Boeing, Lockheed fight for contracts

NEW YORK — Deep within the proposed U.S. military budget, a war is raging.

Boeing and Lockheed Martin, two of the military's biggest suppliers, are fighting over billions of federal dollars to replace and retrofit the Air Force's heavy-airlift fleet.

It's a cash pot that's not expected to grow much over the next 10 years, and it's forcing Pentagon officials to make some tough decisions about what they choose to fund.

So far it's a battle Lockheed appears to be winning.

In the proposed 2011 budget, the Defense Department ended its acquisition of Boeing C-17 Globemaster jets, saying it has more than enough large military transport planes to meet future needs.

Instead of purchasing more of the $200 million jets, the Air Force wants to use the money to upgrade its aging Lockheed C-5 Galaxy fleet at a fraction of the cost, and to buy more of Lockheed's C-130 Hercules, a smaller tactical transport aircraft that's proved extremely versatile in the Middle East wars.

"The two companies have really been going at each other behind the scenes on Capitol Hill," said Loren Thompson, a defense analyst with the Lexington Institute. "Boeing wants the C-5 to retire so they can sell more C-17s, and Lockheed wants the C-17 line to end so they can upgrade the C-5 and sell more C-130s."

Some industry observers argue Lockheed has the better lobbying group, but the crux of the issue is cost. The Pentagon is facing leaner years as the federal government tries to rein in spending money it doesn't have.

At the same time, the agency is ramping up F-35 fighter-jet production and will soon award a $40 billion contract to replace its Eisenhower-era aerial-refueling tanker fleet.

The Air Force said that under current budget restraints, funding for higher-priority acquisition programs has to come from other projects.

"The U.S. spends as much on military technology as the rest of the world combined, so it's a little hard to believe that our military doesn't have enough money," said Thompson. "But the reality is that the Air Force can't afford everything it wants or needs."

There are more than 300 strategic airlift planes in the Air Force fleet, including 223 Globemasters and 111 Galaxy jets. Of its active tactical aircraft, 145 are Hercules, which are used for electronic surveillance, aerial refueling, weather reconnaissance, AC-130 gun ships and cargo transports.

Lockheed Vice President Jim Grant said the company plans to lift Hercules production to a rate in the mid-20s this year, up from 16 in 2009 and 12 in 2008.

Within the next few years, Grant projects the company will be at or near full-production capability at a rate in the high 30s.

The cost of a Hercules can vary widely based on its model type, but it has a list price of about $75 million.

For Boeing, the fate of its entire C-17 Globemaster program hangs in the balance. The U.S. is by far its largest customer and foreign sales have been elusive so far.

There's still the chance Boeing's friends in Congress will override Pentagon wishes and add a few more planes to the final number.

"Nothing is as sophisticated or as expensive as the C-17," said Paul Nisbet, an equity analyst with JSA Research. "They just need a couple of years to get the foreign orders they need to keep it going."