This is an article I wrote at BNET: Government about EADS decision to submit a proposal.

“The decade-long saga to replace the KC-X aerial tanker contract begins a new chapter. The European aerospace giant EADS (EADS: P) and Airbus, its subsidiary, announced that it will definitely submit a contract proposal to the Air Force. The program will replace the aging Cold War KC-135 tankers (pictured).

Boeing (BA) thought it had won the contract for at least 179 new aircraft earlier this year when Northrop Grumman (NOC) who had bid in partnership with EADS withdrew from the bidding. Then, earlier this month, the Pentagon agreed to extend the deadline, at EADS’ request, to allow it time to submit a new bid.”

Read the rest at BNET.

In an article at the Seattle Times, Dominic Gates writes that EADS (EADS:P) is planning on offsetting some of their cost disadvantages related to the bigger aircraft and establishing a new production facility with less development. The aircraft they will offer again for the KC-X program is a modified version of the A330 MRTT already planned for Australia, Great Britain, UAE and Saudi Arabia.

The aircraft is a little behind schedule but is in test flights and will deploy the first of five aircraft to Australia this year. The U.K. ones are slated for 2011 and the two oil states will get there aircraft soon after. There will have to be some modifications to the A330 to meet U.S. Air Force needs but they should be minor. EADS feels that Boeing (BA) will have to spend more money to get their 767 based tanker ready as it does incorporate the 787 cockpit and parts of other 767 models. This means that it is not identical to the 767 tankers ordered by Japan and Italy. Japan has received three of their four aircraft while Italy has seen developmental delays and has not received any.

It is expected that the A330 will cost more to manufacture due to its size and the shipping involved to send the components to the U.S. from overseas. The bigger aircraft while capable of carrying more fuel and having a longer range then the 767 will cost more to operate and may require infrastructure investment as it is much larger then the KC-135 tankers being replaced.

Once the proposals are in it will be seen if EADS can do their pricing correctly.

EADS North America released this press release today relative to their decision to bid on the KC-X contract.

EADS North America Intends to Submit Proposal for U.S. Air Force Tanker

ARLINGTON, VA — (Marketwire) — 04/20/10 — EADS North America announced today that it intends to submit a proposal on July 9, 2010 for the U.S. Air Force’s tanker modernization program and will offer the KC-45 — the most capable, American-built solution that is flown, proven and in production now.

EADS North America is progressing in discussions with potential U.S. partners to build a winning team in order to provide the most capable, best value solution to the Air Force.

The KC-45 is the only aircraft flying today that meets the U.S. Air Force’s tanker requirements as outlined in its KC-X Request for Proposal (RFP). The KC-45 builds on the EADS-based tanker that was previously selected in 2008 by the Department of Defense and that has won the last five consecutive tanker competitions worldwide.

“We will offer a modern, more capable tanker in response to the Defense Department’s decision to encourage competition for this major taxpayer investment,” said EADS North America Chairman Ralph D. Crosby, Jr. “Our KC-45 is the only real, flying, low-risk solution that today meets the demanding Air Force air refueling requirements and is actually in production now. That fact is critical because our warfighters deserve a true best value solution.”

EADS North America will build and modify the KC-45, along with A330 commercial freighters, at an EADS North America/Airbus production facility to be constructed in Mobile, Alabama. The KC-45 program and aircraft production/modification center will create and support tens of thousands of high-value American jobs while making a long-term investment in the nation’s economy at a time when other aerospace companies are outsourcing production overseas.

“This tanker competition is all about the warfighter and the aircraft that most successfully meets their requirements. The KC-45 offers what the Air Force needs today: a modern military tanker that is in production now with deliveries beginning this year,” said Sean O’Keefe, EADS North America Chief Executive Officer. “Not only does the KC-45 offer the best value and a huge capability advantage over the competition, it also will support tens of thousands of jobs across America by expanding our nation’s industrial aerospace capacity.”

The KC-45 is the U.S. military version of the proven A330 Multi Role Tanker Transport (MRTT). To date 28 aircraft have been ordered by four U.S. allies. The MRTT has transferred more than 265,000 lbs. of fuel to a range of military aircraft — from F-16 and F/A-18 fighters to the E-3 AWACS — using the same refueling systems offered on the KC-45.

