There has been plenty of expectations that the loser of the latest KC-X competition would file a protest. Boeing (BA) was able to overturn the award to Northrop Grumman (NOC) and EADS (EADS:P) in 2008 when the Government Accountability Office (GAO) upheld its protest of that contract. Now there has already been a protest of this round before the source selection has really got underway. The protester, too, is not one of the usual suspects but U.S. Aerospace (USAE) who announced that they were teaming with Ukrainian aircraft manufacturer Antonov for the multi-billion program to replace the KC-135 in use by the U.S. Air Force.

U.S. Aerospace is protesting the fact that the Air Force said their proposal was received late and will not be considered in the competition. The service has made clear that only the EADS and Boeing ones were received by the deadline of 2:00 PM on 9 July.

The upstart bidder says that their proposal was at the site thirty minutes prior to that time but that Air Force personnel deliberately delayed the courier preventing delivery until five minutes after the deadline. The Air Force is standing by its decision.

The KC-X has been an on-again-off-again program for most of this decade. The initial plan of a lease of 767 based aircraft from Boeing was thrown out amid convictions of U.S. Air Force and Boeing personnel for corruption. The second attempt as mentioned above was lost on protest. This third try looked fairly smooth once EADS committed to bid on their own until late June when the U.S. Aerospace proposal emerged. Now a source selection that is supposed to be complete in early November is facing a potential hiccup depending on how the GAO rules on U.S. Aerospace’s protest. The addition of a third proposal to evaluate may cause delays in the selection and award process.

KC-X just gets more interesting as time passes.

EADS (EADS:P) had decided to go it alone with their own bid for the KC-X aerial tanker after former partner Northrop Grumman (NOC) decided the requirements favored Boeing (BA) too much. All that meant is that EADS would prime the contract but would probably find other companies, including U.S. ones, to sub for them. It is now being said by EADS that they have found at least one U.S. defense contractor to do “sensitive equipment”. The company is unidentified at this point.

This only makes sense as it allows Airbus to deliver a A330 aircraft or tanker to a U.S. facility to do the integration of the military equipment such as radios and defensive equipment. EADS is planning to do this with Lockheed Martin (LMT) on the Army’s new attempt at buying an Armed Reconnaissance Helicopter (ARH) and should do this for KC-X. Lockheed planned the same thing with Augusta Westland on the failed VH-71 program. By using an American company to do this sort of work it helps with security and technology transfer issues. It is also the reason that EADS North America exists.

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.

It seems that EADS North America the subsidiary of the EADS (EADS:P) is searching for a U.S. company to partner with them on the KC-X tanker contract. Reports are that L-3 Communications (LLL) had been the prime target for this role but now they are rethinking that role.

EADS had planned to be a sub-contractor to Northrop Grumman (NOC) providing A330 aircraft that would then be militarized by Northrop. Now they are planning on being the prime contractor with a U.S. company to aid them. The roles are different enough that it will put pressure on EADS to prepare most of the proposal themselves as well as provide most of the contract management. With their history so far in the U.S. that might be a bit too much for them.

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.

Reports are starting to emerge that EADS (EADS:P) and its subsidiary, EADS-North America, are discussing teaming arrangements with other defense contractors to support bidding on the KC-X RFP. The deadline has now been extended until July by the Department of Defense. Supposedly L-3 Communications (L3) is considered the front runner for this work. There is still no definite confirmation that EADS will launch a bid after previous partner Northrop Grumman (NOC) decided not to participate in this the third round of bidding for the Air Force’s new aerial tanker.

Supposedly EADS talked to Raytheon (RTN) and BAE Systems (BAE:L) about this contract. Both of these companies reportedly expressed little interest. BAE Systems is already a partner in EADS as a whole and would stand to gain some work if the A330 made by Airbus is selected by the Air Force. Raytheon has not led an effort to make a large aircraft like this but obviously has strong system integration and engineering experience. L-3 does work on aircraft and purchased Raytheon’s aircraft integration unit several years ago.

