The two biggest defense contractors in the world, Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT), have just teamed up to bid on the Air Force's next generation-stealth bomber -- a contract that's estimated to be worth $55 billion. This move is brilliant, and frankly, it's absolutely horrible news for any other defense contractor that wanted to win the bomber contract. Here's what else you need to know.
Titans of defense
In the defense world, there's no bigger name than Lockheed. It's the top dog when it comes to defense revenue. However, Boeing closely follows it. Moreover, both companies have had their fair share of experience when it comes to planes. Plus, they've both won some of the Air Force's most expensive, and thereby lucrative, contracts -- Boeing won the KC-46 tanker contract, and Lockheed won the F-35 contract.
Now, they've teamed up to win the Air Force's next-generation stealth bomber. More specifically, Boeing will be the prime contractor, and Lockheed the primary subcontractor, according to Reuters. This move is probably unwelcome news for Northrop Grumman (NYSE:NOC) which has also said it plans to bid on the new bomber.
What to watch
As I previously wrote, the Air Force desperately needs new bombers, as right now, it's relying on the B-52s, which have been flying since the 1960s. More pointedly, the Air Force has been trying to acquire 100 long-range strike-bombers for years but have been unable to, for a number of reasons. Now however, conflicts are shifting from the Middle East to Asia, and that makes the need for a new bomber even more essential. Consequently, Air Force officials have labeled the new bomber a top acquisition priority and have said the Air Force needs new bombers by 2020.
Boeing and Lockheed's teaming is a serious threat to any other defense contract that's hoping to win the bomber contract, but that doesn't mean other defense contractors don't stand a chance. For example, if Northrop teamed up with EADS' Airbus, that would also be a teaming of the titans -- plus, they've teamed up in the past. There's no word that that will happen, but if Northrop is smart, it'll look into it. As they say, it's not over till the fat lady sings. Still, Boeing and Lockheed's teaming up is something to watch.
Fool contributor Katie Spence owns shares of Northrop Grumman. Follow her on Twitter: @TMFKSpence. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.