension of the Minuteman III will be more costly than a replacement system. Also, as more modern deterrent systems become the need of the hour, the existing Minuteman II might not address future challenges and threats to the nation’s current ICBM force.
While the Minuteman has served as the backbone of the nation’s ICBM force since 1962, its aging infrastructure, and asset attrition require a comprehensive weapon system replacement beginning in 2028. While this heightened the need for replacement, the U.S. Air Force has remained focused on sustaining its ICBM force at the lowest reasonable cost.
So the cost-effectiveness of the GBSD program along with its state-of-the-art features must have persuaded the U.S. Air Force to choose it as the next nuclear deterrent of the country.
Why Didn’t Boeing Compete?
Boeing walked out of this ICBM-replacement competition in December 2019, citing lack of cost competitiveness, as stated by a Reuters report. This was because the jet giant felt it to be difficult to submit a bid for the competition, wherein the cost of replacement was being set at $85 billion by the Pentagon’s Cost Assessment and Program Evaluation office.
In fact, in a letter to the U.S. Air Force, chief executive of Boeing Defense Space and Security, Leanne Caret said that Northrop’s Orbital ATK takeover in 2018, which strengthened the company’s missile portfolio, might have boosted Northrop’s cost competitiveness compared to Boeing’s.
Did the 737 Debacle Play a Part?
While Northrop’s Orbital ATK acquisition did boost the company to offer its GBSD program at a cost efficient level, let’s not forget the fact that Boeing has already been suffering a cash crunch, following the grounding of its 737 Max fleet since March 2019.
Notably, Boeing’s operating cash outflow was $2.45 billion at the end of 2019 against cash inflow of $15.32 billion at the end of 2018. Its free cash outflow totaled $4.28 billion at 2019 end against cash inflow of$13.60 billion at the end of 2018. So, by December, when the final bid for the ICBM replacement competition was supposed to be submitted by Boeing, its management had a pretty good picture at hand about the company’s weak cash position.
Thus, the impact that 737 grounding had on Boeing’s cash reserve might have also influenced the company’s decision to walk out of the bid.
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