Why Northrop could ditch AF tanker contest – analyst

Northrop Grumman has good reasons to drop out of the U.S. Air Force tanker contest, writes Lexington Institute’s Loren B. Thompson in this piece.

Thompson is taking seriously a threat issued last December by Northrop’s new CEO, who told Pentagon officials his company would bow out if there weren’t substantial changes to the final tanker requirements due out this month.

“Northrop Grumman has good reason not to bid: the key virtues of its plane are nullified by the proposed selection criteria; its ability to offer a competitive price has been minimized; and even if it did somehow win, the fixed pricing features of the resulting contract would expose it to heavy financial risk,” Thompson wrote.

The defense analyst also cautioned if Northrop drops out, Boeing won’t necessarily have smooth sailing:

Without the threat of being undercut by a competing bid, it could price its offering high to reduce the risks associated with fixed pricing of a development contract. But if it bids too high, that might produce a backlash in the Pentagon or in Congress. So what looks like a windfall could easily become a trap, and Boeing execs will have to think through how to assure the program is profitable without getting more controversy in the bargain.