The US Air Force needs some good drones. It’s just doesn’t need Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT)Or Northrop Grumman (NYSE:CNP) to build them. That’s the surprising result of the Pentagon’s new contract announcement last month, in which the government chose none of its three major publicly traded defense contractors to do the work – and instead chose privately held General Atomics and Anduril.
For Boeing, Lockheed and Northrop, the damage from this decision is considerable: at least $30 billion in potential lost revenue.
Every fighter pilot needs a good drone sidekick – or better yet, two sidekicks
The Air Force is questioning the contract with its Collaborative Combat Aircraft (CCA) program, in which the planes that will “collaborate” are piloted combat aircraft and their acolytes of armed military drones. All five companies cited have submitted drone designs to the Air Force for review. These five models have now been narrowed down to two – General Atomics’ “Gambit” drone and Anduril’s “Fury” – and these two companies will now proceed to build prototypes for further evaluation.
The USAF then intends to select at least one of these prototypes for order in fiscal year 2026, meaning a decision could be made as early as next year. (The Pentagon’s fiscal year begins October 1, 2025.)
What is the size of the CCA contract?
The one who wins that The competition stands to inherit a real cash windfall. As Breaking Defense reported in March, the Air Force wants to equip all 300 of its F-35 stealth fighter jets, along with 200 others Next-generation Air Domination fighters (a plane to build) with two CCA drones each, or 1,000 drones in total.
With an estimated production cost of $30 million per drone, this makes CCA a potentially $30 billion program.
And that’s just for starters. BD notes that 1,000 drones only represent Air Force armament initial requirement until “the end of the decade”. As CCAs become damaged or obsolete, they will need to be replaced. Additionally, the United States currently has more than 450 F-35s and intends to eventually fly nearly 2,500.
Over time, the CCA program could theoretically grow five times in size – and five times in value, to $180 billion – simply by equipping its F-35s with two drone wingmen each.
What this means for defense contractors
It’s hard to overstate how bad this news looks for Boeing, Lockheed and Northrop. “$180 billion” — that’s a figure roughly equal to the total annual revenue of these three companies. giant defense contractorscombined, according to data from S&P Global Market Intelligence. Certainly, with the spread of the money over six years, by 2030, the annual loss of income is less, but it nevertheless remains quite significant.
But all is not yet lost.
General Atomics and/or Anduril will meet CCA’s initial needs for 1,000 military drones. But as the Air Force noted, “companies not selected to build these production-representative CCA vehicles and execute the flight test program will continue to be part of the broader pool of industry partner suppliers, composed of more than 20 companies, competing for future efforts.” , including future production contracts.
It is therefore entirely possible that Boeing, Lockheed and Northrop will still find work as subcontractors for whoever wins the first production contract(s). It is also possible that as the CCA program grows and expands beyond its initial requirements, the contract will be renewed and publicly traded defense stocks will get a second bite at the apple.
In the meantime, however, the dynamic clearly favors non-publicly traded defense companies General Atomics and Anduril. They won the first round and are in pole position heading into the next round. At this point, investors’ best bet to benefit from the Pentagon’s largest-ever military drone program may be to hope for an Anduril IPO.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
How Northrop Grumman, Lockheed Martin and Boeing all lost a $30 billion Air Force contract was originally published by The Motley Fool
