UPDATE: Richard Aboulafia, a respected aerospace analyst at the Teal Group, was less optimistic than Thompson about the chances of the Boeing-Lockheed leviathan team. “The protesters face an uphill battle. The Air Force went out of its way to protest proof this contract and used multiple layers of oversight,” he says in an email. “On the other hand, the very fact that the companies are protesting despite the cost indicates that they feel they’ve got some kind of chance here. It’s unlikely that they’ll have found something as significant as a tanker protest, but it is conceivable.”

Northrop Grumman Long Range Strike Bomber concept

Several hours after word of the protest broke, Northrop’s Communications VP Randy Belote issued a statement:

“Northrop Grumman Corporation is disappointed that its former LRS-B competitors have decided to disrupt a program that is so vital to national security.

“The U.S. Air Force conducted an exceptionally thorough and disciplined process with multiple layers of review. Their process took into full account the parties’ respective offerings and their relative capabilities to execute their offerings on schedule and on budget.

“Northrop Grumman offered an approach that is inherently more affordable and based on demonstrated performance and capabilities. Our record stands in contrast to that of other manufacturers’ large aircraft programs of the last decade.” UPDATE ENDS

The battle lines now look pretty clear. Northrop touts its skill at all-aspect stealth, low-rate production and sensors. The leviathan team argues that the government should value its high-rate production skills and cost controls more highly. Let’s dive deeper into the production and cost arguments.

Between them, Boeing and Lockheed delivered more than 300 military aircraft last year, Thompson noted. Northrop Grumman delivered nine, all either drones or turboprops rather than jets. True, Northrop built the nation’s only stealth bomber, the B-2, but since those glorious and expensive days, it’s evolved into a maker of drones and of advanced sensors and other components for other companies’ planes. “Northrop is basically out of the manned aircraft business,” Thompson said. “Acting as if these two offerors are equal… is kind of crazy.”

Past performance is also a problem for Northrop, Thompson said, although given the very different kind of business it does, it’s not easy to make an apples to apples comparison. “Lockheed and Boeing programs have tended to come in about 50 percent over the originally bid price over the last 20 years,” he said.  “The analogous number for Northrop Grumman is more than twice that.” Northrop has particularly struggled with big satellite programs such as NPOESS, which incurred huge cost overruns.

Note that Thompson has at least half of a dog in this fight. While all three companies contributed to this thinktank in the past, only Boeing and Lockheed still do. He’s also a consultant to Lockheed. Partly because he’s such an insider Thompson is extremely well-informed. “I knew this was coming two days ago,” he told me, and he’s written pieces for Forbes that previewed the protest, one a week ago, one just before the protest announcement (which has since been updated).

“This looks like a replay of the [KC-46] tanker competition where Northrop bid aggressively and Boeing argued the government was not thinking rigorously [about cost and risk],” said Thompson. “It failed to adequately assess risk of the competing proposal… how unlikely a successful execution by Northrop would be.”

While the Air Force was overly optimistic about Northrop’s capability to produce the plane, Thompson said, it was also overly pessimistic about the Boeing-Lockheed team’s ability to control costs. To quote the companies’ press release this morning, “the cost evaluation performed by the government did not properly reward the contractors’ proposals to break the upward-spiraling historical cost curves of defense acquisitions.”

In English, that means the companies based their bid on new techniques to keep costs down, but the Pentagon scored the bids based on historical cost data — which of course is worse. In fact, the Air Force ended up doubling both competitors’ estimates for the development phase. Given the legacy of overruns on major weapons programs, it’s hard to argue with a conservative cost estimate, but Boeing and Lockheed are going to try.

“If the award is overturned by GAO it means a delay up front in executing the bomber program,” Thompson said. The reason Boeing is going forward with the protest is because it’s convinced that the delays would be far worse when Northrop ran into execution problems.”

Here’s the statement from Boeing and Lockheed:

“Boeing [NYSE: BA] and Lockheed Martin [NYSE: LMT] filed a formal protest today asking the U.S. Government Accountability Office (GAO) to review the decision to award the Long Range Strike-Bomber (LRS-B) contract to Northrop Grumman.

“Boeing and Lockheed Martin concluded the selection process for the Long Range Strike Bomber was fundamentally flawed. The cost evaluation performed by the government did not properly reward the contractors’ proposals to break the upward-spiraling historical cost curves of defense acquisitions, or properly evaluate the relative or comparative risk of the competitors’ ability to perform, as required by the solicitation. That flawed evaluation led to the selection of Northrop Grumman over the industry-leading team of Boeing and Lockheed Martin, whose proposal offers the government and the warfighter the best possible LRS-B at a cost that uniquely defies the prohibitively expensive trends of the nation’s past defense acquisitions.”