Northrop Beats Boeing for $35 Billion Tanker Program

[Kevin Teh 0]

By Tony Capaccio and Edmond Lococo

 

Feb. 29 (Bloomberg) -- 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.

 

`Possible Options'

 

``Our next step is to request and receive a debrief from the Air Force,'' the company said in a statement. ``Once we have reviewed the details behind the award, we will make a decision concerning our possible options, keeping in mind at all times the impact to the warfighter and our nation.''

 

Because of the high stakes involved, nine of the respondents in the Bloomberg survey said they expect the losing bidder to file a protest against today's award.

 

Efforts to replace the fleet have been held up since 2004, when a $23 billion plan to lease and buy 100 new aircraft from Chicago-based Boeing collapsed amid ethical violations by a company executive and an Air Force official.

 

Today's order is the first step to replacing more than 500 KC-135 aircraft. Two more competitions will be held to replace the rest of the fleet. The first 179 aircraft would be built through 2018, the Air Force said today.

 

`Tireless Work'

 

``These tankers will provide the air-bridge for the United States to defend our national interests and assist our friends anywhere on the planet,'' Secretary of the Air Force Michael Wynne said in a statement announcing Northrop's win. ``Today's announcement is the culmination of years of tireless work.''

 

The two bidders took different approaches to the contest, with Northrop and EADS offering a larger plane to carry more fuel, cargo or passengers, and Boeing offering an aircraft closer in size to the current fleet.

 

Northrop's 192-foot-long KC-30 carries 250,000 pounds of fuel, 24 percent more than the 202,000 pounds that Boeing's 159- foot KC-767 can haul. The current tanker is 136 feet long and carries 200,000 pounds of fuel.

 

EADS gets two thirds of its revenue from Toulouse, France- based Airbus SAS, and aircraft industry purchases are written in dollars, while most of Airbus's costs are in euros. The dollar fell 11 percent versus the euro in 2007, reducing revenue converted into the European Union common currency.

 

Weak Dollar

 

Both EADS Chief Executive Officer Louis Gallois and Airbus Chief Executive Tom Enders have said Airbus's best shot at living with a weak dollar calls for moving jobs to the U.S. or to countries with lower costs than Europe. Paris- and Munich- based EADS has been building its position in the U.S., where it had little presence in the military area until two years ago.

 

Northrop and EADS ``put an enormous amount of effort and brainpower'' into thinking through the bid, Northrop Chief Executive Officer Ronald Sugar said in an interview.

 

``We took our best shot at it and apparently they thought it was a good one,'' he said.

 

EADS promised to build an assembly plant in Mobile, Alabama, for the tankers and freighter aircraft if its team won the contract. The company already has an engineering center there. The facility will employ 1,000 workers to assemble tanker sections and at least 300 more to build the commercial freighter planes, EADS said on Jan. 14.

 

`The Greatest Day'

 

``This is the greatest day I've had, and this community has had, since I've been in office, and that's about 22 years,'' Mobile Mayor Samuel Jones said in a telephone interview, with shouts and cheers in the background as he stood on the site where Airbus's new plant will be built.

 

EADS North America Chairman and CEO Ralph D. Crosby Jr. said in a statement that his company has already ``begun the work necessary to expand our U.S. industrial footprint in support of this important program.''

 

For General Electric Co., which will make the engines, some systems, spare parts and services for the Northrop entry, the contract win is valued at about $6 billion over the life of the program, said spokesman Rick Kennedy.

 

Pratt & Whitney, a unit of United Technologies Corp., was to provide the engine for Boeing's entry.

 

``We are disappointed by the USAF's selection,'' said Pratt & Whitney spokeswoman Jennifer Whitlow. The company felt its entry ``met all requirements.''

 

Boeing, the second-largest U.S. defense contractor, will be debriefed on the award on March 12, Pentagon officials said. Lockheed Martin is the largest U.S. defense contractor.

