Mar 03 2008

Air Force awards tanker contract to Northrop-EADS

Mobile Press Register

By George Talbot

The U.S. Air Force on Friday named Northrop Grumman Corp. and EADS North America to build its next-generation fleet of aerial refueling tankers, spurning a bid from rival Boeing Co. in a surprise decision that could launch a new era of jet production in Mobile.

The Air Force made its choice after a fierce competition between the two teams for one of the single largest defense contracts in U.S. history. Estimated at up to $40 billion, the deal includes 179 planes to be delivered over the next 15 years. Boeing was regarded as a heavy favorite by defense analysts and other experts who cited the Chicago-based company's political clout and its legacy of building commercial and military aircraft.

"To say this is a great day for Alabama is a monumental understatement," said Gov. Bob Riley. "This will go down in history as one of our greatest days."

Los Angeles-based Northrop and its partner, a subsidiary of the European Aeronautic Defence and Space Co., plan to assemble and modify their tankers in a pair of new plants at the Brookley Field Industrial Complex, creating 1,500 jobs.

The Air Force, which designated the new tanker as the KC-45A, said the Northrop plane emerged as the winner after a stringent review that began more than a year ago. Initial bids from the companies averaged 15,000 pages and were followed by numerous meetings with Air Force evaluators.

"I can't stress enough what a rigorous evaluation we've been through," Sue Payton, the Air Force's chief weapons buyer, said at a Pentagon news conference. "We had two very competitive offers. Northrop Grumman clearly provided the best value to the government."

Having won the decision, Northrop's challenge may now be to hang on to the prize. Boeing's political supporters vowed to fight the decision, objecting most strongly to the Northrop plane's foreign pedigree. The tanker's airframe is based on an A330 commercial jet assembled in France by Airbus, an EADS subsidiary.

"We are shocked that the Air Force tapped a European company and its foreign workers to provide a tanker to our American military," said U.S. Sen. Patty Murray, D-Wash., who said she looked forward to confronting the Air Force about its choice.

Boeing, which built the Air Force's existing fleet of more than 500 KC-135 tankers, expressed strong disappointment with the decision. The company could challenge the award in a formal protest before the U.S. Government Accountability Office, but said Friday it needed time to review its options.

"Boeing will probably try to overturn the result, but that will be hard because the Air Force did not rate their proposal as superior in any measure," said defense analyst Loren Thompson. "Anyone who tries to raise the 'made in America' banner on Boeing's behalf has to explain why they want to force an inferior plane on America's warfighters."

Alabama officials said they were ready to defend the Air Force's choice.

"There's no doubt whoever is selected is in a far stronger position than the protester," said U.S. Sen. Jeff Sessions, R-Mobile, a former federal prosecutor.

The Air Force said it hoped to avoid a protest because it desperately needs the new planes as quickly as possible. The new tanker is the Air Force's top priority and is designed to replace its aging KC-135s, which average nearly 50 years in service.

"It's absolutely important and critical for us to get on with this," Air Force Gen. Arthur Lichte said at a Pentagon news conference announcing the award.

Throughout the contest, Northrop touted the versatility of its tanker compared to Boeing's KC-767. The Northrop plane's larger size enabled it to carry greater amounts of cargo and passengers in addition to fuel.

Boeing positioned its tanker as the patriotic choice, playing up its American content and its potential to support U.S. jobs. But Lichte, who oversees the service's Air Mobility Command, argued that the Northrop plane's foreign roots were not an issue.

"This is an American tanker," he said. "It's flown by American airmen. It has a big American flag on the tail, and every day, it'll be out there saving American lives."

Boeing won a previous contract to lease 100 tankers to the Air Force immediately after the Sept. 11 terrorist attacks. But the $23.5 billion deal collapsed in scandal two years later when lawmakers led by U.S. Sen. John McCain, R-Ariz., exposed a scheme in with the Air Force and Boeing conspired to inflate the contract's value.

Despite the loss, Boeing is riding high on its commercial success. The company racked up 1,413 plane orders last year and turned a record profit of $4.1 billion. But the loss will hurt in ways beyond the pocketbook, analysts said. The deal could give Airbus, Boeing's archrival, a long-sought foothold in America. It could also establish EADS as a major player in the U.S. defense market.

"This is a stunning blow to Boeing -- not from a financial standpoint but from a prestige view," said Scott Hamilton, an aerospace analyst in the Seattle area.

The tanker award is the second major economic victory for Mobile in less than a year. Last May, German steelmaker ThyssenKrupp AG announced plans to build a massive, $3.7 billion steel finishing plant just north of the city.

"Our state is on a roll economically," said U.S. Sen. Richard Shelby, R-Tuscaloosa. "Bringing these jobs to Alabama will solidify our stellar reputation as an industrial leader and send a strong message to the rest of the world: Alabama is open for business."

State and local governments offered Northrop and EADS $120 million in incentives in support of the planned $600 million assembly complex and an Airbus engineering center already in operation at Brookley. The state will pick up $77.5 million of the total. 

The lion's share of the money -- $95 million -- will go toward facility construction, with the rest split between site preparation, dock improvements and workforce training.

Neal Wade, director of the Alabama Development Office, called the deal "a tremendous aerospace shot" for the state and Mobile. "We've been working with suppliers and EADS over the last two years, and met with a number of them," he said. "We are going to be immediately starting to make sure that all suppliers for this project look into (locating) into Alabama."

State and local officials spent a tense Leap Day waiting for the announcement. The Air Force held its choice in secret until disclosing it to key lawmakers shortly after 4 p.m. EST, when U.S. markets closed.

Northrop chief executive Ron Sugar said he got word of the decision in a phone call from Air Force Secretary Michael Wynne around 4:30 p.m. EST.

"He said we made a very compelling offer and congratulated us on winning the KC-45A contract," Sugar said in a phone interview Friday. "It's a very significant, positive step for our company and for the Air Force. And it's a terrific step for Mobile, which is about to be transformed in a way few people there might imagine."

Sweetening the win for Mobile, Airbus has announced plans to shift production of a freighter version of the A330 to the new plant, potentially adding 300 jobs.

"We already have begun the work necessary to expand our U.S. industrial footprint in support of this important program," said Ralph D. Crosby, Jr., chairman and chief executive of EADS North America.

Construction of the factory could begin within the next three months, according to local officials. The Air Force wants its first planes delivered in 2013, and its budget projections call for the purchase of about 15 planes annually.

The assembly jobs are expected to pay salaries of about $65,000, or more than 50 percent above the state average for manufacturing work. Another 5,000 jobs could be created statewide, according to Northrop.

Local business leaders hailed the decision as a triumph for Mobile, which has ambitions of becoming the world's next great aerospace capital. Large aircraft currently are assembled just two places in the world -- the Seattle area, where Boeing's production is based, and Toulouse, France, the home of Airbus.

"Today marks the dawn of a new era for Mobile, and I couldn't be more proud of our city and our state than I am right now," said U.S. Rep. Jo Bonner, R-Mobile. "Neither the Air Force nor the warfighter will be disappointed."