Northrop Grumman/EADS team pulls out of US KC-X tanker competition
Northrop decides not to submit bid due to source selection methodology
08:59 GMT, March 9, 2010 defpro.com | European aerospace giant EADS has experienced some hot days since last Friday. It began with an important step forward which was achieved in the future European airlift programme on Friday afternoon when EADS and the customer nations for the A400M reached a principal agreement on the funding of the aircraft. Further, today EADS reported its 2009 results that led to a loss of share value in pre-market trade in Frankfurt, also due to the company’s heavy losses in 2009, the scrapping of its dividend and a poor outlook going into 2010 (see http://www.defpro.com/news/details/13647). But most important, yesterday’s announcement by Northrop Grumman and EADS not to submit its bid to the US Air Force KC-X tanker competition is poised above all further developments.
The announcement of this remarkable decision, in particular including the decision not to protest against the RfP and thereby not further delaying the programme, was released by Northrop Grumman on Monday. Wes Bush, Chief Executive Officer and President of Northrop Grumman Corporation, announced the decision in a wide-ranging statement, saying “After a comprehensive analysis of the final RfP [Request for Proposal], Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program. We reached this conclusion based on the structure of the source selection methodology defined in the RfP, which clearly favors Boeing's smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity.”
This decision deals a heavy blow to the EADS’ plan to gain a stronger foothold on the US market, which traditionally has been a tough market to enter for non-US companies. Boeing and its supporters throughout the entire industrial and political sphere have repeatedly used the significant share of EADS in the competitor’s team to promote its “buy American” solution. Despite Northrop Grumman’s efforts to emphasise that most of the work would be performed in the US and that the order would create hundreds of jobs in Alabama, the team could not avert the general perception that it was a European solution.
Winning the competition against its archrival Boeing, the KC-X tanker contract would have been a wholesome bonanza for EADS. According to the Aircraft Investment Plan of the US Air Force, recently released to Congress, the service intends to buy 109 tankers at an estimated cost of over $30 billion (€22 billion) through 2020. Beyond this year, the Air Force would have to replace its entire ageing fleet of tankers, which would have provided Northrop Grumman and EADS with stable revenue of over $100 billion, not including earnings generated by maintenance and spare part support.
The decision not to submit a bid to the competition is even more dramatic in light of the fact that the KC-30 (designated KC-45A by the USAF) tanker solution of Northrop Grumman and EADS had already been awarded a contract by the US Air Force in 2008 which, subsequently, was cancelled due to a protest filed by Boeing.
All parties disappointed ... except for one
In his statement, Bush added: “We continue to believe that Northrop Grumman's tanker represents the best value for the military and taxpayer – a belief supported by the selection of the A330 tanker design over the Boeing design in the last five consecutive tanker competitions around the globe. Regrettably, this means that the U.S. Air Force will be operating a less capable tanker than many of our Allies in this vital mission area.”
Airbus CEO Tom Enders underlined the assessment of its US partner and said “If Northrop Grumman is convinced that we don’t have a chance to win in the current environment – no matter how good our offer is - then I can only support this assessment. Today, the German government called on the US to revisit its contract awarding policy. As Peter Hintze, aviation coordinator of the German government told a German daily, he sees “a tiny rest of a chance that the US government perceives this signal and will revise the [contracting] procedure.”
While Northrop Grumman emphasises that the competition would not have been fair and that the terms of the competition focus on a smaller platform (which allegedly would automatically rule out the A330 MRTT-based tanker), US officials dismiss any such reproaches. Deputy Defense Secretary William Lynn expressed his disappointment in Northrop Grumman’s decision, saying: “In the last tanker replacement competition, Northrop Grumman competed well on both price and non-price factors. We strongly believe that the current competition is structured fairly and that both companies could compete effectively.”
Lynn further explained that “based on the inputs we received from both offerors to the Department’s draft Request for Proposal (RFP), we made changes to reduce the out-year risk to the potential manufacturers of KC-X. However, we did not change the war-fighters’ requirements to accommodate either offeror.”
One can hear the corks popping in Seattle all the way in Europe, although Boeing statements so far have been rather sparse and reserved. Boeing tanker spokesman William Barksdale said: “Boeing remains 100 percent focused on the KC-X competition and intends to submit a fully responsive, transparent and competitive proposal that meets the terms the Air Force has announced. As we have in each of the previous rounds of competition, Boeing will offer the most capable tanker and the tanker best suited to begin modernizing the aging KC-135 fleet - at a lower total life cycle cost than any competitor. The Boeing NewGen Tanker will be safe and survivable in combat, will save the American taxpayer $10 billion in fuel costs over its 40-year life, and is American designed and built.
Mixed opinions in East and West
Next to Arizona Republican Senator John McCain, who has been one of the fiercest critics of the Boeing solution, Senator Richard Shelby (R) of Alabama has been a strong supporter of Northrop Grumman as the company’s tanker assembly plant would have been constructed in his state. Reacting to Northrop's announcement, Shelby said: “This so-called competition was not structured to produce the best outcome for our men and women in uniform; it was structured to produce the best outcome for Boeing. 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."
More enthusiastic about yesterday’s decision, Senator Maria Cantwell (D-Wash.) said on Monday: “Today's announcement by Northrop Grumman is a significant development in what has been a long effort to get a new and much needed air refueling tanker to our military. Secretary of Defense Gates has personally assured me that he is going to move ahead with this bidding process regardless of the number of bidders. It appears that as a result of Northrop's decision not to bid on the tanker and not to protest the Pentagon's request for proposal (RFP), that Washington will be the beneficiary of more than 12,000 jobs, with over 50,000 jobs associated with this contract nationwide.
She is supported by Washington Senator Patty Murray (D), stating: “Washington workers deserve this opportunity. They have delivered a combat ready tanker before and they're ready to do it again. But today's news is by no means the end of the line, and this contract is no slam dunk. It's important to remember that the American people are the customers, and that we drive a hard bargain.”
Despite the assessment by defence analyst Lauren Thompson of the Lexington Institute saying she doesn’t believe “that the Pentagon has a plan for what they're going to do now, because their whole solicitation was based on the assumption of competition,” the Air Force will have to go on with its procurement programme somehow. According to a Seattle-based online news service, Democratic Representative Rick Larson warned that sole-source contracts “don't tend to be good deals for the taxpayers, as a general rule.” Thompson extended these warnings by saying that Boeing could get into trouble if it bids too high, but actually is likely to find the fixed-price provisions of the tanker request limit its profitability. “They could end up breaking even or losing money,” noted Thompson.
This is the best news that could happen!
The USAF needs an American product!
Boeing is a part of the USAF history and future.
To buy American and to build in the USA, must be a "must" for the DoD and Mr. President Obama. He swears (2009), that the KC-X is the best solution for the USAF and all implicated American workers and companies.
The USAF needs the best aircraft builder and its great experience, that EADS never got.
It is a good day for the America and its interests
Gerardo Señoráns Barcala
Politologue - Economist - Journalist Aviation
International Defense Expert
Created: 2010-03-12 17:44:52
Gerardo Señoráns Barcala Political and Business Consultant. Leadership & Governance,
Politcs & Business Consulting
It's a shame!
Created: 2010-03-09 17:17:45
John Halldale Consultant Military Programes / Freelancer
J+F Aerospace / defence.professionals GmbH
Nicolas von Kospoth
Gerardo Señoráns Barcala
John Halldale
