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Northrop Stuns Boeing, Wins $40 Billion USAF Contract

CNBC.com with Wires
Friday, 29 Feb 2008 | 4:53 PM ET

In a stunning upset decision, the U.S. Air Force on Friday awardedNorthrop Grummanand

AP

Airbus parent EADSa multibillion dollar contract for 179 refueling aircraft, rejecting a rival bid byBoeing, which was widely favored to win, a defense analyst told Reuters.

Loren Thompson, an analyst with the Lexington Institute, said Northrop won the contract, which is valued at up to $40 billion, by winning four out of the five criteria set by the Air Force for the work.

The contract is expected to be paid out over 10 to 15 years.

Shares of Boeing dropped more than 3 percent in extended trading Friday, while shares of Northrop Grumman jumped more than 5 percent.

Shares of both Boeing and Northrop Grumman were down during regular market hours Friday.

At stake was what some analysts have called the deal of the century -- what could be the world's biggest purchase of wide-bodied aircraft for decades.

The program marks the first stage of a multi-decade plan to phase out more than 500 aging tanker aircraft used to extend the range of fighter jets and other warplanes. With follow-on orders, the cost of the new U.S. fleet could top $100 billion, aerospace experts have said.

Boeing's KC-767 had been widely predicted to win the initial contract, but the Northrop-EADS candidate, based on the Airbus A330 commercial airliner, was also seen as highly competitive.

"Either one of these planes could satisfy all of the ... operational and performance requirements,'' Thompson said.

The Northrop Grumman-EADS aircraft are to be manufactured in Mobile, Ala. In a statement, Alabama Governor Bob Riley celebrated the two manufacturers' victory.

"There are only two places in the world where large airplanes are built: Seattle, Washington and Toulouse, France. Now, there will be a third: Mobile, Alabama," 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."

- Reuters contributed to this report.

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