Northrop Grumman, EADS wins Air Force tanker contract worth $35B

Published 12:05 am Sunday, March 2, 2008

The Air Force on Friday awarded Northrop Grumman Corp. and a European partner a $35 billion contract to build airborne refueling planes, delivering a major blow to Boeing Co.

The selection of Los Angeles-based Northrop Grumman and European Aeronautic Defence and Space Co., the maker of Airbus planes, surprised industry and elected officials. Air Force officials said the larger size of the Northrop-EADS aircraft helped tip the balance in its favor.

Chicago-based Boeing, which has been supplying refueling tankers to the Air Force for nearly 50 years and had been widely expected to hang onto that monopoly, could protest the decision, though the company said no decision has been made.

The contract to build up to 179 aircraft — the first of three awards worth up to $100 billion over 30 years — opens up a huge new opportunity for Northrop Grumman.

“They don’t come along at this scale very often,” Northrop Grumman Chairman and CEO Ronald Sugar said. “We do see this as being a very important component of our business for many years to come.”

The EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, Ala., although the underlying plane would be built mostly in Europe. It would use General Electric engines built in North Carolina and Ohio. Northrop Grumman, which is based in Los Angeles, estimates a Northrop/EADS win would produce 2,000 new jobs in Mobile and support 25,000 jobs at suppliers nationwide.

Mississippi officials expect economic benefits from the work in Mobile, which is about 30 miles from Pascagoula, Miss., the home of Northrop Grumman’s largest shipbuilding facility.

“Our longstanding commitment to a regional economic development approach with our neighbor, Alabama, has worked well, and I look forward to continuing these collaborative efforts to promote job creation and spur economic growth in our region,” Mississippi Gov. Haley Barbour said in a statement Friday.

“By constructing these tankers in Mobile, we will benefit from a number of spin-off jobs as well as new suppliers, who want to take advantage of our community college and workforce training programs,” Barbour said.

Sens. Roger Wicker and Thad Cochran, both R-Miss., also praised the decision.

“This announcement is a huge victory for the Gulf Coast,” Wicker said. “And while the tankers will be built in Mobile, the economic impact will be felt throughout South Mississippi. I expect suppliers and other support businesses to locate in Mississippi and create quality jobs for our citizen.”

Cochran said the announcement is good news for Mississippi.

“A project of this magnitude will benefit the entire Gulf Coast region. The facility will create thousands of jobs for Americans and will bolster economic development not only in Alabama, but also along the Mississippi Gulf Coast. Mississippians will realize sizable economic advantages because of this project,” Cochran said.

The deal also positions EADS to break into the U.S. military market.

The Northrop-EADS refueling tanker, the KC-45A, “will revolutionize our ability to employ tankers and will ensure the Air Force’s future ability to provide our nation with truly global vigilance, reach, and power,” Air Force Gen. Duncan J. McNabb said in a statement.

Air Force officials offered few details about why they choose the Northrop-EADS team over Boeing since they have yet to debrief the two companies.

Air Force Gen. Arthur Lichte said the larger size was key.

“More passengers, more cargo, more fuel to offload,” he said.

Boeing spokesman Jim Condelles said the company won’t make a decision about appealing the award until it is briefed by Air Force officials. Boeing believes it offered the best value and lowest risk, he said.

Military officials say the Air Force is long overdue to replace its air-to-air refueling tankers, which allow fighter jets and other aircraft to refuel without landing. The service currently flies 531 Eisenhower-era tankers and another 59 tankers built in the 1980s by McDonnell Douglas, now part of Boeing.

The new contract has emerged as a major test for the Air Force, which is trying to rebuild a tattered reputation after a procurement scandal in 2003 sent a top Air Force acquisition official to prison for conflict of interest and led to the collapse of an earlier tanker contract with Boeing.

The tanker deal is also certain to become a flashpoint in a heated debate over the military’s use of foreign contractors since Boeing painted the competition as a fight between an American company and its European rival. Lawmakers whose districts stood to gain jobs from a Boeing win were pressing this point on Friday.

”We should have an American tanker built by an American company with American workers,” said Rep. Todd Tiahrt, R-Kan., who represents the district in Wichita where Boeing would have done much of the tanker work.