U.S. turns to Europe for military jets
In a stunning upset that could reshape the nation’s aerospace industry, Northrop Grumman Corp. and European partner Airbus were tapped Friday for a $40-billion Pentagon contract to build 179 aerial refueling tankers for the Air Force.
Century City-based Northrop upset rival Boeing Co. in a surprising win that analysts said could alter the companies’ fortunes and erode the Pentagon’s long-standing policy of buying weapons systems made by U.S. companies.
The award, likely to be the nation’s last big Pentagon purchase for at least a decade, will have enormous economic consequences. It will create thousands of jobs around Mobile, Ala., which will become the site of a Northrop production facility, as well as in Southern California.
“Mobile has just joined Toulouse and Seattle as the world’s third major aircraft manufacturing city,” said Stephen Nodine, the county commission president for the Alabama city, referring to the French home of Airbus and Boeing’s commercial aircraft manufacturing operations in Washington state.
But the decision to purchase a tanker based on a plane developed overseas is likely to rile “made in America” proponents and lead to a protracted battle in Congress.
“The decision means billions of taxpayer dollars will be used to create and sustain jobs in foreign countries, rather than here in the U.S.,” said Tom Buffenbarger, president of the International Assn. of Machinists and Aerospace Workers, a major union at Boeing.
News of the decision, which came after the close of the stock market, sent shares of Northrop up more than 6% in after-hours trading, while Boeing stock was dropping more than 3.5%.
The stakes are huge. The contract, initially worth $40 billion, could grow to $100 billion with follow-on orders; the Air Force is considering acquiring more than 400 tankers over the next four decades.
“This restores Northrop to the top ranks of military aircraft suppliers in the U.S.,” said Loren Thompson, a defense policy analyst for the Lexington Institute. “For Boeing, this is a blow that will significantly diminish military business prospects for decades to come.”
Aerospace remains one of the largest private employers in Southern California, where Boeing has more 31,000 workers -- most of them in defense-related programs -- and Northrop has about 27,000.
The Northrop-Airbus contract is expected to provide a modest economic boost to California, where 40 companies employing about 7,500 people would make parts for the plane. Those firms include safety wire maker Gerard Daniel Worldwide in Fontana and Parker Aerospace in Irvine, which makes refueling equipment. Northrop estimated that the contract could generate about $360 million in economic activity annually.
“We took our best shot, and we’re delighted that the Air Force selected us,” said Ronald D. Sugar, Northrop’s chief executive.
Sugar made a risky career move by partnering with Airbus to go up against what analysts thought was a clear favorite. “If you don’t take big swings and you only bunt, you won’t hit any home runs,” he said.
Northrop’s win is likely to intensify debate over globalization, particularly its effect on defense programs as nationalistic ties are blurred. In recent years, the Pentagon has awarded several controversial contracts for military equipment designed overseas, including a fleet of presidential helicopters.
“This is a global industry,” Sugar said. He disputed arguments that Boeing’s proposal was more “American” than Northrop’s tanker. “If you look at both offerings closely, you’ll see that both competitors had substantial international content.”
Northrop’s plane, which the company had dubbed the KC-30, will be a modified version of Airbus’ A330 wide-body passenger jet built in Toulouse, France. But the tanker version will be assembled and modified in Alabama, making it in their words an “American-built” plane. It would be similar to foreign automakers such as Toyota building cars in the U.S.
The Air Force said Friday that the twin-engine tanker would be called the KC-45A.
Boeing, which was considered the odds-on favorite because it built the fleet of KC-135 tankers that are flying today, had planned to assemble its planes, based on its 767 passenger jet, in Everett, Wash., then ship them to Wichita, Kan., to be modified into tankers, including attaching the booms that extend out to fuel planes in the air.
“Obviously we are very disappointed with this outcome,” Boeing said in a statement. “We believe that we offered the Air Force the best value and lowest risk tanker for its mission.”
The surprising award is likely to add to one of the Pentagon’s more sordid and tangled procurement scandals, which evoked the wrath of a presidential candidate and led to prison sentences for two Boeing executives.
Analysts expect Chicago-based Boeing to protest the decision and appeal to Congress to make the Air Force reconsider its decision, a move that could scuttle or delay the contract award for more than a year. The congressional delegation from Washington state had already vowed to start a probe if Boeing were to lose the competition.
Such a move could force the Air Force to start another round of reviews and deal another blow to its plans to replace its aging fleet of KC-135s that were built during the Eisenhower and Kennedy administrations in the late 1950s and early 1960s, long before most of their current crew members were born.
“I can’t stress enough what an incredibly open and transparent and rigorous source selection process we’ve gone through,” Sue C. Payton, the Air Force’s chief procurement official, said during a news conference after the contract was announced late Friday.
Boeing said that it intended to review the details behind the award before making a decision. The Air Force is expected to brief both companies on how it made its decision within the next two weeks.
The Air Force has been trying since 2001 to buy new tankers with the hope of retiring the KC-135s, which play a crucial role in the ability of the U.S. to project military might overseas. But the first effort, a deal to lease 100 planes from Boeing, came under intense scrutiny from Congress, led by Sen. John McCain of Arizona, the leading Republican presidential contender.
Subsequent government probes led to prison sentences for Darleen Druyun, a top Department of the Air Force procurement official who left the Pentagon to become a Boeing executive, and Michael Sears, the company’s chief financial officer.
The probe revealed that Sears had been recruiting Druyun to work for Boeing while she was making procurement decisions, including those involving Boeing.
In the wake of the scandal, the lease deal was canceled and the Air Force restarted competition, which prompted Northrop in 2005 to partner with Airbus parent European Aeronautic Defense and Space Co. to bid for the contract.
Northrop risked a political “Buy American” backlash but was lured by prospects of packing the plane with its own high-tech military electronics as the Air Force considered using the planes for multiple roles, including as a transport and acting as an aerial command center. Northrop executives estimated that the work installing the electronic equipment could generate $10 billion in revenue.
A source who was briefed on the selection said Northrop won in every major selection criteria category, which probably would make it difficult for Boeing to win an appeal.
And it appears that size did matter.
“I can sum it up in one word: more,” said Gen. Arthur J. Lichte in explaining why the Air Force chose the Northrop-Airbus entry. “More passengers, more cargo, more fuel to offload, more [battle casualties] it can carry, more availability, more flexibility and more dependability.”