“Our aircraft has demonstrated its unparalleled capability by refueling a variety of military aircraft utilizing both boom and hose and drogue systems, as well as by operating in the receiving position. That’s a statement our competition can’t make,” said Crosby.

The Royal Australian Air Force will receive the first A330 MRTTs later this year. Additional aircraft are in production or undergoing mission-equipment outfitting for the United Kingdom, Saudi Arabia and the United Arab Emirates.

“We’re progressing forward in discussions to expand the ranks of our nearly 200 current U.S. suppliers, some of which are joining us for today’s announcement,” continued O’Keefe.

At the heart of the KC-45 is the most capable aerial refueling system operating today. The aircraft’s fly-by-wire Aerial Refueling Boom System (ARBS) has a demonstrated fuel offload rate of 1,200 U.S. gallons per minute — the only system which meets the U.S. Air Force’s requirements without further modification. The system’s proven all-electric fly-by-wire technology ensures enhanced controllability and safety that greatly aids the boom operator and receiver aircraft’s pilot.

The KC-45 also carries an all-digital hose and drogue system for probe-equipped aircraft. The under-wing refueling pods are the most modern in service today, with the capability to deliver up to 420 gallons of fuel per minute through 90-ft.-long hoses at refueling speeds from 180 to 325 knots. The KC-45 will also feature a modern fuselage refueling unit, common with that of allied MRTT users such as the United Kingdom.

About EADS North America
EADS North America is the North American operation of EADS, a global leader in aerospace, defense and related services. As a leader in all sectors of defense and homeland security, EADS North America and its parent company, EADS, contribute over $11 billion to the U.S. economy annually and support more than 200,000 American jobs through its network of suppliers and services. Operating in 17 states, EADS North America offers a broad array of advanced solutions to its customers in the commercial, homeland security, aerospace and defense markets.

Senator Jeff Sessions (R-AL) issued a press release today criticizing Washington Congressman Norm Dicks (D-WA) for his comments basically telling EADS (EADS:P) not to attempt to bid on the KC-X contract.

In the release Sessions makes clear his desire for competition in the tanker contract while continuing to support EADS who have proposed assembling the Airbus 330 aircraft in Mobile, AL. Sessions writes: “Defense companies should understand that, contrary to Representative Dick’s comments, the majority of members in the House and Senate want a robust competition engineered not to benefit a single company, but to produce the best airplane for the war fighter.”

In Sessions view having EADS submit a bid along with Boeing (BA) will only strengthen the program. The award of what will amount to a sole-source contract to Boeing if EADS or another company does not bid will be a difficult process for the Air Force leaving many different avenues for criticism. This is especially true if Boeing has their struggles down the road.

Here is the latest post I wrote for BNET: Government –

“When Northrop Grumman (NOC) announced in March that it would not bid for the new aerial tanker for the U.S. Air Froce, the KC-X, Boeing (BA) and its many supporters in Congress believed it was sure to get the $35 billion contract. Now the deadline to bid has been extended 60 days to allow the European aerospace giant, EADS (EADS:P), to submit a proposal.

There are already reports that EADS, which would seek to provide A330 airliners made by its subsidiary, Airbus, to be modified into the tankers, is talking to other defense contractors about partnering.”

The rest may be found here.

EADS North America released a statement last night about the sixty day extension granted for KC-X proposals. They stated:

“Since the Department of Defense indicated their interest in EADS’ participation as prime contractor in the KC-X tanker competition, the company has carefully assessed the many requirements necessary to participate. We have firmly indicated that a 90-day extension would be the minimum time necessary to prepare a responsible proposal for this $40 billion program. We will consider the Department’s decision to offer a 60-day extension.”

This seems to indicate that EADS may still have given themselves an option not to participate by claiming the need for ninety days vice sixty.

Over the weekend it was reported that the Russian state owned aircraft company, United Aircraft, might be interested in bidding on the KC-X proposal. With Northrop now planning on not participating with EADS only Boeing was left as a confirmed bidder. Russia was about the only other country that had the capability to submit a proposal as they have already made tankers for themselves, India and other users. The thought though of Il-76 based tankers fueling F-22 is sort of hard to imagine. Documents provided to the Seattle Times show that United Aircraft would team with a World Aviation Maintenance to form a new company to bid. The proposal would be based on the Il-96 airliner rather then the older transport tanker already in service.

