Lockheed says U.S. bomber win appears based solely on cost

WASHINGTON (Reuters) - Northrop Grumman Corp's (NYSE: NOC) bid to build a new U.S. bomber appears to have won the multibillion-dollar competition solely on the basis of cost, said a top executive with Lockheed Martin Corp (NYSE: LMT), whose team led by Boeing Co (NYSE: BA) lost the bidding.

Lockheed Chief Financial Officer Bruce Tanner told Reuters that he did not know the price of Northrop's winning bomber, and he knew his comments would come across as "sour grapes."

But he said the competition ultimately had "boiled down to cost" and he did not believe that choosing the lowest-cost bid was the best approach for a bomber that is supposed to last for over 50 years.

Tanner said the Air Force also had not recognized bomber capabilities offered by the Boeing-Lockheed team that exceeded the minimum requirements.

"It doesn't seem like that's going to convey into a platform that has upgrade capability for the next 50 years, like we think our offering did," Tanner said.

Northrop Grumman and the Air Force have released few financial details about the contract.

Northrop Grumman won the contract to design and build 100 new long-range bombers for the Air Force in October. It began work on the program in February after federal auditors ruled against a protest filed by Boeing and Lockheed.

Boeing and Lockheed later said they would skip further legal action against the Air Force award, which analysts said may be worth $80 billion to Northrop over time.

Despite having prevailed in the federal protest, Air Force officials are now facing tough questions by Senate Armed Services Committee Chairman John McCain about the "cost plus incentive fee" contract structure they chose for the development phase of the new bomber.

McCain has threatened to block the program as structured, arguing that the government could become liable for cost overruns if the program runs into trouble, as many weapons projects do.

He is trying to convince the Air Force to opt for a more rigid "fixed price" type contract, but Air Force officials say it could cost a significant amount to redo the contract.

(Reporting by Andrea Shalal)

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