Boeing rival drops out of tanker fight

SEATTLE – Northrop Grumman announced Monday that it will not bid on the Air Force refueling tanker contract, leaving Boeing’s Everett-built 767 as the sole airplane competing for the $40 billion program.

Northrop said it will not file a protest over the terms of the competition. And in a separate statement, Northrop’s European partner EADS also bowed out. A Northrop statement released after the market closed said it decided to drop out because the selection process detailed by the Pentagon last month “dramatically favors Boeing’s smaller refueling tanker” and does not give credit for “the added capability of a larger tanker, precluding us from any competitive opportunity.”

Ralph Crosby, chairman of EADS North America, reiterated that view and in a statement called the outcome “disappointing.” But Crosby said the decision “does not diminish our commitment to the U.S.”

Rep. Norm Dicks, D-Wash., who was confirmed last week as the chairman of the powerful Defense Appropriations Subcommittee and has vigorously championed Boeing in the fight, was jubilant.

“I’m feeling very positive,” said Dicks. “This been a real battle but it looks like we are finally there.”

The capability provided by air refueling tankers to project U.S. air power across the globe is, he said, “one of the things that makes us a superpower.”

“I think it’s good that this thing (will) be built in the U.S. by a U.S. company we can count on,” Dicks said.

“And we need the jobs,” he added. “This is a very difficult economic time. It’s important to protect those 767 jobs in Everett and keep the production line going.”

Politicians in Mobile, Ala., where the rival Airbus A330 tanker would have been assembled if Northrop had won, reacted bitterly and blamed the outcome on political pressure – particularly from labor unions, including the International Association of Machinists.

“I am devastated by today’s news,” said Mobile County Commissioner Stephen Nodine in a statement. “The war fighter, the American taxpayers, and the workers of the Gulf Coast have been cast aside in favor of ‘Political Protectionism.’ … I’m disgusted at the way our southern workers have been treated as second-class citizens by organized labor, which fought so hard to protect its power structure at the cost of 48,000 jobs nationwide that the KC-45 program would have supported.”

The long-running tanker saga began in the aftermath of the Sept. 11, 2001, attacks, when the Air Force first proposed, without a competition, to lease 100 Boeing 767 tankers.

The initial contract fell through amidst a procurement scandal. A second round, won by Northrop, was canceled in 2008 following a Boeing protest over missteps in the selection process.

Defense industry analyst Loren Thompson of the Lexington Institute said Northrop executives told him they “tried real hard to find a way of bidding that would allow them to make a reasonable profit without running inordinate risk.”

“They simply couldn’t find a solution,” Thompson said they told him.

The Pentagon issued the terms of the new competition Feb. 24. Those terms were widely seen as favoring the 767 over the larger Airbus A330 offered by Northrop.

A big factor in the Northrop decision is that the Air Force competition requires a fixed-price contract, unlike many military programs where contractors expect to have their costs covered with an additional profit margin added.