Boeing Lockheed Martin Lrs B

Strategic Alliance

There are a number of reasons why companies engage in strategic alliances. Typically, these are rooted in the idea of comparative advantage, where the two companies bring their respective strengths to the project, theoretically these strengths complementing each other. There are some industries where the practice is quite common, in particular pharmaceuticals and defense. Indeed, in some of these industries, companies can have multiple strategic alliances at any given time. A good example of this is Boeing and Lockheed Martin, both defense contractors with expertise in aerospace. They have collaborated on an air transportation system for the commercial air industry (Boeing, 2007), and on jet fighters for the Department of Defense (Thompson, 2013). This paper will focus on the latter as the strategic alliance to be discussed. Ultimately, the long-range bomber project failed for the alliance, which actually highlights one of the major reasons why such alliances are common in the defense industry.

Company Histories

Boeing started as an aircraft producer for private use, and quickly became a supplier of aircraft for some of the world's first commercial airlines. By the Second World War, Boeing moved into military aircraft production, and it retained that position after the war. The Department of Defense typically wants to see competition so it ensures that all of its major defense contractors have enough business to survive. This is one of the reasons why Boeing was able to carve out a business as one of the handful of aerospace providers to the DoD. Boeing's defense business is today worth revenues of $30.9 billion, delivering 179 military aircraft, five satellites and 10,998 weapons systems. The company has a backlog of $62 billion in its defense business, spanning from those products to spacecraft and weapons. The company's speciality lies with was rockets and thrust, which is why it has significant airplane businesses as well as spacecraft and satellites. It also sells to key allies, such as Japan, and has developed a Global Missile Defense System.

Lockheed Martin is primarily a defense contractor, worth $45.6 billion in annual revenue. It competes in many of the same segments as Boeing. One of its flagship products is the F-35 Lightning fighter jet, and it delivered 36 of these in 2014. It also sells to key allies, such as South Korea and Australia. LM also produces vessels for the U.S. Navy, has a cyber security business, works on commercial aviation management systems and has an IT business.

Prior History

As noted, Boeing and Lockheed Martin work together frequently. They worked together to promote a civil aviation management system as an upgrade on the current system. Both companies worked together on the Delta IV rockets that launched the Orion probe to Mars. On the project in question, the Department of Defense had put out bidding for a long-range bomber, the first such project of its kind in 30 years. There were two bids, from Boeing/Lockheed Martin and from Northrup-Grumman.

Long-Range Bomber

In the long-range bomber, Boeing was the primary contract and Lockheed the primary teammate. The objective of the strategic alliance was to win the bid for the bomber, said to be the largest military aircraft contract in over a decade (Seligman, Clevenger & Mehta, 2015). Observers felt that one of the reasons Boeing and Lockheed needed to partner is because Northrup Grumman had significant advantages in winning a bomber contract. Northrup had won the contract for the B-2 Spirit, the lead bomber in the Air Force's fleet. Boeing clearly felt the need to overcome this experience gap by teaming with Lockheed to bring other advantages to the table. First, the combination of Boeing and Lockheed is a bigger and more financially powerful company than Northrup Grumman is. The financial resources required to bring a project like this to fruition are tremendous, and there are significant financial risks, like having the project pulled out from under you right after you win the deal (Hillis, 2015).

Another reason why the two companies combined in a strategic alliance for this bid was that there are only three companies that have won major aircraft contracts for the military since the 1970s, so it stood to reason that two would partner in an effort to be the dominant bidder -- taking half of a winning bid would be more valuable than getting shut out. Indeed, these companies wanted to win this badly enough that after Northrup won, they filed a protest with the Government Accountability Office (Hillis, 2015).

There were also strategic elements to the deal, in that the program was characterized by the Air Force as an entire family of systems. Both Boeing and Lockheed Martin are major providers of many other key elements, so their combined knowledge of the technology and in particular of the objectives of this program could theoretically have set them apart. (In reality, this may have worked against them, as the DoD often likes to spread the love around with its contracts, and may have chosen Northrup specifically to get another player into this technology family). There were also synergies between these two companies with respect to their industrial capabilities - while there is some overlap they do each have different specialities that they could bring to the table. All told, both companies felt that it would take a combined bid to win, and by combining with each other they felt that they could overcome the strength of Northrup's recent bomber experience.

Outcomes