Mission for New Bomber: Avert Procurement Death Spiral

By Allyson Versprille
The Air Force is just months away from choosing a design for its ultra secret stealth bomber.
Some time this year, Air Force leaders will pick either Northrop Grumman Corp. or a Boeing-Lockheed alliance to design and eventually build the United States’ next-generation bomber. The highly anticipated decision will be seen as a momentous occasion and perhaps as the beginning of a new era of combat aviation. The bomber selection also will be fateful for the competing firms, which view losing the contract as an existential threat.
Amid much excitement and buzz in the industry over the prospect of a shiny new aircraft, however, are growing concerns about the bomber’s long-term future. Program champions have said they harbor no doubt that the next stealth bomber will be able to evade enemy missiles, but question whether it can survive the Pentagon procurement gauntlet.
The long-range strike bomber program will be getting off the ground at a crucial time when the Defense Department is seeking to regain its footing on major weapons procurements. A number of acquisition reforms are being introduced in an effort to avert the troubles that have dogged big-ticket programs in recent years. Skeptics and congressional critics will be holding up the bomber as a litmus test of the Pentagon’s presumably improved buying practices.
After decades of failed procurements, the Air Force will be under pressure to bring this one home. Program supporters and contractors are especially anxious to prove that this will not be a repeat of the B-2 saga. The procurement of the last stealth bomber, the B-2 Spirit, was truncated after just 20 aircraft and has lived in infamy for its $2 billion per unit price tag. The Air Force has promised the next one will cost no more than $550 million, or $55 billion for a projected buy of 100 bombers. They would begin service in 2025.
Controversy has been swirling about these estimates being unrealistic. And analysts have cast doubts on the Pentagon’s financial wherewithal to fund this program over the coming decade when other expensive weapon systems also will be competing for a limited pool of defense dollars.
The Air Force’s top weapons buyer William LaPlante recently brushed aside media reports that suggested the new bomber is destined to become a white elephant.
The program is moving forward, “despite what’s in the press,” LaPlante told an industry conference. The negative punditry, he said, is “like Seinfeld, a show about nothing. There is nothing new,” LaPlante said. “After source selection, we’ll tell you what happens.”
The new bomber will be a major test for emergent military procurement reforms — some that will be introduced by Congress this year and others already launched by the Air Force under an initiative known as "bending the cost curve." 
The Defense Department’s top procurement official Frank Kendall — who is in the midst of a new effort to improve the performance of weapons programs — has warned about the hurdles that lie ahead for brand-new weapon systems.
“Development of new products is inherently risky,” Kendall said at a Bloomberg Government meeting. Without mentioning specific programs, he suggested that it is becoming increasingly difficult to build complex weapon systems in the current fiscal and political climate.
“The only way I know to avoid overruns or delays is to buy off-the-shelf products,” he said. “If we're going to do cutting-edge designs, we have to take risks.”
For the bomber, the risks are plenty. Officials have said little about the missions or capabilities of the aircraft, as most of the program’s details are classified. It would almost certainly be the most advanced combat aircraft the United States has ever built. Technical hiccups and cost overruns are virtually unavoidable in a program of this complexity.
“You have to understand what's feasible. You have to have realistic cost estimates, not commit too early to production,” Kendall said. He cited a 2014 study by the Institute for Defense Analyses that showed that when budgets come under pressure, Pentagon buyers and contractors tend to make poor decisions. “It’s astonishing,” he said. “The difference in cost growth between a tight and loose budget environment is a factor of three to one. You get 30 percent cost growth on average in a tight environment and only 10 percent in a loose environment.”
When money is tight, he said, “People in government try hard to convince themselves they can do things they can't. They talk themselves into doing more aggressive budgeting, and unrealistic cost estimates. On the industry side, they are motivated to bid more aggressively. They take chances because there are fewer opportunities. It's much better to win the contract now, stay alive and hope the problems are fixed later than to lose the contract,” he said. “Today we are in a tight budget environment. We have to watch this.”
Pentagon spokeswoman Maureen Schumann said Kendall is seeking to draw attention to the findings of the IDA report and their potential implications for future programs. “The current budget climate makes it all the more critical we pay close attention to managing risk, getting requirements right, and continuing to enforce affordability caps throughout the lifecycle, Schumann said in a statement.
LaPlante told the House Armed Services Committee that the Air Force fully understands the risks in this program. The service intends to pay for design and development costs, rather than expect the contractor to do it under a fixed-price contract. The issue, he said, is “how confident are you in the technologies you're developing when you're cost estimating those technologies?” With clean-sheet designs of advanced weapon systems, “It's very hard to estimate how much it's going to cost because you're actually developing something cutting edge. That's why we tend to go cost-plus.”
The Air Force has requested nearly $14 billion for bomber research and development over the next five years. Development costs for the B-2 approached $20 billion, and that was nearly three decades ago.
A fixed-price contract would be too risky a gamble, LaPlante said. If contractors have to absorb all cost overruns, “they may not survive, and the program may not survive.” Once the bomber is safely out the development, the Air Force would seek a fixed-price bid for full production.
LaPlante insisted that the Air Force has learned from past procurement failures and does not intend to repeat them. “There have been a lot of studies on why acquisition goes wrong,” he said. First on the list of proposed remedies is to “fix your requirements, understand your requirements and don't change your requirements.”
