The US Air Force needs some good drones. It is normal not need Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT)or Northrop Grumman (NYSE: NOC) to build them. That’s the surprising result of a new contract announcement last month from the Pentagon, which the administration opted for no of his three top publicly traded defense contractors to do the work – and instead chose privately held General Atomics and Anduril.
For Boeing, Lockheed and Northrop, the damage resulting from this decision is significant: at least $30 billion in lost potential revenue.
Every fighter pilot needs a good drone sidekick, or better yet, two sidekicks
The Air Force calls the contract in question its Collaborative Combat Aircraft (CCA) program, in which the aircraft that will “work together” are piloted fighter jets and their armed military drone sidekicks. All five companies mentioned have submitted drone designs to the Air Force for consideration. These five designs have now been narrowed down to two – General Atomics’ ‘Gambit’ drone and Anduril’s ‘Fury’ – and those two companies will now continue building prototypes for further evaluation.
USAF plans to order at least one of these prototypes sometime in fiscal year 2026, meaning a decision could come as soon as next year. (The Pentagon’s fiscal year begins October 1, 2025.)
How big is the CCA contract?
Whoever wins That match will inherit a real windfall of cash. As Breaking Defense reported in March, the Air Force wants to equip each of its 300 F-35 stealth fighter jets, plus another 200 Next Generation Air Dominance fighters (a yet-to-be-built aircraft) with two CCA drones each – so 1,000 drones in total.
With an estimated production cost of $30 million per drone, that makes CCA potentially a $30 billion program.
And that’s just to get started. BD notes that 1,000 drones belong to the Air Force alone initial requirement until ‘the end of the decade’. Because CCAs are damaged or outdated, they must be replaced. Additionally, the US currently owns more than 450 F-35s and plans to eventually fly nearly 2,500.
Over time, the CCA program could theoretically grow five times in size — and five times in value, to as much as $180 billion — by equipping the F-35s with two drone wingmen each.
What it means for defense contractors
It’s hard to overstate how bad this news looks for Boeing, Lockheed and Northrop. “$180 billion” — that’s a number roughly equal to the entire annual revenue of all three of these giant defense companies combined, according to data from S&P Global Market Intelligence. Granted, if the money is spread out over six years, from now through 2030, the annual lost revenue is smaller, but it’s still a pretty big number.
But all is not lost.
General Atomics and/or Anduril will meet CCA’s initial need for 1,000 military drones. But as the Air Force noted, “the companies not selected to build these production-representative CCA vehicles and conduct the flight test program will remain part of the broader pool of industry partners, consisting of more than two dozen companies, to compete for future efforts. , including future production contracts.”
So it’s entirely possible that Boeing, Lockheed and Northrop could still find work as subcontractors to whoever wins the first production contract(s). It is also possible that as the CCA program grows and expands beyond its original requirements, the contract will be re-competitive and publicly traded defense stocks will get a second bite at the apple.
In the meantime, however, momentum is clearly in favor of privately held defense companies General Atomics and Anduril. They won the first round and are in pole position heading into the next round. Right now, the best way for investors to take advantage of the Pentagon’s largest-ever military drone program is 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
