Tanker ‘Soap Opera’ May Not End With Northrop Pass (Update2)
March 09, 2010, 4:34 PM EST(Adds Northrop position on protest in third paragraph.)
By Susanna Ray and Andrea Rothman
March 9 (Bloomberg) -- Northrop Grumman Corp.’s decision to forgo bidding on the U.S. Air Force’s $35 billion refueling tanker program, leaving Boeing Co. without a competitor, may not mark the end of a nearly decade-long quest to replace the military’s existing fleet, a Boeing executive said.
“I’ve been working this program for nine years,” Jim Albaugh, head of Boeing’s commercial aircraft and former chief of its defense unit, said in a presentation today at a JPMorgan Chase & Co. conference broadcast on the Web. “It’s the longest- running soap opera since ‘Days of Our Lives,’ and I’m not sure we’ve seen the last episode.”
Northrop, which had partnered with European Aeronautic Defence & Space Co. in a winning bid for the tanker that was overturned in June 2008, announced its decision yesterday and said it wouldn’t protest an award of the contract to Boeing. The move made good on Northrop’s December threat to withdraw unless the government altered some of its requirements.
Los Angeles-based Northrop said at that time that the new draft proposal of bid requirements appeared to favor Boeing’s entry and that the contract would impose “financial burdens.” The contest had been restarted three months earlier, in September, after Boeing successfully protested the 2008 award to Northrop.
Northrop and EADS, parent of Boeing rival Airbus SAS, based their tanker proposal on the Toulouse, France-based company’s A330, while Boeing will use its smaller 767 as a platform.
No ‘Competitive Opportunity’
The selection methodology outlined in the Pentagon’s bid request favored Boeing’s smaller aircraft and didn’t recognize the added value from a larger tanker’s increased capability, eliminating “any competitive opportunity,” Northrop Chief Executive Officer Wes Bush said in a statement yesterday.
EADS Chief Executive Officer Louis Gallois said today that his decision to abandon the $35 billion U.S. tanker bid is final, as some European politicians suspected local favoritism.
“I don’t see any opportunity to come back alone or with others,” Gallois said at a press conference in Paris. “If Northrop makes the analysis that we cannot win, I don’t think we can say that we will do it alone.”
The original tanker replacement concept was created in late 2001 by the Senate Appropriations Committee with a proposal to lease and then buy Boeing tankers.
Northrop’s decision to quit will probably lead to a sole- source contract for Boeing, said U.S. Representative Jo Bonner, a Republican from Alabama, where Northrop planned to build a plant if it won the project.
Waited ‘Too Long’
The company chose not to protest because “servicemen and women have waited far too long for the tankers that they need and are in our nation’s best interests,” Northrop Chief Financial Officer James Palmer said in a separate presentation at the JPMorgan conference.
The tanker project’s future is “really in the hands of the customer right now,” Albaugh said today.
Chicago-based Boeing climbed 55 cents to $67.79 at 4:15 p.m. in New York Stock Exchange composite trading, bringing the stock’s gain so far this year to 25 percent, topping a 10 percent increase in the Standard & Poor’s 500 Aerospace & Defense Index. Northrop fell 16 cents to $64.
--With assistance from Gopal Ratnam in Washington. Editors: James Langford, Kevin Orland
To contact the reporters on this story: Susanna Ray in Seattle at sray7@bloomberg.net; Andrea Rothman in Paris at aerothman@bloomberg.net.
To contact the editor responsible for this story: James Langford at jlangford2@bloomberg.net
