Boeing's Tanker Challenges Mount

The rival Northrop/EADS alliance may also offer a different plane for the Air Force tanker contract, and EADS plans an aggressive campaign for more U.S. business

by Keith Epstein

Faced with the prospect of a Pentagon-approved extension for Boeing (BA) to submit a revised bid in a long-delayed $35 billion aerial tanker contract—so that Boeing can design a larger plane that would carry more fuel and cargo—the opposing consortium of Northrop Grumman (NOC) and European Aeronautic Defence & Space (EAD.PA) is now contemplating offering the U.S. Air Force a different plane, as well.

Insiders at Northrop confirm the company may propose that the military purchase tankers based on the A330-200 freighter made by EADS subsidiary Airbus, rather than the A330 passenger aircraft—a move that could save the consortium time and money. The widebody, long-haul cargo freighter was introduced by Airbus last year, too late to be offered to the Air Force before now.

But Boeing has more to fear than losing the tanker deal. Employment ads by EADS North America reveal that the company already has embarked on an internal strategic shift aimed at gearing up to bid on future U.S. defense contracts, while underpricing Boeing on commercial deals in the U.S. market—just what some analysts and Boeing insiders fear.

"We are looking at all of the options available to us," Northrop spokesman Randy Belote told BusinessWeek on Aug. 28.

Getting Political

Followers of the seemingly never-ending dogfight between the aerospace giants over the lucrative tanker contract are well past wondering "Are we there yet?" Just when the competition seems to get resolved so that the U.S. military can finally replace antiquated Cold War-era flying gas stations, there's another twist.

The controversy and one-upmanship by the corporations has even figured in the politicking at the Democratic National Convention in Denver. Politicians and delegates there have discussed it, and both Boeing and Northrop have paid for high-visibility advertising in publications distributed at the convention.

The Defense Dept. this week put off plans to formally request new tanker bids from the contractors while a long list of top brass reviews the details of the request for proposals. Also, Pentagon acquisition chieftain John Young Jr.—the man overseeing the rebidding process—is finishing a business trip to Europe. Pentagon spokesmen declined to discuss Young's itinerary or the purpose for the trip.

Now many in the military and aviation contracting community expect the military's bid request to become public next week.

Changing Platforms?

In the latest twist in the tanker drama, Boeing has threatened to pull out (BusinessWeek.com, 8/22/08) of the recompetition unless it gets an extension to prepare a bid that would involve a tanker based on a larger aircraft than the 767 that it originally proposed. That would leave the military with only one bidder—a prospect unlikely to prove palatable to Congress.

In the earlier contest, won by Northrop/EADS, Air Force officials under Young's direction in effect awarded Northrop extra points (BusinessWeek.com, 6/25/08) for offering a larger plane capable of carrying more fuel and cargo. Boeing, arguing it had never been aware of the need for more fuel and cargo, protested the award as unfair—and won.

Northrop and its supporters argue that Boeing is now stalling—not just to design a tanker based on a larger commercial aircraft, but to gain a political edge. The longer things are delayed now, the more likely a decision won't be made until a new Administration and Congress take power next year.