Northrop Said to Join Airbus Parent in Tanker Bid
Northrop Grumman Corp. has signed a deal to team up with the European parent of aircraft maker Airbus to bid on a possible Pentagon aerial refueling tanker contract in direct competition against Boeing Co., industry and company sources said.
Century City-based Northrop and European Aeronautic Defense & Space Co., known as EADS, are expected to announce their pact today. The agreement is likely to hamper Boeing’s efforts to fend off its archrival Airbus in the pursuit of what is expected to be one of the largest military contracts in recent years.
Northrop Chairman and Chief Executive Ronald D. Sugar signed off on the long-awaited alliance over the Labor Day weekend after reviewing preliminary Air Force documents outlining tanker replacement requirements, a source close to the negotiations said.
Under the pact, Northrop would be the prime contractor and the North American unit of EADS, Europe’s largest aerospace company, would be the principal subcontractor.
Sugar was touring Northrop’s military shipbuilding operations on the hurricane-damaged Gulf Coast on Tuesday and could not be reached for comment. A Northrop spokesman declined to comment, saying the company does not respond to “rumors and speculations.”
In 2002, Boeing beat out Airbus when it struck a $23.5-billion Air Force deal to lease 100 modified Boeing 767 jets for a new fleet of refueling tankers. The deal was scuttled last year after a former Air Force procurement official admitted giving Boeing favorable terms on several deals, including the tanker contract.
The Air Force is widely expected to reopen the tanker contract to a new round of bidding next year.
Sugar has said that EADS’ proposal to modify the Airbus A330 commercial jet could beat out Boeing’s 767 in a tanker competition. In addition, he sees the transatlantic alliance as a way to pack the tankers with Northrop’s high-tech military electronics, potentially generating $10 billion in revenue for Northrop.
EADS, a Dutch-based consortium, owns 80% of Airbus, which has surpassed Boeing to become the world’s largest commercial aircraft maker.
Earlier this year, the prospect of Northrop taking a European partner was seen as highly unpopular, particularly in Congress, which was weighing a trade dispute with the European Union over allegations of illegal subsidies to Airbus and Boeing.
But the Northrop-EADS deal is being structured in a way that may make it more politically palatable on Capitol Hill, in part because Northrop is the lead partner, analysts said.
EADS’ North American subsidiary is headed by Ralph Crosby, a former Northrop senior official who once ran its military aircraft business.
EADS gained the support of several powerful members of Congress in June when it announced that it would build a $500-million final assembly plant for the tanker aircraft in Mobile, Ala., and would hire 1,000 workers if it won the competition.
The prospect of a new aerospace plant in their state was endorsed by Alabama Republican Sens. Jeff Sessions and Richard C. Shelby. Sessions is a member of the Senate Armed Services Committee, and Shelby is on the Senate Appropriations Committee; both committees are key to getting military programs through Congress.
And the timing of a Northrop-EADS announcement -- in the wake of the devastation of Hurricane Katrina to Alabama -- would be likely to generate more support.
“It makes politicians look like they’re doing something good for their troubled constituency,” said Richard Aboulafia, an aerospace analyst for Teal Group.
Northrop shares rose 14 cents to $57.04 in Tuesday’s trading, while Chicago-based Boeing climbed 69 cents to $65.03. EADS shares rose 90 cents to a 52-week high of $34.90 in U.S. over-the-counter trading.