 

Quite a blow to Boeing, maybe we'll see an end for the 767 Line soon?

[Chris Tan A C 0]

While I favour Boeing - I have nothing against Airbus or EADs.....

But this was one project I was hoping to see on the 767 platform....

What a lousy way to start the day..... sigh....

 

(Un)Cheers..... Chris!

[Radzi 2]

Will this new tanker be based on an existing platform, or a totally new one?

[Chris Tan A C 0]

Will this new tanker be based on an existing platform, or a totally new one?

 

 

EAD/Nothrop Grumman - A330 platform

Boeing - (Modified) B767 platform

 

On a separate note, Malaysian Sun quoted that EAD/Northrop won several days

earlier in the week when there was still no news.... definitely "Malaysia Boleh"....

[KK Lee 5]

 

 

"Everybody expected Boeing to win. Boeing has been doing this for half a century, and it was simply assumed they knew what the Air Force wanted better than other companies." include yours truly

 

Comparing A330 and 767, A330 could carry "more passengers, more cargo, more medical patients, could offload more fuel and had more flexibility, more dependability and more availability." Gen. Arthur J. Lichte, commander of the Air Mobility Command, said.

 

Druyun scandal may have an impact on USAF recommendation. After losing this contract, Boeing will end 767 production soon.

 

Once again, anything can happen in politics.

 

 

[KK Lee 5]

 

Pentagon reopens contest to build aerial tankers

Wed Jul 9, 2008 3:33pm EDT

 

 

By Andrea Shalal-Esa and Jim Wolf

 

WASHINGTON (Reuters) - Defense Secretary Robert Gates on Wednesday reopened a bitter $35 billion aerial tanker contest after the selection process that picked Northrop Grumman Corp and EADS over Boeing Co was found to be flawed.

 

The contest will now be overseen by John Young, the Pentagon's chief weapons buyer, not the Air Force, and Gates hoped a decision could be reached by December since the current process had already "gone on far too long."

 

"The GAO sustained eight of the slightly more than 100 issues protested with this contract. We will address all of these in the new solicitation, and we will request revised proposals from industry," Gates told reporters.

 

The Air Force contract award in February for 179 new aerial refueling tankers prompted an immediate protest by Boeing and vows of congressional intervention by its backers in Congress.

 

Last month, the Government Accountability Office said it found "significant errors" in the Air Force selection process, and urged the service to redo the competition.

 

The Air Force had been given until mid-August to announce its plans, but Gates rushed forward with a decision to reopen the competition -- given the advanced age of the current KC-135 tanker fleet -- which is used to refuel warplanes in mid-air.

 

Boeing had been expected to win in February with its tanker based on the 767 airliner but the Air Force opted for the larger Northrop entry based on the A330 airliner that is built by EADS's Airbus unit, the European archrival to Boeing.

 

Young said he hoped to issue a new draft request for proposals in late July or early August that would address the issues raised by the GAO and give bidders time to submit fresh bids, possibly with even lower cost estimates.

 

http://www.reuters.com/article/ousiv/idUSN0942044020080709

 

Once again, anything can happen in politics.

 

 

[James Gota 0]

lets just hope for all us Boeing fans Obama changes the order to the 767

[Pieter C. 5]

US Tanker Aircraft Rules Spark Concern

 

October 22, 2009

 

Industry executives are starting to raise fundamental questions about the Pentagon's draft rules for a new refueling plane competition and say the government's drive to lock in a "fixed-price" deal for such a big weapons development project is unprecedented and risky.

 

Boeing and Northrop Grumman have been examining a draft request for proposals (RFP) issued by the US Air Force on September 25.

 

Neither company said much on the record, but some executives are beginning to air concerns privately about the rules for the Air Force's third attempt in eight years to begin replacing its fleet of flying tankers used to refuel fighter jets and other military planes in mid-flight.