He rejected critics’ predictions that sticker shock could derail the program. Analysts have argued the $550 million cost target for the bomber is unrealistic because it is based on 2010 dollars and didn't take inflation into account. “You can go to the Internet and run an inflation calculator and find out that $55 in 2010 is $57 or $58 today, so we know that.” The Air Force has set a goal to buy 100 airplanes for no more than $550 million each by 2040. “Industry has to design to that number and we're going to assess against that number.”
Industry analyst Byron Callan, of Capital Alpha Partners, calculated that if inflation is 2 percent annually, by 2022, the bomber’s unit price could be $698 million. Also, the $550 million is the average unit procurement cost, so the early batches of aircraft should be more expensive.
A fixation on the cost of the bomber is understandable but it can go too far, said retired Air Force Lt. Gen. David Deptula. “We have to stop looking at cost per individual unit as a measure of merit, and look at cost per desired outcomes,” he told National Defense. The question that should be asked, he said, is “How many targets can you kill with a couple of long-range bombers versus an armada of short-range aircraft? It is far cheaper to get the same results.”
Deptula predicts the focus will be disproportionately on cost rather than on the value of the bomber. “Stealth bombers are part of what makes the United States a superpower,” he said. “Our bombers are worn out, they are over 50 years old. And you only have 20 B-2s which are the only ones that have a modicum of survivability.” Meanwhile, the “world is becoming more challenging to short-range, close-in forces.”
The Air Force was set to launch a new bomber program in 2009 but the effort was nixed by then Defense Secretary Robert Gates. He believed the service was headed down the B-2 path. “We can't afford a $2 billion bomber,” Gates said in 2010.
Deptula said the Defense Department and Congress were responsible for that exorbitant price tag. Significant design changes the Air Force made in the early phase of the program doubled development costs from $10 billion to more than $19 billion. Then the order was truncated from 132 to 20, resulting in massive overhead costs having to be absorbed by fewer aircraft. Northrop Grumman’s manufacturing plant in California had been designed to build 36 B-2s a year. “It was driven to astronomical prices because the Congress made the decision to cut it,” Deptula said. If the Pentagon had bought all 132 aircraft, “We wouldn't be having this discussion of why we need to recapitalize the force today. We'd have sufficient numbers to handle the workload.”
The good news for the Air Force is that the technologies it needs to build a new bomber have advanced by leaps and bounds since the B-2 era, said Rebecca Grant, president of IRIS Independent Research. “It's been 30 years since a bomber was designed. This time, industry has made so much progress on other programs. I'm hoping that progress in design and manufacturing helps this bomber,” Grant said. “During the B-2 development, much of the technology had to be invented during the program. The B-2 had a very steep hill to climb in technology. This time it should be a smoother transition from development to manufacturing.”
Without any direct knowledge of the proposed designs, Grant speculated that they will be some form of a flying wing. Northrop Grumman’s Superbowl ad didn’t reveal much, she noted. “We don't know what was under that tarp.” In general, the physics hasn't changed much. “We are going to see some version of the delta shaped blended wing. It will be a stealthy design.”
Grant believes the Air Force is much better poised to build a new bomber now than it has been in the past. “This bomber has the best chance for a smooth path. That's the key to affordability: staying on the path. They ought to be able to bring it in for the cost they want.”
Industry consultant Loren Thompson, of the Lexington Institute, recently revealed in a Forbes.com article a number of key insights about the new bomber, including its likely designation of B-3. “It won’t contain breakthrough technologies. Everything from its low-observable technology to its landing gear to its on-board software will likely be adapted from other programs in order to hold down costs and speed the path to production.  The aircraft that results will be cutting-edge, but not in the sense that key features will have to be invented from scratch. Although many experts have guessed that the new bomber will be a “flying wing” design similar to the B-2, it probably won’t be, Thompson said. “Even though the new bomber will probably lack a fuselage, it is not likely to be mistaken for a B-2.”
Thompson also made a bold prediction that the Boeing-Lockheed team will win the B-3 contract. Northrop Grumman is the incumbent manufacturer of the last stealth bomber, but its capacity to build airplanes is far smaller than Boeing’s and Lockheed’s, he said. They delivered more than 300 military aircraft last year, whereas Northrop Grumman delivered nine, none of them stealthy. Thompson also gives Boeing and Lockheed the advantage for their deep pockets. The Air Force has warned contractors that they will be expected to invest in the program, Thompson said. “They’ll make money in the end, but the early years could involve significant financial sacrifice — sacrifice that the Boeing-Lockheed Martin team looks far better positioned to absorb.”
Aerospace industry analyst Richard Aboulafia, of The Teal Group, has hypothesized that the bomber selection could upend the defense industrial base. If Northrop doesn’t win, its days as a military airframe prime contractor could be numbered, he said. “When the bomber program gets decided, someone is going to be without a seat at the table.”
Northrop Grumman officials are confident that the company's expertise building stealth bombers gives it a competitive edge. “As the only company to ever design, build and deliver a stealth bomber, a future bomber is simply an evolution of our 30 years of expertise,” said a company spokesman. “This is what we do. We have continually evolved our design, prototyping and production capabilities; leveraging our knowledge from the B-2 stealth bomber and other programs.”
Northrop, Boeing and Lockheed executives have said that the formula for success in any major program is a combination of stable requirements and a predictable production schedule.
Boeing officials declined to comment specifically on the bomber program. In an effort to lower the cost of future programs, Boeing recently combined its defense and space development projects into a new organization, said Caroline Hutcheson, spokeswoman for Boeing Military Aircraft. “This is central to where we are heading with development programs,” she said. “You have to leverage mature technologies on development programs to manage cost and schedule risk. That's just as important as new inventions.”
Photo: Two B-2 Spirit bombers in flight refueling (Northrop Grumman)

Topics: Aviation, Procurement

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