If EADS is going to bid teaming with another large, preferably American, contractor makes the most sense. They will help work with the customer using their experience with the U.S. military. That is why the original plan with Nothrop made so much sense.

At a joint press conference with France’s President Sarkorzy President Obama said that he expected the KC-X contest to be a “free and fair” one. This of course assumes that another company besides Boeing (BA) bids on the program.

France has spoken out strongly about concerns the current RFP was written in such a way that only Boeing could win it. Northrop Grumman (NOC) decided not to submit a bid this time around due to these kind of issues. EADS (EADS:P) who had planned on partnering with Northrop is currently considering submitting a separate bid. Sarkozy has expressed his support of EADS and supposedly discussed the issue with Obama today. Obama also stressed that the DoD makes the final decision and he has no role in any of this.

The political fallout if Boeing doesn’t win will be significant this time around — even for Obama.

Now, that Boeing is the only bidder on the KC-X, the Seattle Times notes that Boeing now has to make sure that it is not seen as taking advantage of being the sole bidder:

Northrop Grumman walked away from the $40 billion Air Force refueling-tanker competition Monday, drawing a widely criticized and nearly decadelong procurement process close to an outright Boeing victory.

With the likely prospect of air tankers rolling out of Everett until around 2027 at least, the outcome could secure as many as 2,000 direct jobs in Everett and an additional 6,000 statewide at suppliers and others, according to previous Boeing estimates.

Yet Northrop’s withdrawal leaves Boeing with a pricing dilemma as it prepares a final bid. The Pentagon, embarrassed by the lack of competition, now will be under extra scrutiny over what it pays for its tankers.

On one hand, because the contract is a fixed price — meaning the winner must swallow the loss if program costs escalate beyond the price it bids — Boeing typically would be expected to aim high, especially with no competition.

At the same time, Boeing will want to avoid the appearance that it is taking advantage of Northrop’s withdrawal to jack up the price.

“This competition was supposed to be a model for future procurement,” said Issaquah-based aviation analyst Scott Hamilton of Leeham.net. “It’s clear the Department of Defense fell short again in running a procurement process that works.”

The contract is to supply the Air Force with 179 tankers used to refuel fighter, transport and bomber aircraft en route to their targets.

Northrop had teamed with EADS, parent of European planemaker Airbus, to offer a tanker based on the Airbus A330.

In 2008, the Defense Department cited a rough contract value of $35 billion, or about $196 million per airplane, plus an extra $5 billion in operational support and other costs.

Certainly, the rivalry in the previous round of the tanker competition between the Boeing 767 and the A330 drastically reduced the cost to the taxpayer.

Read the entire article at the Seattle Times.

The Wichita Eagle reports that the a group backing building both the Boeing and EADs tankers, doesn’t want to reveal its backers:

The investors backing a campaign asking the government to split its contract for aerial refueling tankers between Boeing and Northrop Grumman want to remain anonymous for now. The campaign is called Build Them Both.

“We are funded by a group of investors who have asked to remain nameless at this time,” said the effort’s campaign manager, Carrie Giddens.

The group is not union sponsored and does not have ties to either Northrop or Boeing, Giddens said in an e-mail exchange. However, “we have sought out funding from both companies, their suppliers and unions who would be impacted by building them both.”

The requests went out in the past two weeks.

On Monday, Giddens called Northrop’s decision to pull out of the bidding process “bad news for American workers, our men and women in uniform, and for the taxpayer.”

With only one company seeking a contract, 50,000 jobs that would have been created won’t be, Giddens said in the statement. “Without an ongoing competition there is no way to control costs, to the detriment of our military and taxpayer.”

There is a rumor that the Pentagon may delay the deadline for submission of a proposal for the KC-X to accommodate either a solo bid or another partnership. This contradicts what was reported yesterday that EADS-NA CEO Sean O’Keefe said the company wouldn’t bid without Northrop Grumman (NOC). It will be seriously difficult for the company to bid by itself. It would need to find another U.S. company to work with.

This might be second thoughts by DoD as they realize how difficult doing a single bid contract award will be. This is not a sole source contract but right now it would only receive one qualified offer.