Northrop Grumman Corp. announced Monday that it won’t compete against Boeing Co. for a $35 billion contract to build refueling tankers for the Air Force because Northrop doesn’t think it can win.
The decision puts the Pentagon on a path to doing something President Barack Obama said shouldn’t happen any more: paying large amounts of money to contractors without undergoing any competition.
The decision also will probably knock out a major international competitor from gaining a foothold in the U.S. market. EADS, the European Aeronautic Defence and Space Co., had partnered with Northrop Grumman to vie for the tanker but was not expected to be able to compete against Boeing on its own.
Northrop Chief Executive Officer and President Wes Bush said in a statement that the Pentagon’s guidelines for the program “clearly favors Boeing’s smaller refueling tanker” but that the company would not file a formal protest.
“We have a fiduciary responsibility to our shareholders to prudently invest our corporate resources, as do our more than 200 tanker team suppliers across the United States,” Bush said. “Investing further resources to submit a bid would not be acting responsibly.”
The political fallout was swift. Alabama Gov. Bob Riley, where Northrop would have assembled the planes and created thousands of new jobs, called the program a “charade” and said the Pentagon made it “impossible” for Northrop to compete.
“It’s disgraceful,” Riley said.
Sen. Jeff Sessions, R-Ala., called it a “dark day for the American warfighter.” Added fellow Alabama Republican Sen. Richard Shelby, “The Air Force’s refusal to make substantive changes to level the playing field shows that once again politics trumps the needs of our military.”
A year ago, Obama said these kinds of no-bid contracts aren’t a good deal for the taxpayer and vowed to change the way government agencies do business. With the support of Sen. John McCain, R-Ariz., his campaign rival in 2008, Obama ordered his senior advisers to come up with ways to encourage competition.
“The days of giving defense contractors a blank check are over,” Obama declared.
Industry insiders say that the decision by Northrop wasn’t surprising.
“When all was said and done, Northrop saw a lot of risk and not a lot of profit,” whereas EADS was focused primarily on gaining entry into the U.S. market, said Loren Thompson, head of the Lexington Institute. “At the end of the day, the interest of the two teams diverged.”