By Marina Malenic
Northrop Grumman [NOC] will not bid for a multi-billion-dollar Pentagon deal to build a new fleet of Air Force tankers, the company’s CEO said yesterday.
“After a comprehensive analysis of the final [request for proposals], Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program,” Wes Bush, Northrop Grumman president and CEO, said in a press statement released yesterday afternoon.
Bush cited “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.”
Company officials and those of its industry partner on the project, EADS North America, have said previously that the new evaluation model that will be used by the Defense Department favors rival Boeing‘s [BA] smaller plane.
Boeing last week said that it will offer the Air Force a wide-body version of a 767-based refueling aircraft in a proposal it plans to submit on May 10. The company said it plans to modernize its 767 commercial aircraft with a new digital flight deck from its 787 Dreamliner and a new fly-by-wire refueling boom (Defense Daily, March 5).
Northrop Grumman-EADS won a contract to build 179 tankers based on the Airbus A330 for the Air Force in February 2008. The contract was canceled when U.S. auditors upheld a Boeing protest tied to Air Force missteps in evaluating bids.
In a parting shot at rival Boeing, Bush noted that, in the previous competition, the Air Force determined that it would pay a unit flyaway cost of approximately $184 million per tanker for the first 68 tankers A330-based aircraft proposed by Northrop Grumman-EADS, 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,” he said.
The Air Force last month unveiled the long-awaited solicitation for the KC-X tanker replacement fleet, making only minimal changes to a draft version of the request for proposals (RFP) released late last year.
Pentagon officials have said an initial contract for 179 airplanes to replace the Eisenhower-era KC-135 could be worth up to $50 billion.
Northrop Grumman yesterday said that the business case for its tanker is no longer viable.
“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,” said Bush. “Investing further resources to submit a bid would not be acting responsibly.”
EADS CEO Sean O’Keefe told reporters last week en route to a company facility in Mississippi that the costs to the company in the U.S. tanker bidding are “pushing $200 million.”
Bush said that Northrop Grumman does not plan to lodge a protest of the RFP with government auditors.
“Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly,” he said.
Congressman Jo Bonner (R), whose Alabama district would have been home to the Northrop-EADS tanker assembly factory, expressed disappointment at yesterday’s announcement.
“Frankly, I am outraged at the Defense Department’s bungling of this contract for what is now the third time,” Bonner said in a press statement.
Bonner said he had warned President Obama in a letter last month that “the Pentagon was headed down a path that would kill the chance of competition in the tanker program.”
“This president has adopted a strong policy against the use of sole-source contracts,” Bonner added. “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.”
Sen. Jeff Sessions (R-Ala.) said the 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,” he said in a press statement.
“The unjustifiable overhaul of the Request for Proposals–which went far beyond the narrow problems raised by the [Government Accountability Office]–completely abandoned the idea of a game-changing tanker in favor of a smaller, less capable plane,” he added. “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.”
Sessions called on Defense Secretary Robert Gates to “personally review the competition in light of this disastrous result for the taxpayer.”
Air Force Secretary Michael Donley and Chief of Staff Gen. Norton Schwartz are scheduled to testify before the House Appropriations defense subcommittee tomorrow. Panel Vice Chairman Norm Dicks (D-Wash.), an outspoken Boeing supporter, will preside over the hearing.