At the same time there are reports that EADS may submit a bid with themselves as the prime. Earlier this month the company said that it was not confident of being able to do this. EADS-North America could certainly be used as a prime contractor. The time needed for the company to prepare a proposal of this magnitude is why there is talk of extending the deadline three months.

It would be good for the U.S. Defense Department and Air Force to have some form of competition in the latest attempt to award this contract. Whether the Russian or EADS based bids would be viable is another matter. It is going to be difficult though to award what amounts to a sole-source contract with the mood in Congress of many Northrop and EADS supporters.

Aviation Week is reporting that EADS-North America felt it needed an partner on the KC-X contract as it was not comfortable being the prime for such a large effort. While EADS has experienced some decent growth in the U.S. it still has a fairly lean organization.

The company was confident that they could provide to Northrop the basic airframes on cost and schedule. Northrop would have then been responsible for the necessary military modifications. EADS would have had to find a partner in General Dynamics, Raytheon or Lockheed Martin. There would be few large contractors available in the U.S. with the past experience to support a contract of this size.

Statement on US Refueling Tanker Program Announcement

WASHINGTON, March 9 /PRNewswire-USNewswire/ — The European Commission notes yesterday’s decision by Northrop Grumman / EADS not to submit a bid to the US Department of Defense for the US Air Force’s aerial refueling tanker contract.

“It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type. Open procurement markets guarantee better competition and better value for money for the taxpayer,” stated EU Trade Commissioner Karel De Gucht.

In February 2008, Northrop Grumman / EADS was selected and awarded the contract to provide aerial refueling tankers for the US Air Force in a fair and transparent competition. This was a positive sign for free and open competition across the Atlantic. This also seemed to indicate that successful bids are possible when European industry teams up with US industry and they are allowed to compete fairly. This award was subsequently cancelled at the end of 2008.

In December 2009, Northrop Grumman / EADS expressed serious concerns to the Department of Defense and the US Air Force on the proposed acquisition criteria for the contract.

The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract.

The US defense trade balance with the EU has traditionally been significantly in the US’ favor. In 2008 the US exported $5 billion and imported only $2.2 billion worth of defense material, in line with a historic ratio of double exports to imports.

The Commission will be following further developments in this case very closely.

Source: Delegation of the European Union to the United States

Statement From Northrop Grumman on U.S. Air Force Aerial Refueling Tanker Program

WASHINGTON, March 8 /PRNewswire-FirstCall/ — The following is a statement from Wes Bush, Chief Executive Officer and President of Northrop Grumman Corporation (NYSE:NOC) , concerning the U.S. Air Force aerial refueling tanker program.

“After a comprehensive analysis of the final RFP, 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.

“Northrop Grumman fully respects the Department’s responsibility to determine the military requirements for the new tanker. In the previous competition, Northrop Grumman was selected by the Air Force as offering the most capable tanker for the warfighter at the best value for the taxpayer. However, the Northrop Grumman and EADS team is very disappointed that the revised source selection methodology now dramatically favors Boeing’s smaller refueling tanker. We agree that the fundamental military requirements for the new tanker have not changed since the last competition, but the Department’s new evaluation methodology now clearly favors the smaller tanker.

“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.

“Our prior selection by the Air Force, our firm belief that we provide the best value offering, and the hard work and commitment of the many individuals and communities on our team over many years made this a difficult decision for our company. But 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. Investing further resources to submit a bid would not be acting responsibly.

“We have decided that Northrop Grumman will not protest. While we feel we have substantial grounds to support a GAO or court ruling to overturn this revised source selection process, America’s service men and women have been forced to wait too long for new tankers. We feel a deep responsibility to their safety and to their ability to fulfill the missions our nation calls upon them to perform. Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly.

“We recognize that our decision likely creates a sole-source outcome for Boeing. We call on the Department to keep in mind the economic conclusions of the prior round of bidding as it takes actions to protect the taxpayer when defining the sole-source procurement contract. In the previous round, the Air Force, through a rigorous assessment of our proposal, determined that it would pay a unit flyaway cost of approximately $184 million per tanker for the first 68 tankers, including the non-recurring development costs. With the Department’s decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less.”

Northrop Grumman Corporation is a leading global security company whose 120,000 employees provide innovative systems, products, and solutions in aerospace, electronics, information systems, shipbuilding and technical services to government and commercial customers worldwide.

Source: Northrop Grumman Corporation