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I mentioned this in the Friday night open thread, but it’s worth a separate post. Boeing lost a major mega-contract on an air tanker to Airbus/Northrop. Lots of buzz in military circles about the decision that came down today:
Northrop Grumman Corp. won a U.S. Air Force program valued at as much as $35 billion to build 179 aerial refueling tankers with partner European Aeronautic Defence & Space Co. in a surprise decision that breaks Boeing Co.’s half-century hold on the business.
Northrop, based in Los Angeles, and its team won an initial contract of $1.5 billion for development and design of four test aircraft and five options valued at $10.6 billion to build 64 aircraft, the Air Force said in a statement today. Boeing was the unanimous pick to win in a Bloomberg News analyst survey this month.
The new aircraft, to be named the KC-45A, will replace Boeing-built KC-135 tankers flown by the Air Force since 1956. If all contract options are fully funded, the tanker program would become the largest Pentagon project since 2001 when Lockheed Martin Corp. was chosen to build the Joint Strike Fighter.
“This was definitely a surprise win,” said Peter Arment, an analyst with Greenwich, Connecticut-based American Technology Research, who has a “sell” rating on Boeing stock. “Northrop had a plane with more capability for cargo and fuel capacity and those capabilities made it very compelling. The Air Force decided that was the direction they wanted to go in.”
The announcement came after the close of U.S. markets. Northrop, the third-largest U.S. defense contractor, rose $4.19, or 5.3 percent, to $82.80 at 5:58 p.m. in after-market trading. Boeing shares fell $2.69, or 3.2 percent, to $80.10 at 6 p.m.
Boeing said it hasn’t decided whether to protest the decision.
John Noonan notes a corruption angle on the story, with John McCain playing a key role in exposing shady Boeing dealings:
The KC-30 will be assembled in Mobile, Alabama, but much of the work will be done in Airbus’s facility in Toulouse, France. There had been doubts as to whether the Air Force, and Congress, would award such a massive contract to a French firm, but a thaw in relations following the election of Nicolas Sarkozy may have eased concerns. Also Northrop claims that its aircraft will create 25,000 American jobs.
The Air Force’s tanker acquisition program first received national attention in 2001, when Senator John McCain called into question a no-bid contract that would have seen the service lease, rather than buy, 100 tankers from Boeing. Upon further investigation, it became clear that Boeing had offered illegal inducements to Air Force officials in exchange for the contract. The ensuing scandal led to jail sentences for two Boeing officials, including the firm’s CFO.
McCain has repeatedly noted his role in exposing the corrupt deal during this year’s presidential election.
The Northwest congressional delegation is up in arms–issuing a bipartisan joint statement:
We are outraged that this decision taps European Airbus and its foreign workers to provide a tanker to our American military.
This is a blow to the American aerospace industry, American workers and America’s men and women in uniform.
Boeing has 75 years of experience in building the tankers our military flies. Washington state’s workers are second to none and so is their product.
At a time when our economy is hurting, this is a blow not only to our state, but the more than 40 states across the country who would help build this national plane.
We will be asking tough questions about the decision to outsource this contract. We look forward to hearing the Air Force’s justification.
Aerospace workers in the Seattle area held angry protests after the announcement.
DonWard at Soundpolitics weighs in:
The Northrop Grumman/European Aeronautic Defense and Space Co. variant of the AirBus A-330 frame was more in keeping with the strategic goal espoused by the Pentagon than the modified 767. EADS has already beat out Boeing with smaller tanker contract competitions between the two models.
The A-330 reportedly has greater flight endurance and a bigger payload than the 767. Boeing’s product has the tactical advantage of being able to be deployed closer to frontline battlefields and on smaller runways. This has its benefits to be sure where, in theory, tankers could base in Afghanistan or similar far flung environments.
This runs contrary sixty years of Air Force doctrine where the strategic purpose of refueling tankers is to linger out of harms way for an extended period of time.
If a tanker plane design carries more fuel and flies longer it will beat any competing design lacking in those two categories; all things being considered equal.
Another issue is that the Pentagon has snubbed an American airplane manufacturer in favor of a foreign rival. The question is whether supporting a domestic company outweighs the military benefits of having a superior piece of equipment.
This is always a consideration.
Boeing could have made the decision easier by designing the plane which the Air Force brass wanted in the first place rather than dictating to the military what they had to make do with.
The Seattle Times asks its readers: Why do you think Boeing lost the contract?
If any of you have expertise/familiarity with the issue, share your thoughts.
Update: Good point from a reader who e-mails, “Boeing is responsible for designing the virtual border fence which is a virtual disaster. They did not even consult the border agents on the software that was to be used and now has to go back and redesign the software for military style usage. So Boeing may not be the best people to trust with national security at the moment.”
Update 3/1: Via the Seattle Times this morning, more sound, fury, and threats from lawmakers…
“This won’t be pretty.”
That is the warning and the promise issued Friday by Rep. Norm Dicks, one of Boeing’s foremost supporters in Congress.
Dicks, D-Bremerton, predicted “there will be a firestorm of criticism on Capitol Hill” over the Pentagon’s award of the $40 billion tanker contract to a joint venture between European EADS, the parent of Airbus, and Northrop Grumman.
Dicks’ words were echoed by Sen. Patty Murray and Rep. Rick Larsen, D-Lake Stevens, whose district includes Everett’s Boeing plant.
“Obviously, Congress is going to react to the American public,” Murray said, adding there will likely be anger on the part of Americans who see thousands of jobs being sent overseas.
How about getting the facts first?
But the legislators acknowledged that their immediate reactions to the news — shock and anger — might have to give way to administrative processes.
“As much as we want to yell and scream today, we do need to understand from the Air Force what the facts are,” Murray said.
She said the Pentagon must debrief members of Congress, explaining how Boeing’s bid fell short. The real test then will be whether their colleagues from other states are prepared to take action, Murray said.
That could be complicated by McCain’s emergence as the likely Republican nominee for president, though he has said he thinks the earlier scandals no longer taint Boeing.