Boeing rival Northrop Grumman threatens to drop out of Air Force tanker contest

Published 5:29 am Wednesday, December 2, 2009

EVERETT — The Boeing Co.’s rival for a $35 billion tanker contract threatened Tuesday to drop out unless the Pentagon makes significant changes to its contest.

Northrop Grumman’s chief executive alleged that the Air Force’s initial rules show a “clear preference” for Boeing’s smaller tanker.

In a letter addressed to the Pentagon’s acquisitions chief, Northrop’s Wes Bush said the Air Force has declined to make changes to its requirements, making it unlikely that Northrop will compete.

“I must regrettably inform you that, absent a responsive set of changes in the final (request for proposals), Northrop Grumman has determined that it cannot submit a bid,” Bush wrote.

The Air Force tanker competition has pitted Boeing against Northrop and its partner EADS. The politically charged contest, which has dragged on for several years, also pits Washington state, the home of Boeing’s widebody factory, against Alabama, where Northrop would assemble its tanker.

The Air Force issued its draft requirements in late September with the plan of releasing its final rules by year’s end. In response to Northrop’s letter, the Defense Department said that Boeing and Northrop each suggested changes to its request for proposal that would favor their own planes.

“Both companies can make a good tanker. The Department wants competition, but cannot compel the two airplane makers to compete,” the statement said.

Some members of Congress, including Sen. John McCain, R-Ariz., had complained when the Air Force wanted to select Boeing’s KC-767 tanker without a full competition in the months following Sept. 11, 2001. That complaint put an end to Boeing’s contract with the Air Force.

When the Air Force renewed its efforts to replace 179 of its KC-135 tankers in 2006, Northrop Grumman joined with EADS, the parent company of Airbus, to compete. During that contest, Northrop also threatened to withdraw, saying the Air Force already favored Boeing.

The Air Force awarded the $35 billion deal to Northrop in 2008 but eventually called off the contract after government auditors found numerous flaws in the contest.

“Today’s threat by Airbus to drop out of the tanker competition unless the rules are changed in their favor is no surprise,” said Sen. Patty Murray, D-Wash., in a statement. “This is a new competition, but the players are the same and Airbus is up to its same old tricks.” Beside claiming the Air Force preferred Boeing’s tanker, Northrop’s Bush also said that the agency’s demands place “contractual and financial burdens on the company that we simply cannot accept.” The Air Force is asking for a fixed tanker price, though replacing its existing fleet will stretch out for nearly two decades.

The Defense Department said it regretted “that Northrop-Grumman and Airbus have taken themselves out of the tanker competition and hope they will return” when the request for proposal is issued, which it now expects in January.

The Pentagon isn’t the only one hoping that Northrop will continue in the contest. County commissioners in Mobile, Ala., also issued a statement expressing the importance of the contest to their community and state. And Alabama’s governor, Bob Riley, lashed out against the president over the tanker contest.

“All Americans should be outraged that the Obama administration has corrupted the tanker selection process with a blatantly unfair competition,” Riley said, in a statement. “All along, we’ve said the process should be fair and the needs of our war-fighters must come first. That definitely isn’t happening”

Boeing shares closed at $53.72 on Tuesday after gaining 2.5 percent. The company confirmed Monday that it had completed a crucial test on its delayed 787 Dreamliner and is awaiting results before Boeing clears the jet for its first flight. Northrop shares gained 46 cents Tuesday to close at $55.26.