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Northrop gets $35B-40B tanker contract

After months of deliberations — and more than one delay — the Air Force has finally decided who will build the service’s new refueling tankers.

Northrop Grumman and European partner EADS beat out presumptive favorite Boeing for the Air Force’s $35-40 billion, 179-plane tanker deal, Air Force officials said. The bigger size of the plane was the crucial factor, they said. It represents the first of three deals that could eventually be worth as much as $100 billion over 30 years to replace almost 600 tankers.

See video of the winning refueling tanker

The modified Airbus A330 aerial refueling tanker “gives us more,” said Air Force Gen. Arthur Lichte, who heads Air Mobility Command. “More fuel to offload, more cargo, more passengers, more availability, more flexibility, more dependability and more ability to move patients.”

The aircraft, which the Air Force has designated the KC-45A, will provide much greater refueling capabilities than the 50- to 60-year-old KC-135s it will replace. For example, it will be able to refuel two aircraft at the same time, including Air Force and Navy planes, which have different systems for receiving the fuel. Currently, KC-135s must be set up to service one or the other before each flight.

Also important, Air Force officials said, are the plane’s defensive systems, which will allow it to get closer to the fight and offload as much fuel as possible.

Air Force officials said they used a best-value determination to select the winner based on five factors: mission capability, proposal risk, past performance, price and life-cycle cost, and integrated fleet refueling assessments, in that order.

The Northrop entry beat Boeing’s militarized 767 in four of those five criteria and matched in the fifth, according to one source close to the decision.

“Considered together, these grading criteria ensured the Air Force maximized the capability delivered to the war fighter while optimizing the taxpayers’ investment,” according to an Air Force statement.

The first test models of the KC-45A will be produced in 2010 and the first operational planes will reach the fleet in 2013. Air Force Secretary Michael Wynne said the Air Force would like to begin retiring older E models of the KC-135 as soon as possible.

The contract announcement came as something of a surprise to many industry and government observers, who had expected Boeing to get the nod. The Chicago-based company has been building refueling tankers for the Air Force for nearly 50 years.

Boeing is widely expected to protest the decision, even though Air Force leaders, in the weeks leading up to the announcement, tried to convince both sides not to appeal.

In Paris, analysts said the decision is a significant victory for EADS, the European Aeronautic Defence and Space Co., which is the parent company of Airbus. It now has a huge entry into the U.S. defense market, they said, but execution of the contract would be crucial.

“This is a great success and an enormous challenge for Airbus,” said Loic Tribot La Spiere, chief executive of the Paris-based think tank Centre d’Etude et Prospective Stratégique. “This puts Airbus under great pressure to deliver,” he said. "It has no room for mistakes in design or delivery.”

Olivier Brochet, an analyst at the Paris brokerage firm Natixis, said, “This is truly good news for EADS. It opens access to the U.S. market, which has essentially been limited to Eurocopter.”

The contract award allows EADS and Airbus to transfer assembly of the A330-200 and the cargo version of the airliner to the U.S., which is a key objective of management.

One hotly disputed aspect of the competition was whether the U.S. military should award a contract of this size to a foreign company — and what that might mean for American jobs.

Although many of the parts are to be built in Europe, the final assembly will be done in Mobile, Ala., producing 2,000 new jobs there. In addition, the plane’s General Electric engines will be built in North Carolina and Ohio. All told, the contract would support 25,000 jobs for U.S. suppliers.

Wynne said, however, that jobs were not a factor in the Air Force decision.

Compare the two planes