WASHINGTON, D.C. (WALA) - Northrop Grumman Corp. has decided not to compete against Boeing Co. for the $35 billion the Air Force will spend to buy its own fleet of refueling tankers.
Congressional and industry officials confirmed the decision Monday. It puts the Pentagon on a path to do something President Barack Obama didn't want to have happen on his watch: pay large amounts of money to a company without undergoing any competition.
The Obama administration had said these kinds of sole-source contracts aren't a good deal for the taxpayer. But industry insiders say there's no other company poised to meet the Air Force's guidelines for the program.
With the support of Sen. John McCain, R-Ariz., his campaign rival in 2008, Obama ordered his senior advisers to come up with ways to encourage competition.
"The days of giving defense contractors a blank check are over," Obama declared.
On Monday, McCain spokeswoman Brooke Buchanan said that the senator regrets Northrop's decision and would continue to call for an "open and fair process to ensure the best deal for the American taxpayer."
Industry insiders say that the decision by Northrop wasn't surprising.
"When all was said and done, Northrop saw a lot of risk and not a lot of profit," whereas EADS was focused primarily on gaining entry into the U.S. market, said Loren Thompson, head of the Lexington Institute. "At the end of the day, the interest of the two teams diverged."
The decision also will probably knock out a major international competitor from gaining a foothold in the U.S. market. EADS, the European Aeronautic Defence and Space Co., had partnered with Northrop Grumman to vie for the tanker but was not expected to be able to compete against Boeing on its own.
Gov. Bob Riley accused the Defense Department of intentionally rewriting the specifications for the $35 billion tanker contract, handing it to rival Boeing. Northrop Grumman, in a partnership with the European firm EADS, had thought at one point that its design had won the contract.
Riley said the Pentagon switched to a slower, smaller and older refueling plane despite America's defense needs.
He called the program a "charade" and said the Pentagon made it "impossible" for Northrop to compete.
"It's disgraceful," Riley said.
Boeing's supporters shrugged off concerns that Northrop's decision would mean higher program costs because Boeing would still have to meet requirements laid out by the Pentagon. Ultimately, they said it was good news that some of the work wouldn't go overseas to EADS.
"This will be an American company with American workers," said Democratic Rep. Norm Dicks of Washington state, where Boeing plans to build its tankers.
Boeing announced last week that it would offer a military version of its 767 passenger jet for a fleet of 179 new planes. The contract is expected to be the first of several to replace many Air Force planes that date back to the 1950s. Boeing said it will submit its formal bid by May 10.
A final contract is to be awarded in September.
The following is a statement from Wes Bush, Chief Executive Officer and President of Northrop Grumman Corporation, concerning the U.S. Air Force aerial refueling tanker program:
"After a comprehensive analysis of the final RFP, Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program. We reached this conclusion based on the structure of the source selection methodology defined in the RFP, which clearly favors Boeing's smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity.
"Northrop Grumman fully respects the Department's responsibility to determine the military requirements for the new tanker. In the previous competition, Northrop Grumman was selected by the Air Force as offering the most capable tanker for the warfighter at the best value for the taxpayer. However, the Northrop Grumman and EADS team is very disappointed that the revised source selection methodology now dramatically favors Boeing's smaller refueling tanker. We agree that the fundamental military requirements for the new tanker have not changed since the last competition, but the Department's new evaluation methodology now clearly favors the smaller tanker.
"We continue to believe that Northrop Grumman's tanker represents the best value for the military and taxpayer – a belief supported by the selection of the A330 tanker design over the Boeing design in the last five consecutive tanker competitions around the globe. Regrettably, this means that the U.S. Air Force will be operating a less capable tanker than many of our Allies in this vital mission area.
"Our prior selection by the Air Force, our firm belief that we provide the best value offering, and the hard work and commitment of the many individuals and communities on our team over many years made this a difficult decision for our company. But we have
a fiduciary responsibility to our shareholders to prudently invest our corporate resources, as do our more than 200 tanker team suppliers across the United States. Investing further resources to submit a bid would not be acting responsibly.
"We have decided that Northrop Grumman will not protest. While we feel we have substantial grounds to support a GAO or court ruling to overturn this revised source selection process, America's service men and women have been forced to wait too long for new tankers. We feel a deep responsibility to their safety and to their ability to fulfill the missions our nation calls upon them to perform. Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly.
"We recognize that our decision likely creates a sole-source outcome for Boeing. We call on the Department to keep in mind the economic conclusions of the prior round of bidding as it takes actions to protect the taxpayer when defining the sole-source procurement contract. In the previous round, the Air Force, through a rigorous assessment of our proposal, determined that it would pay a unit flyaway cost of approximately $184 million per tanker for the first 68 tankers, including the non-recurring development costs. With the Department's decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less."
U.S. Sen. Jeff Sessions (R-AL) made the following comments regarding Northrop Grumman's announcement that it would not submit a bid in the U.S. Air Force's tanker recapitalization program:
"This is truly a dark day for the American warfighter and for the Pentagon. Today's withdrawal by the Northrop Grumman team is concrete proof that the dramatic changes in the way that the Pentagon will evaluate competing proposals had the effect of eliminating the superior aircraft that was the low bidder in the last competition. Tasked by Congress to conduct a fair competition, the Obama Defense Department rewrote the bid rules in such a biased fashion that only one team felt it could win.
"This is a tragic result for this important program, made all the more damaging given Northrop Grumman/EADS’ resounding victory when this competition was administered using the original Air Force criteria. Those guidelines were consistent with the Air Force’s well-documented need for a transformational tanker with capabilities for assisting in airlift missions. After a careful evaluation, the Air Force determined that the NG/EADS aircraft was clearly superior, outperforming its competitor in nearly every category. Even in upholding Boeing’s protest, government auditors declined to criticize that conclusion.
