Over the next several months the Pentagon will award the contract for the Long Range Strike Bomber. If the Department of Defense’s history repeats itself, cost overruns on the project seem likely.
According to 2010 estimates each new plane is officially expected to cost $550 million. More recent estimates are higher. A 2014 report from the Congressional Research Service included estimates of up to $810 million per bomber. The Air Force is expected to buy 100 planes, which would cost a total of $55 billion even if the low official estimate per plane panned out.
One reason for the projected overruns is that there are only a few suppliers of military aircrafts to the Department of Defense (DoD), and so companies take advantage. The Washington Post describes the situation:
Read the rest of this post →‘Given the steep barriers to entry, it is not surprising that no one has disrupted the combat aircraft market,’ [Todd] Harrison [Director of Defense Budget Studies at the Center for Strategic and Budgetary Assessments] said. Unlike the space launch industry, which also flies commercial satellites, the market for combat aircraft is dominated by a single customer: the U.S. government.
The technical challenges are great, the costs high, the industry highly regulated. And barriers to exit are low: Lose one major contract and you could be out of an industry forever. All of which is why many companies have left the business but “nobody has entered the business of building aircraft since 1969 to any meaningful degree,” said Richard Aboulafia, an aerospace analyst with the Teal Group.
And so while Silicon Valley innovation and verve upends industry after industry, the companies vying for the bomber contract are the same stalwarts that have dominated military aviation for decades.