 

For its part, the Air Force has answered only nine of more than 50 public questions posed by the companies about specific details of a competition that is valued at around USD$100 billion. Executives said that meant the government might need to release a second draft before it finalises the terms.

 

"They're obviously struggling... and wondering what happened to their bulletproof RFP," said one industry executive, who asked not to be named, citing the sensitivity of the ongoing competition between the two companies.

 

The companies had each been granted only one senior-level meeting with the Air Force after it released the draft rules last month and one meeting before the rules were released.

 

After being faulted by government auditors for its handling of the last contract -- which was cancelled after being initially awarded to Northrop and its European partner, Airbus parent -- the Air Force was determined this time to spell out all its requirements in careful detail.

 

The goal was to ensure that the military service could defend against any new protests filed by the losing bidder, but analysts say the changes could actually increase the likelihood of protests this time around.

 

Defence analyst Loren Thompson of the Lexington Institute, said both companies had serious concerns about the draft rules, which could increase the likelihood of them filing protests if the rules were finalised as is.

 

Under the new rules, the Air Force raised the number of mandatory requirements for the new planes to 373 from 37; said it would not adjust bids for price and schedule risk as it did the last time; and made myriad requirements for the new planes equal in value, industry executives said.

 

For instance, the rate at which the plane's refueling "boom," a large external fuel line, is supposed to deliver fuel to fighter planes is now deemed equally important as the rate at which water flows in the on-board passenger toilets, said one industry executive, calling the decision "illogical at best."

 

The government also wants to lock in firm pricing over the 18-year life of the 179-plane programme, a decision industry executives say would create big problems for suppliers in future years and could prove unworkable over time. Other fixed price agreements are usually capped at 10 years.

 

Defence Secretary Robert Gates has sought to move away from more traditional "cost plus" contracts that often leave the government paying the difference when weapons costs rise.

 

A new defence acquisition law passed earlier this year encourages the Pentagon to adopt more "fixed-price" contracts, which put the burden on industry to cover cost increases, but industry executives say fixed price deals are not usually adopted until the companies are finished developing new weapons.

 

"You'd think they'd want to try it out with a smaller programme and see if it works first," said a second executive.

 

Both Boeing and EADS are building tankers for other countries, but the US version of the plane requires many design changes, which the companies say will make it tough to stick to a fixed-price development contract.

 

The first industry executive said the new competition rules added 20 percent more requirements to each of the planes offered during the last competition, but the companies had very little time to work out how to meet those requirements -- and then set fixed prices for them for the next 18 years.

 

"Frankly we've never done that before," said the executive, adding the government for its part also rarely kept the same budget plans for more than two years, much less 18 years.

 

The contract would also only pay companies the final 20 percent of the development bill when work was completed, which meant companies would wind up financing "several hundred millions of dollars", a move that threatened to undermine the very profitability of the project.

 

Northrop was worried that the larger fuel-carrying capacity of its bigger Airbus A330-based tanker would not be valued and that the competition would ultimately result in a "price shootout," which could favour the smaller Boeing 767 plane, Thompson said.

 

The A330's ability to land on shorter runways, travel longer distances and carry more passengers would count in Northrop's favour only if the cost of the two bids were within one percent of each other.

 

Boeing remained concerned some issues it raised in its protest, including the Air Force's complex computer model to assess fuel use, still had not been addressed.

 

(Reuters)

[Fitri Shukri 0]

<!--quoteo(post=157353:date=Mar 1 2008, 10:30 AM:name=Radzi)-->

<!--quotec-->Will this new tanker be based on an existing platform, or a totally new one?<!--QuoteEnd-->

<!--QuoteEEnd-->

 

 

EAD/Nothrop Grumman - A330 platform

Boeing - (Modified) B767 platform

 

On a separate note, Malaysian Sun quoted that EAD/Northrop won several days

earlier in the week when there was still no news.... definitely "Malaysia Boleh"....

 

Make me so proud to be Malaysian... hahahaha

 

Is it a A330-200?