Boeing looks to be winner of tanker war

After fighting for nearly a decade to win one the largest military contracts in U.S. history, Northrop Grumman Corp. announced Monday that it was dropping out of the competition.

That leaves Boeing as the only announced bidder, making it the likely winner of the $35 billion contract to build aerial refueling planes for the Air Force.

Northrop complained that the government’s requirements favored the smaller plane that Boeing planned to offer. Northrop’s executives also have questioned whether the contract would be profitable enough given the Pentagon’s insistence on setting a final price before the design and testing were completed.

In a statement, Northrop CEO Wesley G. Bush said, “We agree that the fundamental military requirements for the new tanker have not changed since the last competition, but the (Defense) Department’s new evaluation methodology now clearly favors the smaller tanker.”

The Pentagon defended the program as fair and said both companies could compete effectively. Defense Department spokesman Bryan Whitman said the program would not be reworked just to ensure a competition.

Northrop’s decision marks yet another controversial moment in the long-running effort to replace a fleet of tankers dating to the Eisenhower administration. It also raises questions about President Barack Obama’s plan to foster more competition and shift more of the responsibility for covering cost increases to military contractors.

Military analysts said Boeing could charge a higher price if it ends up being the only bidder.

Boeing is based in Chicago, but its Defense, Space & Security division is based in St. Louis and is a $34 billion business with 68,000 employees worldwide. Boeing projects 50,000 jobs would be dedicated to the tanker. The planes would be built in Washington state and Wichita, Kan.

Following Northrop’s announcement, Boeing said in a statement that it “remains 100 percent focused” on the tanker competition and intends to “submit a fully responsive, transparent and competitive” proposal.

“The Boeing NewGen tanker will be safe and survivable in combat, will save the American taxpayer $10 billion in fuel costs over its 40-year life, and is American-designed and built,” the statement read.

Democratic Rep. Norm Dicks of Washington state, where Boeing plans to build its tankers, echoed the “American” theme, saying, “This will be an American company with American workers.”

Dicks is chairman of the House subcommittee that controls the Pentagon’s budget. He was named to the chairmanship Thursday.

Northrop based its bid on forming a partnership with the European company that makes Airbus planes, the European Aeronautic Defense and Space Company. EADS could bid by itself, but that seems unlikely.

“EADS doesn’t have the time to put together a proposal in the absence of Northrop” and may not qualify to bid by itself, said Loren Thompson, a defense industry analyst at Lexington Institute in Arlington, Va.

EADS seemed to understand from the start that it needed an American partner to acquire the political backing needed to outmaneuver Boeing.

That was seen in the reaction Monday of political leaders in Alabama, where Northrop would have assembled the planes and created thousands of new jobs.

Alabama Gov. Bob Riley said the Pentagon made it “impossible” for Northrop to compete.

Sen. Richard Shelby, R-Ala., said: “The Air Force had a chance to deliver the most capable tanker possible to our war fighters and blew it. Once again, politics trumps the needs of our military.”

Ken Leiser of the Post-Dispatch, along with the New York Times, Los Angeles Times, Associated Press and Bloomberg News, contributed to this report.