Boeing Gets $9.2 Billion Air Force T-X Trainer Jet Contract In Upset Win (2024)

Boeing (BA) beatLockheed Martin (LMT) in a heated competition for the T-X trainer jet contract, giving a major boost the aerospace giant's combat aircraft business.

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The Air Force said the contract is worth up to $9.2 billionto replace aging T-38 trainers made by Northrop Grumman (NOC). The T-X trainer will prepare pilots for4th- and 5th-generation fighters and bombers.The first aircraft and simulators are due in 2023.

The service said it currentlyplans to buy 351 T-X trainer jets, 46 simulators, and associated ground equipment, but noted that the contract allows the Air Force to purchaseup to 475 aircraft and 120 simulators.

Air Force Secretary Heather Wilson said in a statement that the Pentagon will save at least $10 billion due to the competition. The original cost estimate was $19.7 billion for 351 aircraft.

But an award from the Air Force could be followed by similar contracts from U.S. allies, making the T-X trainer deal especially lucrative for Boeing.

"We expect T-X to be a franchise program for much of this century," saidLeanne Caret, head of Boeing's defense business, in a statement.

The Air Force is planning for the T-X trainer to reach initial operational capability by 2024 and full operational capability by 2034.

The battle among contractors for the T-X trainer has also seen some twists and turns with big names like Northrop dropping out of the running.

Analysts had seen Lockheed as the favorite, as it was offering a relatively low-risk aircraft that's based on a trainer already in production, while Boeing put forth a clean-sheet design.

"The Air Force likelydecided it would digest the risk as this is the optimal solution and Boeing was very aggressiveon price," said Teal Group aerospace analyst Rich Aboulafia.

Shares of Boeing rose fractionally in late trading, after closing up 0.65% at 367.39 on the stock market today, remaining in buy range. Lockheed rose 0.9%.

Boeing's Fresh T-X Trainer

Boeing and teammate Saab offered a clean-sheet design that represented more risk on cost and production.

But the companies said their T-X trainer hasmore capabilities as pilots train to fly 5th-generation fighters. For example, the all-digital co*ckpit reportedly has the flexibility to mimic F-22 and F-35 co*ckpits.

The Pentagon has had some issues on a separate Boeing aircraft that may have factored into its T-X trainer decision-making. The aerospace giant has been having problems delivering the KC-46 aerial refueling tanker,a derivative of a commercial 767 jet, to the Air Force on time and on budget.

Still, that didn't stop the Navy from awarding Boeing a contract last month to produce refueling drones that will take off and land on aircraft carriers. And Aboulafia noted that delays in awarding the T-X deal may have been due to the Air Force wanting to give Boeing extra time to mature its design, especially after other bidders dropped out.

The Air Force "might have viewed it as essential that Boeing plays a role in the bidding," he said. "With a clean-sheet design, it probably just needed more time."

The T-X trainer bid loomed especially large for Boeing, which is looking to stay in the defense airframe business after losing contests for theF-35 and theB-21 bomber to Lockheed and Northrop, respectively.

But additional Pentagon orders for Boeing's Super Hornet and hopes for more orders for its F-15 reduced the urgency for winning the T-X trainer contract.

The high price of Lockheed's F-35, which has an acquisition price tag of $400 billion, and other 5th-generation aircraft likely made cost an especially key issue in the T-X contest, Aboulafia said.

"This was a heavily cost-driven competition,"he told IBD. "There wasn't a lot of latitude for other factors. A lot came down to aggressiveness on price."

Lockheed T-50A

The Lockheed and teammate Korea Aerospace Industries offered the T-50A, a U.S. version of a trainer that has been flyingsuccessfully in South Korea since 2002.

Analysts gave Lockheed the edge in the T-X trainer contest because the T-50is already in production and a proven aircraft. Cost was a major, if not the main, factor in the decision, and the T-50's costs were more certain given its track record.

Indeed, Lockheed said 179 T-50 aircraft have been produced, with thefleet amassing more than150,000 flight hours. Lockheed had said the T-50A could be delivered in 2022, two years ahead of schedule.

"We were disappointed to learn that the U.S. Air Force did not select our offering," a Lockheed spokesman said. "We believe we presented a very strong solution and await the customer's debrief to hear more details regarding the decision."

Aboulafia said losing the T-X deal doesn't matter very much to Lockheed, which will produce the F-35 for decades to come.

He added that Lockheed is in "the best position of all the companies to still play a big role when that next-generation fighter comes around."

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