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Northrop, EADS to Bid in $40 Billion Tanker Plane Competition

Reuters
Thursday, 8 Feb 2007 | 1:19 PM ET

Northrop Grumman and its Franco-German partner EADS will bid against Boeing in a $40 billion U.S. competition for new aerial refueling tankers, Northrop announced today.

The Northrop team, which plans to offer a variant of EADS' Airbus A330 dubbed the KC-30, had threatened to withdraw if it decided the terms of the competition favored Boeing.

After a careful review, Northrop decided that the "KC-30 is a very competitive offering that fully supports the Air Force's tanker missions," Scott Seymour, president of Northrop Grumman Integrated Systems, said in a statement.

Chicago-based Boeing plans to announce on Monday which jet it will offer in the competition, although analysts say Boeing is certain to stick to its 767 jetliner, which has already been modified into a refueling tanker for Italy and Japan.

Los Angeles-based Northrop said it appreciated the way the Air Force had handled the competition and the dialogue between the government and industry had resulted in "a very comprehensive, capabilities-based final request for proposal."

Defense analysts this week predicted Northrop would stay in the running to maintain positive ties to the Air Force and stay involved in an overall program to replace over 500 aging KC-135 tankers, even if Boeing won a first batch of 179 planes.

Its withdrawal could have prompted congressional concerns about the lack of competition, and led to another delay in the tanker program, which the Air Force has billed as its No. 1 acquisition priority. Congress in 2004 killed an earlier sole-source proposal to lease and buy 100 Boeing 767 tankers.

The decision to remain in the competition was close and could have gone either way, said Loren Thompson of the Virginia-based Lexington Institute. "In the end, the company decided that if it offered a very attractive price, it would be hard for the Air Force to argue against the bigger plane."

Boeing spokesman Bill Barksdale declined comment on the news, but said Boeing was confident its bid would "deliver the most advanced capability to the warfighter, lowest risk to the Air Force, and best value to the taxpayer."

The Air Force welcomed Northrop's decision.

"We are pleased to see our industry partners have determined this process has allowed them to compete," Air Force Secretary Michael Wynne said in a statement, adding, "This is a credit to the transparent process that our acquisition colleagues throughout the Air Force ran in this case."

Several government agencies found that an earlier Air Force tanker program begun in 2001 was riddled with problems.

Darleen Druyun, the former No. 2 Air Force acquisition official who initiated the earlier deal, served nine months in prison for negotiating a job with Boeing while still overseeing the tanker deal and other contracts.

She admitted that she boosted the price of the tanker deal as a parting gift to Boeing, and steered other business to the company after the company hired her daughter and son-in-law.

Privately, Air Force officials said they had "bent over backwards" to clarify the final proposal request and address Northrop's concerns, although they did not make changes to the key performance parameters for the new flying gas stations, which are used to refuel fighter jets in flight.

The Air Force said it would consider both the value and capabilities of the bids, and a higher-priced bidder could win if its overall approach outweighed the cost.

The Airbus A330 sells on the commercial market for about $160 million. Boeing's 767-200 sells for about $120 million.

The Air Force hopes to pick a winner later this year.

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