The United States Air Force needs a few good drones. It just doesn't need Boeing (BA 1.96%), Lockheed Martin (LMT 1.88%), or Northrop Grumman (NOC 1.88%) to build them. That's the surprising upshot of a new contract announcement out of the Pentagon last month, in which the government chose none of its three leading publicly traded defense contractors to do the work -- and picked privately held General Atomics and Anduril instead.
For Boeing, Lockheed, and Northrop, the damage from this decision is substantial: At least $30 billion in lost potential revenues.
NYSE: NOC
Key Data Points
Every fighter pilot needs a good drone sidekick -- or even better, two sidekicks
The Air Force calls the contract in question its Collaborative Combat Aircraft (CCA) program, in which the aircraft that will be "collaborating" are piloted fighter jets, and their armed military drone sidekicks. All five of the named companies submitted drone designs to the Air Force for consideration. These five designs have now been winnowed down to two -- General Atomics' "Gambit" drone and Anduril's "Fury" -- and those two companies will now proceed to build prototypes for further evaluation.
USAF intends to then pick at least one of these prototypes to order sometime in fiscal year 2026, meaning a decision could happen as early as next year. (The Pentagon's fiscal year begins on October 1, 2025.)
How big is the CCA contract?
Whoever wins that contest stands to inherit a real windfall of cash. As Breaking Defense reported in March, the Air Force wants to equip each of its 300 F-35 stealth fighter jets, plus a further 200 Next Generation Air Dominance fighters (a plane yet to be built) with two CCA drones each -- so 1,000 drones in all.
With an estimated $30 million production cost per drone, that makes CCA potentially a $30 billion program.
And that's just to start with. BD notes that 1,000 drones is just the Air Force's initial requirement through "the end of the decade." As CCAs are damaged or obsolesced, they will need to be replaced. Additionally, the U.S. currently possesses more than 450 F-35s, and intends to eventually fly nearly 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 pairing its F-35s with two drone wingmen apiece.
What it means for defense contractors
It's hard to overstate how bad this news looks for Boeing, Lockheed, and Northrop. "$180 billion" -- that's a number roughly equal to the entire annual revenue of all three of these giant defense contractors, combined, according to data from S&P Global Market Intelligence. Admittedly, with the money spread out over six years, from now through 2030, the annual lost revenue is smaller, but it's still a pretty big number.
But all is not yet lost.
General Atomics and/or Anduril will supply CCA's initial requirement for 1,000 military drones. But as the Air Force noted, "the companies not selected to build these production representative CCA vehicles, and execute the flight test program, will continue to be part of the broader industry partner vendor pool consisting of more than 20 companies to compete for future efforts, including future production contracts."
So it's entirely possible that Boeing, Lockheed, and Northrop could still find work as subcontractors for whoever wins the first production contract(s). It's also possible that as the CCA program grows in size and expands beyond its initial requirements, the contract will be recompeted, and the publicly traded defense stocks will get a second bite at the apple.
In the meantime, however, momentum clearly favors the non-publicly traded defense contractors, General Atomics and Anduril. They've won the first round, and have pole position heading into the next round. At this point, investors' best bet on benefiting from the Pentagon's biggest-ever military drone program may be to hope for an Anduril IPO.
