- The Washington Times - Saturday, October 27, 2001

Lockheed Martin Corp. won the largest defense contract in history yesterday, beating out Boeing Co. in a winner-take-all battle to produce the next generation of fighter plane.

Air Force Secretary James G. Roche said the Bethesda company "emerged as the clear winner, based on the strengths, weaknesses and risks involved in their proposal" to produce the Joint Strike Fighter.

"I would not say it was a squeaker at all," he said.

The Joint Strike Fighter is expected to be one of the most advanced planes ever. It is the first plane capable of taking off and landing vertically, like a helicopter, and flying at supersonic speeds. Three versions are expected to be produced for the Air Force, Navy and Marine Corps. Britain's Royal Navy and Air Force also will use the planes, which will cost between $40 million and $50 million each.

Yesterday's announcement means Lockheed Martin will receive about $19 billion toward an engineering, manufacturing and development program of the Joint Strike Fighter, which is designed to replace the F-16, F/A-18, A-10, Harrier and AV-8 fighter jets. The company will produce 22 planes during the initial phase, but more importantly, it is likely to be the prime recipient of the full contract, valued at more than $200 billion.

Lockheed Martin's victory is not surprising. In the months leading up to the announcement, defense analysts and observers gave the nation's largest defense contractor the edge, largely because its version of the fighter has been better received by the Air Force. Lockheed Martin's version is largely derived from the F-22, which is seen as the favorite plane of the Air Force.

The contract calls for about 3,000 planes, but there is no cap on production. Potential cost increases and overseas sales could make the contract worth as much as $1 trillion over time, some analysts said.

Lockheed Martin employees in Fort Worth, Texas, where the plane will be produced, cheered wildly at the news of the announcement. Chairman and CEO Vance Coffman congratulated the crowd from Bethesda headquarters.

"I can't tell you how pleased I am with what you just heard," Mr. Coffman said. "This is by far the single most important win for the Lockheed Martin company and the other companies involved."

Predictions of a Lockheed Martin victory, while widespread, were not universal. Some analysts said they preferred Boeing's design, which is seen as more innovative, and said Boeing had better production facilities. Boeing's defense history includes successful productions of the F-18 Super Hornet, Apache helicopter and C-17 Military transport, as well as work on the International Space Station.

Boeing also said its fighter would cost less than Lockheed Martin's. Analysts said the Pentagon put an unprecedented amount of weight on affordability in its criteria; cost-savings was a primary reason the Pentagon decided to go with a winner-take-all contract in 1996.

"Our decision today is to continue with the winner-take-all strategy, and the down-select process has been done," said Edward "Pete" Aldridge, the Pentagon's under secretary of defense for acquisition, technology and logistics.

But analysts said some sort of hybrid contract likely will be worked out as bipartisan political pressure for such an agreement mounts.

"Some sort of hybrid agreement will result, whether it be with subcontractors or whatever," said Chris Hellman, a senior analyst with the Center for Defense Information, which is based in the District.

Boeing Chairman Phil Condit, in acknowledging defeat, indicated that the company would take advantage of any subcontracting opportunities.

"This was an incredibly tough competition and we congratulate Lockheed Martin," Mr. Condit said in a statement. "We're looking forward to the possibility of bringing our capabilities and skills to the Lockheed Martin JSF team."

Subcontracting on major contracts would not be new. Boeing produces about one-third of Lockheed Martin's F-22 fighters, and after Northrop Grumman lost its bid for the Joint Strike Fighter in 1996, it signed on as a partner in Lockheed Martin's entry.

Defense analysts say Lockheed Martin is in better overall shape. Boeing's commercial aircraft division was hit hard after the Sept. 11 terrorist attacks.

Meanwhile, Lockheed Martin has been boosted by military action and yesterday reported quarterly earnings of $213 million (49 cents per share) compared with loss of $704 million ($1.74) a year ago.

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