Despite a long history of building similar weapon systems, The Boeing Co. lost out to rival Lockheed Martin Thursday on a much-anticipated military contract to build a new generation of stealthy cruise missiles.
Lockheed's Electronics & Missile division of Orlando, Fla., won the competition to built at least 2,400 of the missiles for the Air Force beginning in 2002 - a contract worth about $2 billion in sales.It will be Lockheed's first cruise missile. Boeing currently makes three different cruise missiles at its plant in St. Charles, Mo., not far from St. Louis. Boeing acquired the missile programs from McDonnell Douglas in last summer's merger.
Boeing and Lockheed Martin had waged a heated battle since 1996 to win the preliminary design competition for the Joint Air-to-Surface Standoff Missile, or JASSM.
Although its exact capabilities are highly classified, the new missile will rely on the military's global satellite system for navigation as it hugs the ground and seeks out strategic targets. It is designed to be launched from a variety of fighters and bombers safely outside the range of enemy air defense systems.
"It's not the news we had hoped for. Naturally it's very disappointing to us," said David Phillips, spokesman for Boeing's Phantom Works in St. Louis, which was responsible for development of the company's losing entry.
Cai Von Rumohr, a defense analyst with Cowen & Co., said the win is a good one for Lockheed because it comes on the heels of its recent setback when the Justice Department filed suit to block the merger with Northrop Grumman Corp.
But Von Rumohr said the $2 billion contract is not large enough to significantly help Lockheed or hurt Boeing.
In picking Lockheed over Boeing, the Air Force said Lockheed had a "superior proposal" in just about every aspect, including cost.
"While Boeing offered a very good design, it was not as good as that offered by Lockheed, nor was the price," said Air Force deputy for acquisition Darleen Druyun. "Lockheed came out with a better product." Druyun was the Air Force official who made the final decision to select Lockheed.
The Air Force had previously estimated that each missile would cost about $700,000.
But Acting Air Force Secretary F. Whitten Peters said yesterday the competition between Boeing and Lockheed was so intense that it drove down the cost of each missile to less than $400,000.
In a statement, Lockheed executives said, "This win is strategically important because it builds on Lockheed Martin's leadership in precision strike systems and especially because it enables Lockheed Martin to enter the cruise missile market."
The project has not been without controversy. It has sparked a very public dispute between the Air Force and the Navy, which once was considering an order for about 700 of the new missiles.
But the Navy has since insisted it doesn't need the new missile and instead prefers Boeing's Standoff Land Attack Missile Expanded Response, or SLAM ER, which is an updated version of the company's Standoff Land Attack Missile, or SLAM.
Both the SLAM and SLAM ER are built in St. Charles, along with the Tomohawk cruise missile.