Competition to replace US nuclear missiles is down to 2 companies, but uncertainties remain – CNBC

The competition to replace America's 1970s-era nuclear-tipped intercontinental ballistic missile program is now down to two large defense companies in a contract that the Air Force originally estimated would cost about $62 billion.

Yet there's still a lot of uncertainty about the project, and its acquisition costs for taxpayers could go up to as much as $140 billion. Also, some critics of the program suggest we should just continue maintaining the current nuclear missiles as a deterrent for another decade to save money.

Regardless, the Air Force announced late Monday that Boeing and Northrop Grumman each won three-year contracts for the "technology maturation and risk reduction," or essentially the preliminary design phase, of the Ground-Based Strategic Deterrent intercontinental ballistic missile weapon system program.

Lockheed Martin had been in the running, but it didn't prevail.

GBSD is a modernization planned for the land-based Minuteman III, one leg of the nation's nuclear triad land, sea and air-based capabilities.

Boeing was the prime contractor on the Minuteman III system, which dates back to 1970s and has been undergoing continued maintenance to keep it in service.

"It was an important win for Boeing," Jefferies analyst Howard Rubel said in an interview. The analyst said Boeing's defense business has suffered several setbacks in recent years, including losing the long-range strike bomber contact to Northrop and having problems with its aerial tanker program.

However, he said Boeing and Northrop each are now "competing to be the eventual prime contractor" on the GBSD program. "You went from three competitors to two. You went from what I call broad concepts to now, two competing designers, who will come up with an industrialization concept that will...probably have some testing done to prove certain points along the way."

Boeing has yet to announce all of its partners in the GBSD program, and Northrop has announced some but not all.

Rubel said in a research note that he expects Orbital ATK and Aerjet Rocketdyne to also eventually get some work from the GBSD "as producers of large solid rocket motors. We expect the two companies to split the propulsion work in some fashion."

This is the first of several phases in the contract process for the GBSD program, although the Pentagon isn't expected to settle on a sole contractor for another few years. Production and then deployment aren't expected until the late 2020s.

The two contracts announced Monday, valued at no more than $359 million apiece, are just a small portion of what the overall program will cost. The Pentagon's independent cost assessment and program evaluation office last year upped the estimated acquisition cost to between $85 billion and about $140 billion.

"We are moving forward with modernization of the ground-based leg of the nuclear triad," Secretary of the Air Force Heather Wilson said in a statement. "Our missiles were built in the 1970s. Things just wear out, and it becomes more expensive to maintain them than to replace them. We need to cost-effectively modernize."

The modernization of the nation's nuclear comes at a time when superpowers such as Russia and China are modernizing their weapons. Also there are rogue countries such as North Korea that also are a nuclear threat with missile development programs.

Even so, some have suggested that the nuclear weapon capability using bombers and submarines is a more effective deterrent because they are harder to detect and can be dispersed. The Trump administration is conducting a nuclear posture review that will debate whether the U.S. should maintain the triad.

Also, some critics of the GBSD program believe the Pentagon should keep the current Minuteman III missiles as a deterrent for at least another decade rather than replacing it right away.

"Sustaining the Minuteman III for a period of time (say 10-15 years) beyond 2030 would be cheaper than GBSD over that period," said Reif Kingston, director of disarmament and threat reduction policy for the ACA. "The case for deferring a decision on GBSD and pursuing another life extension of the Minuteman III is strong."

To be clear, Kingston said deferring the modernization would require a reduction, but not elimination, in the size of the current force of land-based nuclear ICBMs. "A smaller force would not diminish the overall strength and credibility of the U.S. nuclear deterrent," he said.

Added Kingston, "We haven't built a new intercontinental ballistic missile in decades. As the program proceeds, they will have start to get a better sense of the costs. But at this point, there's a lot of uncertainty, and the Air Force's estimate ($62 billion) by all accounts is unrealistically low."

According to Kingston, a good portion of the data that the Air Force and others in the Pentagon had to work with to get an acquisition estimate on the Minuteman III replacement is "old and incomplete."

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Competition to replace US nuclear missiles is down to 2 companies, but uncertainties remain - CNBC