Northrop halts pursuit of tanker contract
Tuesday, March 9, 2010
Defense giant Northrop Grumman said Monday that it is pulling out of the $40 billion competition to build aerial refueling tankers for the Air Force, a move that defense analysts and procurement specialists say leaves its rival Boeing as the likely winner.
Northrop's decision marked the latest twist in the nearly decade-long fight over one of the Pentagon's biggest and most controversial contracts and raised questions about the impact of procurement reforms proposed by the Obama administration.
In announcing its withdrawal, Northrop said that the government's requirements did not recognize the value of the larger refueling platform it had proposed and instead favored Boeing's proposal to build a smaller tanker using a prototype of its 767 aircraft.
Wes Bush, chief executive of Los Angeles-based Northrop, said that under those conditions, it no longer made financial sense to stay in the competition.
"We have a fiduciary responsibility to our shareholders to prudently invest our corporate resources," he said. "Investing further resources to submit a bid would not be acting responsibly."
Deputy Secretary of Defense William Lynn said in a statement that the Pentagon was "disappointed" that Northrop had pulled out of the competition, noting that it "competed well on both price" and other factors. "We strongly believe that the current competition is structured fairly and that both companies could compete effectively," Lynn said.
The government has been trying for years to award a contract to replace the Air Force's aging fleet of planes used for refueling military aircraft midflight, but the effort to build 179 new tankers has been marred by controversy.
Northrop had partnered with Airbus, which is owned by Paris-based European Aeronautic Defence & Space (EADS), to compete against Chicago-based Boeing. In 2004, Boeing lost the deal to build the tanker after an ethics scandal. In 2008, Northrop won the contract, but Boeing fought back and had the award nullified.
The Pentagon started another attempt to rebid the deal last September, but the Northrop team threatened in December that it would walk away unless the Air Force changed its proposal. Northrop said the Air Force's requirements favored Boeing's smaller 767 plane, instead of its larger Airbus A330.
Bush said Monday the company would not protest the contract, in effect handing a win to Boeing. Bush said that although Northrop thinks it had grounds to successfully protest the contract proposal, it would have led to another lengthy delay.
"America's servicemen and women have been forced to wait too long for new tankers," he said. "Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly."
Northrop executives and defense industry analysts have questioned how profitable the tanker contract would be, given the Pentagon's push for setting a fixed price for the contract before design and testing of the aircraft are completed.