Northrop Grumman and Airbus parent EADS defeat Boeing for $40 billion US airtanker contract

Saturday, March 1, 2008

Northrop Grumman and Airbus parent company European Aeronautic Defence and Space Company EADS N.V. (EADS) have unexpectedly defeated Boeing for a US$40 billion (GB£20.1 billion) contract to supply the United States Air Force (USAF) with 179 new aerial refueling tankers at a rate of 15 a year.

It is the biggest contract of its kind since the Joint Strike Fighter program. That contract was fought for between Boeing and Lockheed Martin, Lockheed ultimately winning the contest.

JSA Research defence analysist Paul Nesbit said that Maintenance, Repair and Overhaul (MRO) operations across the aircraft’s fifty-year service life could push the value of the contract as high as US$100 billion. Northrop Grumman CEO Ron Sugar said in an interview “Everyone told us we were crazy, that we had no chance. But we took a big swing and in this case, we hit a home run.”

USAF officials said that the contract had been awarded based on competence, track record and competitive pricing, with UBS analyst David Strauss saying “The key decision was the amount of fuel the bigger plane could carry. In the armed services, you can never have too much gas in the air.” USAF also denied that creating jobs in the US was a factor; job supply had been the reason Boeing were expected to win, with the airframer promising 44,000 new positions at 300 suppliers in 40 states.

The Northrop Grumman KC-45 tankers – more often known as KC-30s – are based on the Airbus A330 MRTT. The first four aircraft will be assembled at the main Airbus factory in Toulouse, France but by 2010-11 production of the remainder will be carried out at a facility in Mobile, Alabama. This is thought likely to create 1,500 to 2,000 jobs and support 25,000 others. 60% of the parts will be supplied by domestic manufacturers. EADS had previously announced plans to shift much production to the US due to the current weakness of the dollar.

General Arthur Lichte, head of USAF’s Mobility Command, said it is hoped the first aircraft can be tested in 2010 and in operation three years afterwards. USAF’s chief of staff General Duncan McNab stated “The tanker is the number-one procurement priority for us right now. It is the first step in our critical commitment to recapitalize our aging fleet to move, supply, and position assets anywhere.”

There is still a possibility of Boeing challenging the decision; Boeing themselves were successfuly challenged by Lockheed and Sikorsky in 2006 over a US$10 billion contract to supply search and rescue helicopters to the Pentagon. A statement by Boeing given by Boeing spokesman William Barksdale said “Obviously we are very disappointed… Once we have reviewed the details behind the award, we will make a decision concerning our possible options.”

Washington senator Patty Murray, who hails from the same state where Boeing bases their commercial airliner operations, said in a critical statement “We are shocked that the Air Force tapped a European company and its foreign workers to provide a tanker to our American military. At a time when our economy is hurting, this decision to outsource our tankers is a blow to the American aerospace industry, American workers and America’s military.”

Washington representative Norm Dicks said he too was “shocked”, releasing a statement saying “This decision is even more disappointing because the Air Force had previously favored the Boeing 767 tanker and we were prepared to move forward with the production of 100 tankers in 2003, before the process was halted due to the Boeing scandal. I regret that it has taken so long to respond to what was—and is—an urgent need to replace these older aircraft. And even more regrettable is the decision to award the contract to Airbus, which has consistently used unfair European government subsidies to take jobs away from American aircraft workers.”

Kansas senator Sam Brownback said “It’s stunning to me that we would outsource the production of these airplanes to Europe instead of building them in America. I’ll be calling upon the Secretary of Defense for a full debriefing and expect there will be a protest of the award by Boeing.” Todd Tiahrt, a Kansas representative, said “We should have an American tanker built by an American company with American workers. I cannot believe we would create French jobs in place of Kansas jobs.”

A group of Washington politicians released a joint statement saying “We will be asking tough questions about the decision to outsource this contract… At a time when our economy is hurting, this is a blow not only to our state, but more than 40 states across the country who would help build this national plane.”

Alabama Governor Bob Riley said “To say this is a great day for Alabama is a monumental understatement. This will go down in history as one of our greatest days.” Ralph Crosby, EADS’s North America CEO and ex Northrop executive commented the business has “committed our full resources to support this vital program for our prime contractor, Northrop Grumman, the Air Force, and the war fighters that this system will serve for decades to come. We already have begun the work necessary to expand our U.S. industrial footprint in support of this important program.”

EADS chief executive Louis Gallois commented “This major selection is a win-win for our customers, for allied industrial cooperation and for EADS. It signals a quantum-leap forward in our commitment to the US defence customer, reflects and supports our global strategy to increase EADS’s industrial presence in key markets and our goal to balance the company’s defence and commercial portfolios.” General Arthur Lichte said “This will be an American tanker, flown by American airmen with an American flag on its tail and, every day, it will be saving American lives.

Boeing had initially agreed to lease 100 tankers, but in 2003 a scandal erupted when it emerged that Boeing executive Michael M. Sears arranged a job for USAF official Darleen Druyun while negotiations were still underway. Both served jail sentences for corruption charges and a competition was opened up to award a new contract.