Boeing Drops Out of Giant Pentagon Program to Replace Nuclear Missiles

By Doug Cameron

Boeing Co. said it won't bid for a huge Pentagon contract to replace the nation's land-based nuclear missiles, just a day after Chief Executive Dennis Muilenburg on an earnings call touted the aerospace giant's suitability for the job.

The move would leave Northrop Grumman Corp. as the sole bidder for the first phase of the $60 billion Ground Based Strategic Deterrent program that is due to be awarded next year, even as defense officials and lawmakers express concern about reduced competition for big weapons programs.

Boeing had said winning the contract a priority but also expressed concerns about the contract terms. Boeing executives have said the huge program would become a "cost shoot-out" between contractors that would focus on price instead of technical capabilities.

Some analysts said the mounting financial cost of the 737 MAX grounding was undermining Boeing's ability to pursue big military projects. The company has so far disclosed about $7 billion in additional costs and compensation to cover the crisis facing the MAX since global regulators grounded the plane in March following the second of two fatal crashes in less than six months.

Shares in Boeing fell 3.9% to $347.24 in midday trading Thursday. Shares in Northrop Grumman were up 2.5% at $351.53, after hitting an all-time high earlier in the session.

In a letter to Air Force acquisition chief Will Roper dated July 23 and reviewed by The Wall Street Journal, Boeing said it believes Northrop Grumman had an unfair advantage to win the contract because of its control of the country's main producer of rocket motors, secured through its acquisition of Orbital ATK Inc. in 2018.

"After numerous attempts to resolve concerns within the procurement process, Boeing has informed the Air Force that it will not bid," the company said in a statement.

Mr. Muilenburg on Wednesday told analysts and reporters that the contract was a big opportunity for Boeing.

"We are focused on leveraging our work to date on GBSD to deliver this essential national security capability," he said after Boeing reported its biggest-ever quarterly loss. Boeing also said it could slow or stall production of the MAX if it doesn't return to commercial service by late this year. Boeing was the only big defense company to report a drop in its military order backlog during the June quarter.

The Pentagon said last week that the initial GBSD contract, valued by analysts at $25 billion, would be awarded to the company that provides "the best overall value".

Boeing hasn't ruled out bidding for GBSD if the contract terms are changed, though its relations with the Air Force -- which is running the GBSD program -- are complicated by its performance in producing new refuelling tankers.

The first of those tankers arrived in January, more than a year late. The Air Force said this week it was withholding $360 million in payments because of performance issues, including debris found on new jets. Mr. Roper has been critical of Boeing's work on the project.

Boeing's defense arm had been on a roll, last year winning three big Pentagon projects including an Air Force training jet and helicopter and a Navy drone.

Northrop Grumman said in a statement that it's committed to supporting the U.S. Air Force and the GBSD program.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

July 25, 2019 13:57 ET (17:57 GMT)

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