Costing "literally... its weight in gold" the Northrop Grumman (NYSE:NOC) B-2 Spirit stealth bomber is the most expensive warplane in U.S. history. In fact, the "B2 bomber" almost seems a typographical error. The Air Force might have intended to name it the "2B Bomber."
Because that's how much each B2 bomber cost to build -- $2 billion. Once you realize that, the implications for the Air Force's plans to build a B-3 bomber get pretty ominous.
Introducing the B-3 bomber... eventually
Last month, the Air Force confirmed it is pushing back construction of a planned B2 bomber replacement, dubbed the Long Range Strike Bomber, or LRS-B. (But a lot of us are already calling it the "B-3.") Three companies are bidding to build it, too: a joint team of Boeing (NYSE:BA) and Lockheed Martin on one hand, and the B2 bomber's incumbent builder, Northrop Grumman, on the other.
Investors initially hoped to learn which team would win the LRS-B contract this summer. But as now reported by Military.com, the award has been pushed into September.
If it happens then, this will be a relief for the contractors who win the contract and the investors who own their stock. For months, we've watched this contract creep along at a stealth snail's pace, with an announcement always just months away -- and always postponed by a couple of months just before the news was due out.
Now, the waiting may finally over.
What comes next? The timeline
If a contract arrives in September, the LRS-B timeline will expand dramatically -- from months to decades. As detailed by Military.com, building the LRS-B will take anywhere from five to seven years from the "go" date of the contract award. LRS-Bs will begin landing at Air Force bases sometime in the mid-2020s, and construction of the entire fleet of up to 100 planes would conclude around 2040. After that, says Assistant Air Force Secretary for Acquisition William LaPlante, LRS-B "will be with us for 50 years."
That is, if it ever gets built at all.
What doesn't come next? The bomber
Now, here's why after all the waiting -- and even after the contract gets awarded -- I do not believe the LRS-B will ever get built: It costs too much. No mere "solid gold" B2 bomber, the LRS-B is on a trajectory that could turn it into a flying platinum-plated piggy bank for defense contractors.
The math works like this:
- LRS-B was initially advertised as a $55 billion program. Each LRS-B was to cost $550 million, which, times 100 bombers, equals $55 billion.
- That estimate was initially posited in 2010, though, so those were "2010 dollars." After inflation, $55 billion is $68 billion today.
- And $55 billion/$68 billion is just the cost of construction. Research and development of LRS-B could cost $25 billion more, taking the total program cost to $93 billion.
In the best possible world, this means each LRS-B built will cost taxpayers nearly $1 billion, or nearly 10 times the advertised cost of an F-35 fighter jet.
Now, imagine what happens when the media figure this out and begin running headlines about how the LRS-B program is nearly 100% over budget, and how the airplane, expected to cost $550 million, will now cost twice that.
In tight budgetary times, Congressional opposition to the LRS-B will be fierce, and calls to curtail production strident. Pretty soon, a program that initially called for construction of 100 stealth bombers will be rolled back -- to 50, to 40, or perhaps only 20 planes (equal in size to the U.S. B2 bomber fleet).
Death knell for the $3B bomber?
Now, let's consider where this would leave LRS-B. With $25 billion in development costs spread over just 20 bombers, each plane would cost $1.25 billion just to develop. Construction costs, in present-day dollars, would add $680 million, resulting in a per-plane cost of $1.93 billion.
That would put the LRS-B within spitting distance of the B2 bomber's $2 billion price, even assuming no cost overruns. (Hint: Military programs always overrun on cost.) While not necessarily a "B-3" -- or "$3B" -- warplane, LRS-B could get pretty close to $3 billion per plane.
Now, could I be wrong about the LRS-B program, its cost, and its prospects? Absolutely. Much as we might wish it to be otherwise, investors, and defense writers, lack 20-20 clairvoyance. But the risks here seem real. My advice: If you're thinking about investing in one of the defense contractors bidding on LRS-B, don't count on getting any gold eggs before you actually see these birds hatch.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 332 out of more than 75,000 rated members.
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.