"The unjustifiable overhaul of the Request for Proposals—which went far beyond the narrow problems raised by the GAO—completely abandoned the idea of a game-changing tanker in favor of a smaller, less capable plane. Of the 14 major changes to the solicitation, 12 favored Boeing's smaller, older aircraft. In the end, the process was skewed, and no one can fault a private company for declining to participate in a government competition engineered to guarantee its failure. The outcome is tragic for our men and women in uniform—who are being denied the best aircraft—and for American taxpayers, who could now be on the hook for the most expensive sole-source contract in history. We know from previous experience that sole-source deals result in less capability and higher costs.
"Allegations that this would be a foreign-based aircraft production were simply false. The lead contractor was one of America's finest defense companies, and EADS is based in Europe, the home of our allies and closest defense partners. The aircraft would be built in Alabama, with suppliers employing Americans in all 50 states, employing 48,000 Americans.
"I hope that the Secretary of Defense will personally review the competition in light of this disastrous result for the taxpayer. There is no way the Defense Department will be able to get the best price without competition."
U.S. Senator Richard Shelby (R-Ala.) made the following statement after the announcement by Northrop Grumman that it would not bid on the U.S. Air Force tanker contract:
"The Air Force had a chance to deliver the most capable tanker possible to our warfighters and blew it. This so–called competition was not structured to produce the best outcome for our men and women in uniform; it was structured to produce the best outcome for Boeing. The Air Force's refusal to make substantive changes to level the playing field shows that once again politics trumps the needs of our military."
Congressman Jo Bonner, R-Alabama, issued the following statement in reaction to Northrop Grumman's decision not to submit a bid in the KC-X tanker competition:
"I am deeply disappointed that Northrop Grumman was unable to submit a bid for the KC-X tanker program. Frankly, I am outraged at the Defense Department's bungling
of this contract for what is now the third time.
"I wrote President Obama last month and warned him the Pentagon was headed down a path that would kill the chance of competition in the tanker program. Now that is precisely what has happened. This President has adopted a strong policy against the use of sole-source contracts, acknowledging those contracts are 'not well designed to serve the needs of the Federal Government or the interests of the American taxpayer'.
"Apparently the Pentagon didn't get the word and has handed the President a $35 billion sole-source hot-potato, under circumstances that are highly suspect. The president must now intervene to protect the interests of the taxpayer and the men and women of our military."
Mobile County Commissioner Stephen Nodine released the following statement after the announcement was made by Northrop Grumman:
"I am extremely disheartened by Northrop Grumman Corporation's decision today [Monday] not to bid on the aerial refueling tanker program. The war fighter, the American taxpayers, and the workers of the Gulf Coast have been cast aside in favor of 'Political Protectionism.' If we don't continue to fight this movement, our Littoral Combat Ship program at Austal is also in danger.
"My primary remorse is for the fighting men and women of this great country whose safety and ability to do their job was not foremost in the decision-making process. I am appalled that our military procurement process has been held hostage by politics but this is indeed what has happened.
"Northrop Grumman and its partner EADS won overwhelmingly the fair competition that was held in 2007-2008 and based on a multi-role platform. The KC-45 with its many military capacities would have saved the American taxpayers billions of dollars over the course of the program while at the same time providing our military with a more capable tanker.
"But the playing field was blatantly altered in favor of an inferior product. While saddened by their move today, I respect that Northrop has a business decision to make.
"Obviously I am hurt that thousands of people in Mobile and along the Gulf Coast will not be put to work building the best tanker for our Air Force. I'm disgusted at the way our southern workers have been treated as second class citizens by organized labor which fought so hard to protect its power structure at the cost of 48,000 jobs nationwide that the KC-45 program would have supported.
"Although I am devastated by today's news, I know that we in Mobile County did everything we could to win this project. We have worked for more than seven years and have been supported all the way by the great citizens of the area who were fully educated and engaged in this issue.
"Our hard work has resulted in many positives. We have a wonderful new corporate member of our community in EADS/Airbus. The company is employing hundreds of people at the EADS engineering facility at Brookley Field and at Airbus Military at Bates Field. We hope the company will continue to grow here.
"Our efforts have also helped to put Mobile County on the map when it comes to the aerospace industry. We have made invaluable contacts worldwide which will ultimately pay dividends for the area.
"Additionally, we have fostered fantastic relationships across the Gulf Coast. We have worked hand-in-hand with governments, businesses, and citizens of our neighboring states to promote the quality of the entire region to the worldwide aerospace industry.
"Going forward, we must continue to fight for our County and region, not only to attract aerospace and other business, but to make certain this tanker procurement fiasco does not play out again. Already organized labor and protectionists are out to corrupt the Littoral Combat Ship procurement. Thousands of jobs at Austal in downtown Mobile are at stake. The entire community must be ready to fight again.
"We have great people and a tremendous workforce in Mobile County. I pledge to continue to fight against 'Political Protectionism' and the consequences it will have for our military and American workers."
The following statement was released by Deputy Secretary William Lynn on Northop Grumman Tanker Announcement:
"We are disappointed by Northrop's decision not to submit a bid for the U.S. Air Force tanker replacement program.
"In the last tanker replacement (KC-X) competition, Northrop Grumman competed well on both price and non-price factors. We strongly believe that the current competition is structured fairly and that both companies could compete effectively.
"Based on the inputs we received from both offerors to the Department's draft Request for Proposal (RFP), we made changes to reduce the out-year risk to the potential manufacturers of KC-X. However, we did not change the war-fighters' requirements to accommodate either offeror.
"The Department strongly supports trans-Atlantic defense industrial ties and believes they benefit the American war-fighter and taxpayer."
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