The Pentagon won't abandon the winner-take-all design competition for the largest aircraft contract in its history, officials announced yesterday, setting up a showdown between defense giants Lockheed Martin Corp. and Boeing Co. that could determine each company's future in the fighter aircraft business.
The Department of Defense had considered dividing the contract for a new Joint Strike Fighter, worth $200 billion to $400 billion over the next two decades, because of concerns that the loser might be forced out of the business.
The Joint Strike Fighter is the first warplane conceived for service in each branch of the military, and could eventually be the nation's only fighter plane in production.
But Pentagon acquisitions chief Jacques Gansler said yesterday that dividing the program would increase costs and delay production - considerations too important to ignore.
"The issue that was driving us was not an industrial base issue, it was primarily a cost question - whether we could make a savings in the long term," Gansler said.
"You have to discount future savings because of the fact that they're in the future."
The announcement surprised industry analysts, many of whom expected the Pentagon to split the contract.
Some said the potential cost of the aircraft contract is so high, and its potential impact on the fighter plane business is so formidable, that they still expect all of the nation's top defense contractors to share in its production.
"I'm still not convinced it won't ultimately be split - even once they pick a winner," said Paul H. Nisbet, an aerospace analyst for JSA Research Inc.
"If they're trying to keep the thing on schedule, then it's really too late to start changing things. They'll probably break it up eventually."
Lockheed Martin and Boeing have designed and built their own prototypes of the Joint Strike Fighter, which is intended as a replacement for the Air Force's F-16 and A-10, the Marine Corp's AV-8 Harrier and the Navy's F/A-18 Hornet.
Neither company's aircraft has flown yet, but they are expected to begin flight tests later this year. The winner is not expected to enter service until 2009.
The Defense Department often holds design competitions, paying two companies to build prototypes, then selecting one for full production.
But the Joint Strike Fighter contract is unique in its size. Counting foreign sales, it could call for production of as many as 6,000 aircraft at $28 million to $35 million apiece.
A spokeswoman for Bethesda-based Lockheed Martin said the company is proceeding with development of its X-35 prototype, expecting a fly-off competition with Boeing's X-32.
In recent months, officials throughout the defense industry have said they expected the contract to be shared.
Officials at Northrop Grumman Corp., which builds 40 percent of the F/A-18, have said they need at least 20 percent of the contract to stay in the fighter business.
But Gansler said dividing the contract would lead to delays, and that the Marines and the Air Force will need the aircraft badly by 2010.
The winner-take-all strategy will be preserved to ensure the best and cheapest Joint Strike Fighter design, he said, and considerations about the losing contractor will come later.
"There is going to be a winner that's going to be based on the proposals and their flight testing," he said.
"And then we can decide whether the loser is also going to be brought into the program at that point, if it looked as though there was some advantage to doing so."
Some analysts said yesterday that the Pentagon's decision to seek low costs and fast development rather than ensure preservation of the industrial base points out a potential weakness in the Joint Strike Fighter program.
Defense analysts have long suggested that building one aircraft to perform every mission is militarily impractical, but if that aircraft is expensive it could become politically impossible.
"Nobody has done the adult thing yet and said we can't afford to build the F-22, the F/A-18 and the Joint Strike Fighter all at once," said Richard L. Aboulafia, an aerospace analyst for Teal Group Corp. in Fairfax, Va.
"No one has explained how the budget will grow to accommodate this. I think the JSF is in such great and obvious peril that you could say this doesn't matter."