Statement by Deputy Secretary William Lynn on Northrop Grumman Tanker Announcement

“We are disappointed by Northrop’s decision not to submit a bid for the U.S. Air Force tanker replacement program.

In the last tanker replacement (KC-X) 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.

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.

The Department strongly supports trans-Atlantic defense industrial ties and believes they benefit the American war-fighter and taxpayer.”

The statement was published here.

It is being reported that Northrop Grumman (NOC) will not submit a proposal in response to the new KC-X RFP released at the end of last month. Supposedly the announcement will be made after the markets close. Northrop had written to the DoD in December saying they most likely would not without changes in the RFP to make it fairer to the Airbus 330 based aircraft.

There is no word on whether EADS will find another partner or bid by themselves for the $35 billion contract.

As it did in the last contest two years ago Boeing (BA) plans to submit a 767 based tanker. This is similar to the ones they are already building for Japan. To differentiate it from previous versions they are calling it a “NewGen” aircraft. Boeing will upgrade the basic 767 design with a new fueling boom and parts of the 787 cockpit technology.

There is still no formal word from Northrop Grumman (NOC) or EADS (EADS:P) if they plan to submit a proposal this time around.

It is being reported by various sources that EADS is pressuring Northrop Grumman to go ahead and submit a bid for the new KC-X RFP. Northrop had informed the Government that they planned not to if the terms were not significantly changed. They felt the RFP was favoring Boeing’s cheaper, smaller KC-767 aircraft.

The final RFP came out two weeks ago and still no word from Northrop that they will go ahead and submit something in May. EADS obviously would like another chance to win the contest after they lost the last one to Boeing’s protest in 2008. The $35 billion would go a long way to make up for the lost A400M revenue.

Writing in support of Northrop Grumman and the “Mobile region” the Mobile Press-Register has and editorial summing up the situation on the new RFP from their view. They do not demand that the RFP be changed or the contract be given to Northrop and EADS but they do point out that:

“If Northrop pulls out of the contest, Boeing may get the tanker contract, but the entire deal will be tainted — first by Boeing’s own corruption and collusion with some Pentagon officials several years ago over an earlier version of the tanker deal, and second by a decision-making process that puts politics above defense needs.”

It is true that a single bid competition is not much of a competition.

The Washington Post writes today about a new group buying advertisements to support the concept of buying KC-X tankers from both Boeing (BA) and Northrop Grumman (NOC). The group is called “Build Them Both” and its financiers have so far remained private. The idea of a split buy was floated last year but despite the ability to produce aircraft faster the related logistical costs are so high that the Air Force and DoD won’t consider it.

The article may be found here as the second part of the post.

The Herald a newspaper in Everett, WA has an article discussing how happy and confident Boeing’s legislator supporters are with the new RFP released yesterday by the Air Force. This is the opposite as to how those from Alabama feel. Senator Patty Murray (D-WA) is quoted as saying, “Given a fair shot, Washington state’s workers will bring home this contract,” Murray said. “We have the skills, the technology, and the experience of having built the only combat-ready tanker to prove it.”

If Northrop Grumman (NOC) and its partner Airbus don’t submit a bid it will be hard for Boeing (BA) to not win the contract. Hence the happiness of their supporters.

In an article in The Mobile Press Register Senators Shelby (R-AL) and Sessions (R-AL) make it clear that they are not happy with the new RFP. Shelby says “The final RFP discredits the integrity of the entire process,” and Sessions seems to feel that Northrop Grumman (NOC) won’t bid. He laments the lack of competition in the process.

This of course is not a surprising reaction as Northrop and EADS planned to assemble the basic A330 aircraft in Mobile, AL and then integrate the military systems at a Northrop facility.

The Los Angles Times today published a short article by W.J. Henigan that summarizes the current situation. He stresses that Los Angeles based Northrop Grumman (NOC) not participating may make the whole attempt moot again. He writes:

“But there are already signs that the competition could be derailed once again. Century City-based Northrop Grumman Corp., one of the two contenders, has threatened to withdraw its bid, accusing the Air Force of writing specifications that favor its rival, Boeing Co.”

The rest of the article may be found here.

It is expected that the final RFP for the KC-X New Aerial Tanker program will be released this week. At a recent forum the Secretary of the Air Force, Michael Donley, said that they hope to have the contract awarded by the end of the summer. This means that if you allow a few months for the proposals to be prepared and submitted the source selection will only take ninety days or so. This is an aggressive time line for a contract this large.

It may be that the Air Force is expecting the Boeing (BA) and Northrop Grumman (NOC) proposals to be much like the ones they submitted in 2008. This will make it easier to do an evaluation and award. There is a great deal of historical work to draw upon. Of course that competition ended in a Northrop win, a Boeing protest, and the GAO upholding it. This led to the current attempt at a contract.

Of course if only Boeing submits a bid as might happen it will make the whole selection process easier.