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How Northrop Grumman, Lockheed Martin and Boeing Lost a $30 Billion Air Force Contract
The United States Air Force needs some good drones. You just don’t need it Boeing (NYSE: BA), LockheedMartin (NYSE: LMT), or Northrop Grumman (NYSE: NOC) to build them. That’s the surprising result of a new contract announcement by the Pentagon last month, in which the government chose none of its three main publicly traded defense contractors to do the work – and instead chose General Atomics and Anduril, privately owned.
For Boeing, Lockheed and Northrop, the damage from this decision is substantial: at least $30 billion in lost potential revenue.
Every fighter pilot needs a good drone companion – or better yet, two companions
The Air Force calls the contract in question the Collaborative Combat Aircraft (CCA) program, in which the aircraft that will be “collaborating” are piloted fighters and their companion armed military drones. All five named companies have submitted drone designs to the Air Force for consideration. These five projects have now been narrowed down to two – General Atomics’ “Gambit” drone and Anduril’s “Fury” – and these two companies will now build prototypes for further evaluation.
The USAF then intends to choose at least one of these prototypes to order sometime in fiscal 2026, meaning a decision could come as early as next year. (The Pentagon’s fiscal year begins Oct. 1, 2025.)
How big is the CCA contract?
Whoever wins this contest will inherit a real windfall of money. As Breaking Defense reported in March, the Air Force wants to equip every one of its 300 F-35 stealth fighters, plus 200 more Next generation Air Dominance fighters (a plane yet to be built) with two CCA drones each – that is, 1,000 drones in total.
With an estimated production cost of $30 million per drone, this makes CCA potentially a $30 billion program.
And that’s just for starters. BD notes that 1,000 drones are just the Air Force’s initial requirement by “the end of the decade.” As the CCAs are damaged or obsolete, they will need to be replaced. Furthermore, the US currently has more than 450 F-35s and intends to eventually fly around 2,500 of them.
Over time, the CCA program could theoretically grow five times in size — and five times in value, to as much as $180 billion — just by equipping its F-35s with two drone wings each.
What this means for defense contractors
It’s hard to overstate how bad this news looks for Boeing, Lockheed and Northrop. “$180 billion” – this is a number roughly equal to the total annual revenue of all three giant defense contractorscombined, according to data from S&P Global Market Intelligence. Admittedly, with the money spread out over six years from now until 2030, the lost annual revenue is smaller, but it’s still a pretty big number.
The story continues
But not everything is lost.
General Atomics and/or Anduril will supply CCA’s initial need for 1,000 military drones. But as the Air Force noted, “companies not selected to build these production-representative CCA vehicles and perform the flight test program will continue to be part of the industry’s broader set of supplier partners, comprised of more than 20 companies to compete for future efforts, including future production contracts.”
Therefore, it is entirely possible that Boeing, Lockheed, and Northrop will still find work as subcontractors for whoever wins the first production contract(s). It is also possible that as the CCA program grows in size and expands beyond its initial requirements, the contract will be re-competed and publicly traded defense stocks will get a second bite at the apple.
In the meantime, however, the dynamics clearly favor unlisted defense contractors General Atomics and Anduril. They won the first round and are in pole position heading into the next round. Right now, investors’ best bet to benefit from the Pentagon’s largest-ever military drone program may be to wait for an Anduril IPO.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The motley fool has a disclosure policy.
How Northrop Grumman, Lockheed Martin and Boeing Lost a $30 Billion Air Force Contract was originally published by The Motley Fool