The Air Force awarded Boeing (BA) an indefinite-delivery/indefinite-quantity (IDIQ) contract with an estimated ceiling of $9.2B for its comprehensive advanced jet trainer program ("T-X") comprised of 351 advanced trainer aircraft, 46 training devices and associated support to train future F-22 and F-35 pilots. Deliveries are to be completed by 2034. The award announcement included the first order on the contract of $813M for engineering, manufacturing and development.
Boeing and its Swedish partner Saab offered a clean sheet design with GE engines that beat out LMT's offer of the Korean Aerospace T-50 and DRS's offer of the Italian Leonardo M-346. Both of the losing offers were "off the shelf", with over 200 aircraft already flying globally, causing them to be viewed as having significantly less development risk than the clean sheet BA proposal of which only two prototypes exist. However, off the shelf means living with the basic design that already exists and the Leonardo trainer was seen as being challenged to meet the Air Force's high performance requirements while the Korean T-50 light fighter was seen as possibly offering more performance than needed.
The real story here is that Boeing won on price by a wide margin for the third time in less than 30 days.
- Boeing's winning T-X bid was fully $7B - 43%- below the long time estimate by the program office of $16B for the program.
- Earlier this week the Air Force awarded Boeing the contract for 84 MH-139 aircraft to replace its H-1s for $2.4B, 1.7B or 41% below the previous government estimates of $4.1B
- On August 30 the Navy awarded an initial $805M contract for the MQ-25 unmanned refueler aircraft. While not yet official, BA apparently beat the total program estimate of $13B by ~$2B nearly 20%.
These are critical wins in a military aircraft sector that is unlikely to have any other large scale, wide-open competitions for a while (Future Vertical Lift in 2021?).
Investors will be cautious about the winning low bids, however, given Boeing's track record on the KC-46A tanker. That was a fixed-price shoot out with AirBus and won by Boeing in 2011 but that has cost the company $3B in development cost overruns and nearly two years in schedule delays.
Significantly, these recent wins have come in direct competition with Lockheed which had been viewed as having higher performance offerings but which quite apparently were not competitive on a price basis. We note that Boeing was partnered with Lockheed when it lost the very lucrative $80B + B-21 Long Range Strike Bomber competition to Northrop in 2015. Current Boeing CEO Dennis Muilenburg (and President Trump golf partner) was head of Boeing's defense sector during the bomber competition and he has apparently made it clear that he's never going to lose on price again.
