The Ballad of the Tanker Contract Continues

After several years of dicking this up, and multiple fired contracting overlords, the USAF's new in-flight refueling tanker seems about ready to move ahead and replace planes bought during the Eisenhower administration.
The problem? The RFP is wired so tight for Boeing that Northrop isn't even bothering to play. Sure Lou Dobbs is happy, but is that really the right way to do business?

First, we've completely killed off the domestic aviation industry through M&A and bad industry collaborations. Where we once had Northrop, Grumman, Lockheed, Martin-Marietta, Bell, Sikorsky, Boeing, and more, we're basically down to 2 fixed-wing companies, and one 1 helicopter company. And we wonder why there isn't more competition for government contracts?

Second, in tight economic times, the only thing Congress and overpaid political pontificators (again, hello Lou Dobbs, among others) will look at is where the jobs will be created. Because Northrop partnered with a European company (EADS) every protectionist worth his teleprompter started babbling about shipping jobs overseas. It's not true (the planes would be built mainly in Alabama) but when unemployment is skyrocketing as a result of a depression, it's hard to argue the truth when the emotional talking point is already out.

So what happens? Northrop gets screwed. Boeing gets a lifeline, which they need after Dreamliner orders plummeted with the world recession, and the taxpayers get screwed because Boeing can charge whatever they want. As I once noted in grad school: my grandmother can corner a market when she's the only one selling the product.

Don't take my word for it. Check out what the Financial Times had to say about it.

In any case, it would have made no economic sense for the Europeans to go it alone in the US. As Tom Enders, the Airbus chief executive, pointedly put it yesterday, if Northrop has thrown in the towel it presumably knows what the rules of the game are and what is possible in the US and what is not. The conclusion is obvious, he added. This is nothing to do with which aircraft is the best tanker and nothing to do with fair competition.

But then, was it ever going to be fair? And was it ever conceivable that the US would hand over to a foreign supplier responsibility for such a strategic defence programme? Was it conceivable even if an American company was heading the partnership and that it would have involved a new assembly plant in Alabama as well as securing thousands of aerospace jobs in the Los Angeles area? The US, as French president Nicolas Sarkozy never ceases to remind everybody, is if anything more protectionist than the most protectionist of European states.

The Europeans will still need to keep a watchful eye on Boeing and on the outcome of the contract. For as sole bidder, Boeing could well be tempted to extract a higher price than it would have otherwise received. Worse, it could use its position of strength to propose eventually to the US Air Force a modified version of its bigger 777 aircraft, rather than the smaller 767 whose commercial production has now been stopped. That would give the 777 an additional lease of life.

BusinessWeek is pretty sure that we haven't heard the last of this.

Northrop Grumman Corp.’s decision to forgo bidding on the U.S. Air Force’s $35 billion refueling tanker program, leaving Boeing Co. without a competitor, may not mark the end of a nearly decade-long quest to replace the military’s existing fleet, a Boeing executive said.
“I’ve been working this program for nine years,” Jim Albaugh, head of Boeing’s commercial aircraft and former chief of its defense unit, said in a presentation today at a JPMorgan Chase & Co. conference broadcast on the Web. “It’s the longest- running soap opera since ‘Days of Our Lives,’ and I’m not sure we’ve seen the last episode.”
Northrop, which had partnered with European Aeronautic Defence & Space Co. in a winning bid for the tanker that was overturned in June 2008, announced its decision yesterday and said it wouldn’t protest an award of the contract to Boeing. The move made good on Northrop’s December threat to withdraw unless the government altered some of its requirements.
Los Angeles-based Northrop said at that time that the new draft proposal of bid requirements appeared to favor Boeing’s entry and that the contract would impose “financial burdens.” The contest had been restarted three months earlier, in September, after Boeing successfully protested the 2008 award to Northrop.

And the government is trying to make it sound like Northrop is just pouting.

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.”

By: Brant