US Gave Boeing Edge In Tanker Tussle - Northrop

September 29, 2009

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Northrop Grumman said the US government had given rival Boeing a "fundamentally unfair" advantage in the renewed battle for a potential USD$50 billion mid-air refueling fleet.

"Northrop Grumman continues to be greatly concerned that its pricing information from the previous tanker competition was provided by the government to its competitor, Boeing," Paul Meyer, the company's tanker programme manager, said in a statement on Tuesday.

Raising a potential protest only days after the Air Force published draft bidding rules for a new contest, Meyer said access to comparable pricing data from Boeing had so far been denied to Northrop Grumman by the Pentagon.

Northrop Grumman and Airbus parent EADS are teamed against Boeing to supply 179 tankers to the US Air Force, the first of three planned batches that could cost more than USD$100 billion over coming decades.

Their competition has roiled the US Congress and strained transatlantic ties over where jobs would go.

Boeing, the Pentagon's No. 2 supplier by sales, ahead of third-ranked Northrop, wants to bar rival Airbus and EADS from a strategically important foothold on US soil. With a planned tanker assembly plant in Mobile, Alabama, if it wins, EADS could take advantage of currency fluctuations and labour rates on either side of the Atlantic.

"With predominant emphasis placed on price in this tanker re-competition and Northrop Grumman again proposing its KC-45 refueling tanker, such competitive pricing information takes on even greater importance," Meyer said.

"It is fundamentally unfair, and distorts any new competition, to provide such critical information to only one of the bidders."

The Defence Department said in a briefing paper last week that it examined Northrop's concerns and found the disclosure in question "was in accordance with regulation and, more importantly, that it created no competitive disadvantage because the data in question are inaccurate, outdated and not germane to this source-selection strategy."

"The Department of Defence and the Air Force stand by this statement," Lt. Col. Karen Platt, an Air Force spokeswoman and Cheryl Irwin, a Pentagon spokeswoman, said in reply to Northrop.

Boeing also brushed off Northrop.

"The Air Force clearly and definitively dealt with this issue and we look forward to our first meeting with them in this competition," said William Barksdale, a Boeing spokesman.

Left unaddressed publicly was Northrop's push for Boeing's price data from the previous, botched competition.

Northrop feels the receipt of comparable pricing information "is only fair and is germane to this competition," said Randy Belote, a company spokesman.

A year ago, the Pentagon scrapped a tanker award, then valued at USD$35 billion over 15 years, to Northrop and EADS after the US Government Accountability Office, the audit arm of Congress, upheld a protest by Boeing.

The GAO found the Air Force failed to follow its own rules in evaluating the bids. Boeing received some price data after the Air Force picked Northrop's tanker in February 2008.

Northrop Grumman, prime contractor for the trans-Atlantic team, said it was continuing to analyse the US Air Force's draft bidding rules released on Friday.

The company looked forward to talks with the Air Force to better understand the request, which would help shape its bid, Meyer said.

On Friday, Boeing said it was weighing whether to stick with its modified 767 tanker, which lost the cancelled competition to an Airbus A330-based tanker, or go with a larger 777-based tanker -- or offer both.

A senior military officer, at a Pentagon background briefing for reporters on Friday, estimated the programme could be worth USD$25 billion to USD$50 billion over 15 years.

The companies have 60 days to comment on the Air Force's draft request for proposals before final bidding specifications are released.

In Congress, the competition pits Boeing backers from Washington state and Kansas, where the company would do much of its tanker work, against lawmakers from Alabama, where the Northrop-EADS team would do final assembly of its planes.

An initial US attempt to award a tanker contract collapsed in 2004 amid a scandal that sent a former top Air Force weapons buyer and Boeing's former chief financial officer to prison for conflict-of-interest violations.

(Reuters)