Boeing Bows Out Of Bidding for Pentagon Contract -- WSJ

By Doug Cameron

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 26, 2019).

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 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, even as defense officials and lawmakers express concern about reduced competition for weapons programs.

Boeing had said winning the contract was a priority but also expressed concerns about its 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 to Boeing of the grounding of its 737 MAX aircraft was undermining its ability to pursue big military projects. The company has so far disclosed about $7 billion in additional costs and compensation to cover the crisis enveloping 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 3.7% to $348.09 on Thursday. Shares in Northrop Grumman gained 3.4% to $354.72.

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 on an earnings call 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, due to be awarded next year and valued by analysts at $25 billion, would be given 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 is 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 26, 2019 02:47 ET (06:47 GMT)

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