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Under Secretary Aldridge Interview with CNBC

Presenters: Edward C. "Pete" Aldridge, USD ATL
October 27, 2001 6:20 PM EDT

Friday, October 26, 2001 - 6:20 p.m. EDT

(Live interview with Ron Insana, CNBC.)

Insana: All right. The reaction to the awarding of the largest defense contract in history, Lockheed Martin winning the bidding for the Joint Strike Fighter from the Pentagon, a $200 billion deal potentially, and the reaction, of course, was quite joyful at Lockheed Martin; not so, of course, at Boeing. And we'll be talking to the CEOs of both competitors in just one moment --

Of course, this is one of the biggest deals in the history of defense procurement, and, as you saw, Lockheed Martin shares just a few moments ago continued higher in after-hours trading, trading as much as $4. United Technologies, which is likely to be partnered with Lockheed Martin, will also, in fact, benefit from this contract; the stock trading up in after-hours -- was trading up earlier today. This is, of course, the behavior in the United Technologies since September 11th. But United Technologies was very strong today, possibly telling us who the likely winner was. UTX, a Dow component, was up a couple of dollars in today's trading. Since, however, September 11th, it has traded down some 8 1/5th points, or 12%, to $57.99 a cents a share. But, again, today, Lockheed Martin and United Technologies very strong; Boeing not so.

As you know, this is a rather long process. The Joint Strike Fighter has been in works for quite some time with Boeing and Lockheed Martin offering competing versions of a plane that is supposed to take off both vertically and horizontally. And joining us now to tell us just how the Pentagon arrived at the decision is Edward Aldridge. He announced Lockheed as the winner earlier today. Under Secretary of Defense "Pete" Aldridge joins now to fill us in on some of the details of the bidding.

Sir, thank you for being with us. Appreciate your taking the time.

Aldridge: Hello, Ron. Glad to be here.

Insana: How did you arrive at the decision to award the contract to Lockheed Martin?

Aldridge: Well, there's two decisions that had to be made. One decision was to actually complete the program, start into the next phase, and then the decision was made to down-select of the winner. That decision for down-select belonged to the Secretary of the Air Force. That was Jim Roche. The decision to proceed in the next phase of the development was my decision. I made that recommendation, and we did follow that up today.

Insana: All right. Now, what does it mean? Is it a $200 billion contract when all is said and done?

Aldridge: It is the largest acquisition program in the history of the Department of Defense. We're expecting it to be in excess of $200 billion over the period of the program. The exact number, of course, is dependent on how many international participants come on board the program and how many airplanes the Air Force and Navy and Marine Corps ultimately buy.

Insana: What will it do for U.S. defense capabilities?

Aldridge: It is a major improvement, a significant change. It is -- we call it a transformational change. It'll basically put the entire tactical Air Force of the Department of Defense, the Air Force, the Navy and the Marine Corps in an all-stealth configuration once the airplanes are fully deployed.

Insana: All right. Let me ask you about the downside of this contract. Boeing, which did not win on the bidding, though, may participate in some of the subcontracting work, says it cannot rule out layoffs as a consequence of losing this. This comes at a time when Boeing is reeling from the loss of commercial aircraft business in the wake of the September 11th attacks. Did any of those considerations factor into your decision ultimately?

Aldridge: No, Ron, it can't. The criteria for the selection of the airplane is very, very strict, and they're predetermined before the competition starts. It has to do with performance, management, cost, past performance. All of those factors are well defined prior to the competition. We can't take into effect uncertainties regarding layoffs or stock prices, or anything like that, during the competition. And the competition is very, very strict and comprehensive and has to be followed very closely. And that's what we did.

Insana: All right. Secretary Aldridge, we appreciate your -- thanks for joining us tonight.

Aldridge: Glad to be with you.

Insana: Pete Aldridge, under secretary of Defense for Acquisition, Technology and Logistics.

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