The contract award for the Air Force’s next-generation advanced pilot trainer is expected to be a boon for winners Boeing [BA] and its partner Saab, analysts said.
The service announced Sept. 27 that the Boeing-Saab team had secured a contract worth up to $9.2 billion for 351 T-X aircraft and 46 simulators to replace the service’s aging T-38 trainer fleet, with the option to buy up to 475 aircraft and 120 simulators. The initial contract is worth $813 million for the engineering and manufacturing development phase of the first five aircraft and seven simulators. (Defense Daily, Sept. 27) Lockheed Martin [LMT] and Leonardo DRS, the U.S.-subsidiary of Italy’s Leonardo, also competed for the contract.
With T-X, Boeing has completed a trifecta of contract wins in the last month. In August, it beat out Lockheed Martin and General Atomics Aeronautical Systems Inc. (GA-ASI) for the Navy’s MQ-25 unmanned aerial tanker aircraft program. (Defense Daily, Aug.30). Earlier last week, the Air Force awarded a Boeing-Leonardo team the contract to build a replacement for the UH-1N Huey helicopter, edging out Sierra Nevada Corp. [SNC] and Lockheed Martin’s Sikorsky subsidiary. (Defense Daily, Sept. 24)
These three wins prove that Boeing is “pricing to win” after two decades of losing out on major competitions, for the F-35 Joint Strike Fighter, developed by Lockheed Martin, and the B-21 bomber, which ultimately went to Northrop Grumman [NOC], said Richard Aboulafia, vice president of analysis at the Teal Group.
The company also benefited from its large commercial development wing, from which it could leverage volume capacity to be more aggressive on pricing, he added. For Lockheed Martin and Leonardo, “there are limits to what a company that doesn’t have that enormous commercial side and volume is willing to do,” he said.
Boeing must have been “very aggressive” on cost to overcome the risk of a clean-sheet design on T-X, Aboulafia noted. Lockheed Martin partnered with Korea Aerospace Industries to offer the T-50A, an offshoot of KAI’s T-50 trainer. Leonardo DRS offered a souped-up version of its T-100 trainer jet. Both aircraft are currently training jet fighter pilots in countries around the globe.
The Air Force took a number of steps ahead of the T-X program to boost competition and buy down risk, service acquisition officials told reporters Sept. 27 at the Pentagon.
The service engaged early with industry on the requirements for the advanced pilot trainer, which helped incite competition and buy down risk, said Will Roper, Air Force assistant secretary of defense for acquisition, technology and logistics.
“We knew what the industry base was able to produce. That allows you move into a competition where you’re targeting an industry base where there’s going to be fierce competition,” he said.
Lt. Gen. Arnold Bunch, Air Force military deputy for acquisition, noted that “industry knew exactly what we were going to evaluate.”
The service touted over $10 billion in cost savings from its previous program estimate of $19 billion. Roper and Bunch declined to share the source of the cost savings, adding that more details about the cost breakdowns, including unit cost, would come “later.” Analysts at the Capital Alpha Partners estimate a unit cost of approximately $21.3 million.
Roper noted that service cost estimates tend to start higher than the competitors’ proposed amounts.
“As industry proves the technology really has matured and changed the game, then we’re able to lower and recoup that margin of savings to the program,” he said.
Bunch said the service required “real aircraft data” to evaluate the prospects of both off-the-shelf and purpose-built aircraft.
Aboulafia noted that the flight data requirement could have caused the contract award to be delayed, as the Air Force would have had to wait for Boeing’s flight data. But that would have also helped Boeing to buy down some of the inherent risk in the clean sheet design, he noted.
Service acquisition officials declined to comment on whether Boeing’s performance on the KC-46 next- generation tanker program factored into evaluations for T-X or not. The program has suffered years of delay, and Boeing has taken on billions of dollars in cost overruns due to the fixed-price contract.
“Every program is different, [and] we evaluate them based on the merits of the proposal,” Roper said. “We look at technical merits, we look at cost, we look at risk, and those go into making the final selection.”
While it is possible that Lockheed Martin or Leonardo DRS will choose to protest the award, it may prove difficult to find a persuasive argument if the decision came down to cost, Aboulafia said.
The contract award opens Boeing and its Sweden-based partner Saab to additional trainer opportunities down the road. It positions Boeing to potentially replace Navy trainers once the service begins to phase out its aging T-45 fleet, said Byron Callan of Capital Alpha Partners.
A fighter/attack version of the winning aircraft could also emerge, analysts noted.
“Could Boeing market a supersonic minimum fighter combat variant? That would be interesting,” Aboulafia said.
Sandy Morris, an equity analyst with Jefferies United International, said that the T-X contract award will “move the goalposts” for subcontractor Saab, with financial improvements expected by the mid-2020s. Analysts expect the Air Force to spend about $2 billion to achieve initial operating capability by 2024, although that may be accelerated.
The T-X aircraft and systems give Saab another major new product that could benefit over time from the U.S. foreign military sales organization, Morris noted. The new advanced pilot training system could prove appealing for any country that uses Lockheed Martin’s F-35 Joint Strike Fighter, to include the United Kingdom, Italy, the Netherlands, Canada, Australia, Norway and Denmark, she said. Israel, Belgium, Finland, Singapore, Japan and South Korea could also potentially acquire the trainer, although Aboulafia noted that the Korean-made T-50 is “not going away anytime soon.”