Jan 09 2007

Northrop may quit tanker contest

Mobile Press Register

Northrop Grumman Corp. has formally threatened to withdraw from a competition to build aerial refueling tankers for the U.S. Air Force, claiming in a letter to military officials that the Air Force's bidding criteria unfairly favor rival Boeing Co.

Northrop's comments, conveyed to the Air Force last week, were shared with the Press-Register on Monday by local officials and others close to the competition.

Los Angeles-based Northrop and EADS North America Inc. are teamed against Boeing for the tanker contract, which could reach $200 billion and more than 500 planes over time. Northrop and EADS have said they plan to assemble their KC-30 tankers at the Brookley Field Industrial Complex, creating 1,000 jobs, if the team can win at least a share of the work.

Northrop's ultimatum comes as the Air Force is preparing to release its final request for bids from potential contractors, a complex legal document that spells out what it wants in its new tankers and sets the ground rules for the competition. The so-called request for proposals, or RFP, could be issued as early as next week, according to the Air Force.

Northrop claims that a draft version of the RFP does not fully explain how the Air Force intends to rate the competing planes. In particular, the company claimed the draft has no guidelines to measure each tanker's extra capabilities -- chief among them the ability to carry cargo and passengers in addition to fuel.

Analysts have said such secondary features are a key advantage for Northrop's costlier KC-30 over Boeing's older, smaller KC-767 tanker. The KC-30 could suffer by comparison, according to experts, if the Air Force minimizes the value of carrying cargo and troops.

The complaint marks the second time the company has threatened to quit the competition. In numerous public statements last year, Northrop suggested it would pull out of the contest if the Air Force didn't drop controversial questions about a global trade dispute over commercial aircraft subsidies.

Under pressure from U.S. Sen. John McCain, R-Ariz., and other political leaders, the Air Force capitulated last fall, saying it would not include the trade dispute as a factor in the tanker competition.

But McCain, in a December letter to newly appointed Secretary of Defense Robert Gates, also said he was concerned that the Air Force had not established a scoring system to evaluate the planes' ability to haul troops and cargo.

Without such guidelines, he wrote, "competition may be eliminated before bids are even submitted."

The fight for one of the largest military contracts in a generation has huge consequences for nearly all involved, both for its size and its scandalous past. Boeing four years ago won a $23.5 billion contract to lease 100 of its KC-767 tankers to the Air Force, but the deal collapsed when it was revealed that a top Pentagon acquisitions official inflated its value in exchange for favors from the company.

In the wake of the scandal, the Air Force lost its authority to conduct its own weapons-purchase programs, a privilege it hopes to regain by running a clean competition this time around.

"The Air Force can't afford to start this competition under a cloud," said Rebecca Grant, a defense analyst and president of IRIS Independent Research in Washington, D.C.

The service wants the new planes to replace its aging fleet of KC-135 tankers, which average nearly 50 years in service. The Air Force recently named the new tanker as its top priority in 2007 and has said it expects to pick a winner for the contract by late summer.

Northrop has leverage because the Air Force doesn't want to lose the company as a competitor, according to Paul Nisbet, an aerospace analyst for JSA Research Inc. in Newport, R.I.

"I don't think for a moment they have any intention of quitting," Nisbet said. "But it worked for them once (on the trade dispute), so there's no reason it shouldn't work again."

The Air Force did not respond by late Monday to questions about Northrop's complaint. Pentagon spokeswoman Cheryl Irwin, however, said that "when the Air Force issues its request for proposals, it will be a fair and open competition."

Northrop declined comment on its communications with the Air Force, citing a company policy not to discuss correspondence with its customers.

"We have, however, been consistent in our call for a capabilities-based acquisition for the recapitalization of the aging KC-135 tanker fleet," said Northrop spokesman Randy Belote. The competition "represents the Air Force's best opportunity to acquire a truly modern, multirole and multimission refueling aircraft."

Chicago-based Boeing said it was ready to compete by whatever guidelines the Air Force puts forward in the RFP. The company said it would wait to see the Air Force's criteria before deciding whether to enter its KC-767 or a tanker based on its newer, larger 777 jet.

"It's the Air Force's competition, so they make the rules," said Boeing spokesman Bill Barksdale. "We want to see the process go forward. At the end of the day, we'll be there to bid and win."

Alabama political leaders including U.S. Sens. Richard Shelby, R-Tuscaloosa; Jeff Sessions, R-Mobile; and U.S. Rep. Jo Bonner, R-Mobile, said they discussed Northrop's concerns in individual conversations with Northrop Chief Executive Officer Ron Sugar last week.

The politicians said they were continuing to push for a fair and open competition.

"I have been pleased that several changes have been made to eliminate hurdles that could have blocked Northrop Grumman's proposal," said Sessions. "But the devil is in the details. It would be a huge loss to our defense capability to have only one competitor for this aircraft."

Bonner said Northrop's threat is not a ploy.

"This isn't a poker game. It's not a bluff," he said. "They don't see a fair process in front of them, and they're making their concerns known. Certainly, it isn't news that any of us want to hear, but it may be necessary to make sure we have a true competition."