Defense contractor retains business of supplying U.S. with GPS satellites
By Andy Pasztor
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 27, 2018).
Lockheed Martin Corp. will remain the sole producer of satellites for the government's Global Positioning System after two main rivals decided against bidding on the newest version, reflecting new Air Force acquisition strategies that favor incumbent contractors on some big-ticket space programs.
The decisions by Boeing Co. and Northrop Grumman Corp. this month to forgo competing for the multibillion-dollar business are in keeping with efforts by Air Force brass to reduce long-term costs and accelerate production of GPS satellites. They underscore the Pentagon's broader drive to transform acquisition of space technology -- satellites, rockets, missile warning systems -- into a less expensive and more nimble process.
The U.S. military, which is already committed to buying up to 10 next-generation GPS III satellites from Lockheed, has been advised by procurement experts inside and outside the Air Force that the best way to streamline the program is to stick with the existing supplier, say people familiar with the details.
The government-owned satellite system supports a range of widely used devices, from navigation aids to the cash-dispensing machines at banks. The Air Force has run the GPS program for decades, providing services to both government and commercial users.
The developments come against a backdrop of heightened threats to U.S. space technology from Russia and China. Military and intelligence experts warn that U.S. national-security satellites, for example, could be blinded or damaged by hostile forces using lasers, antisatellite weapons and other types of weapons.
Air Force leaders also are under congressional pressure to show progress in overhauling the acquisition of space hardware. Some House GOP leaders advocate a separate branch of the armed services dubbed a space corps.
With product development largely paid for and 22 additional GPS III satellites slated for procurement, the focus is now on smoothing out assembly, according to one person involved in discussions. "The Air Force realizes it needs to dramatically squeeze costs while ratcheting up the pace of production," the person said.
There are currently 31 GPS satellites in orbit, including spares. The latest models feature greater power, accuracy and jam-resistant capabilities. The first Lockheed-built GPS III satellite, with a longer lifespan than its predecessors, will launch this fall at the earliest.
In the past, the Air Force's sprawling acquisition bureaucracy regarded competitive bidding as key to getting the best price. But now the emphasis is on moving quickly and, in some other programs, building prototypes to swiftly demonstrate cutting-edge technologies before committing to long-term production.
The process change aims "to put large amounts of hardware on orbit now, at the lowest possible cost," according to industry consultant Jim McAleese. Such moves "are critical for the Air Force at all levels," he said in an interview Wednesday.
Boeing, which built a previous version of GPS satellites, declined to comment. Instead, it referred to its statement earlier this month that it didn't bid because the Air Force's request, in part, prioritized uninterrupted production over creating new GPS features and capabilities.
Northrop spokesmen couldn't be reached for comment. The company has indicated it didn't submit a bid because it didn't make financial sense. Last year, Northrop surprised aerospace industry analysts by not bidding on some larger Pentagon contracts, including one to supply unmanned tanker aircraft for the Navy and a training aircraft for the Air Force.
A Lockheed spokesman also declined to comment. When it submitted its bid, the company said modular design envisioned "insertion of modern technologies and new Air Force requirements in a low-risk manner."
Retaining GPS business is particularly important for Lockheed as it faces the end of production on its premier Pentagon communications and missile-warning satellite constellations, The company also has invested heavily in recent years to shake up its commercial satellite-making operations, and industry officials said some of those efficiencies give it a distinct price advantage over Boeing and Northrop.
Lockheed went over budget on its initial GPS production that dates back seven years, but company officials have said the program is back on track. The Pentagon now says the unit costs for each satellite will be at most 6% higher than initially projected, though cost overruns for development were significantly larger.
Based on current prices, the anticipated fixed-price contract, excluding potential incentive payments, could total more than $12 billion.
At a space conference in Colorado last week, Air Force officials declined to discuss specifics of GPS bidding procedures, but said rigorous cost estimating would be used if there were to be only one bid. They also spelled out the scope and reasoning behind the new direction in space contracting.
Lt. Gen John Thompson, head of the Air Force's Space and Missile Systems Center in suburban Los Angeles, said future requests for bids would "take advantage of similarities between programs," noting that "we have so much redesign work to do" regarding SMC's structure and acquisition policies.
He also said future satellite fleets will have to be "more defensible and resilient systems."
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