NOC Northrop Grumman Corp Holding Co

By Doug Cameron 

A contest worth as much as $16 billion for the winner to build new Air Force training jets was upset Thursday after a big U.S. defense company pulled out and one of the front runners said it had yet to decide on entering.

Raytheon Co. said it couldn't reach a deal with its Italian partner that was in the best interest of the U.S. Air Force, while Northrop Grumman Corp., which designed a new plane for the contest, said it hadn't yet established whether its offering would be profitable.

The Air Force T-X program calls for 350 new planes to train pilots to fly jet fighters such as the F-35 and has attracted interest from Boeing Co. and Lockheed Martin Corp. as well, whose entries were largely designed overseas.

President Donald Trump recently expressed concern about the lack of competition among U.S. companies building military jets.

Northrop Grumman in 2015 dropped plans to modify planes built by BAE Systems PLC for the T-X contest in favor of its own new design, but Chief Executive Wes Bush said Thursday it had to "look through the cold, hard lens" of the Air Force contest before deciding whether to proceed.

"We need to be thoughtful about what it means going forward and that's the business case we're looking at," Mr. Bush told investors after Northrop reported forecast-beating quarterly earnings alongside 2017 guidance that fell short of expectations.

The Air Force issued final requirements for the T-X program in December and is expected to make a decision in the summer.

"The company is assessing the final [request for proposals] as part of its business process," a Northrop Grumman spokesman said.

Toby O'Brien, Raytheon's chief financial officer, said in an interview that it couldn't reach a business deal with Leonardo SpA to use a version of the Italian company's trainer jet for the U.S. Leonardo had previously proposed to use a similar jet in partnership with General Dynamics Corp. before the U.S. company also dropped out, saying it wouldn't be able to make a profit if it won.

Boeing has identified winning the T-X contest as a priority after its joint bid with Lockheed to build a new Air Force bomber lost out to Northrop. Last month, Boeing for the first time flew the all-new trainer plane it designed with Sweden's Saab AB.

Lockheed is offering the T-50A jet developed with Korea Aerospace Industries Ltd. after concluding it was too costly to develop a new plane.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

January 26, 2017 17:19 ET (22:19 GMT)

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