KC-30 (Airbus) beats KC-767 (Boeing) for tanker contract

[MKSheppard]

Hmmdeedumm....Aren't we now subsidizing airbus now?

Northrop Beats Boeing for $35 Billion Tanker Program (Update4)

By Tony Capaccio and Edmond Lococo

Feb. 29 (Bloomberg) -- Northrop Grumman Corp., the third- largest U.S. defense contractor, won a U.S. Air Force program valued at as much as $35 billion to build 179 aerial refueling tankers, breaking Boeing Co.'s half-century hold on the business.

Northrop and partner European Aeronautic Defence & Space Co. won an initial contract of $1.5 billion for development and design of four test aircraft and five options valued at $10.6 billion to build 64 aircraft, the Air Force said in a statement today. Boeing was the unanimous pick to win in a Bloomberg News analyst survey this month.

The new aircraft will replace Boeing-built KC-135 tankers flown by the Air Force since 1956. If all contract options are fully funded, the tanker program would become the largest Pentagon project since 2001 when Lockheed Martin Corp. won the contract to build the Joint Strike Fighter. EADS promised to build an assembly plant in Mobile, Alabama, for the tankers and freighter aircraft if its team won the contract.

``This is the greatest day I've had, and this community has had, since I've been in office, and that's about 22 years,'' Mobile Mayor Samuel Jones said in a telephone interview, with shouts and cheers in the background as he stood on the site where Airbus's new plant will be built. ``This is really a community-changing event for Mobile. There will be festivities all of next week.''

Northrop rose $4.19, or 5.3 percent, to $82.80 at 5:58 p.m. in trading after the close of U.S. markets. Boeing shares fell $2.69, or 3.2 percent, to $80.10 at 6 p.m.

Boeing said it hasn't decided whether to protest the decision.

`Possible Options'

``Our next step is to request and receive a debrief from the Air Force,'' the company said in a statement. ``Once we have reviewed the details behind the award, we will make a decision concerning our possible options, keeping in mind at all times the impact to the warfighter and our nation.''

Because of the high stakes involved, nine of the respondents in the Bloomberg survey said they expect the losing bidder to file a protest against today's award.

Efforts to replace the fleet have been held up since 2004, when a $23 billion plan to lease and buy 100 new aircraft from Chicago-based Boeing collapsed amid ethical violations by a company executive and an Air Force official.

Today's order is the first step to replacing more than 500 KC-135 aircraft. Two more competitions will be held to replace the rest of the fleet.

``These tankers will provide the air-bridge for the United States to defend our national interests and assist our friends anywhere on the planet,'' Secretary of the Air Force Michael Wynne said in a statement announcing Northrop's win. ``Today's announcement is the culmination of years of tireless work.''

Different Approaches

The two bidders took different approaches to the contest, with Northrop and EADS offering a larger plane to carry more fuel, cargo or passengers, and Boeing offering an aircraft closer in size to the current fleet.

Northrop's 192-foot-long KC-30 carries 250,000 pounds of fuel, 24 percent more than the 202,000 pounds that Boeing's 159- foot KC-767 can haul. The current tanker is 136 feet long and carries 200,000 pounds of fuel.

EADS gets two thirds of its revenue from Toulouse, France- based Airbus SAS, and aircraft industry purchases are written in dollars, while most of Airbus's costs are in euros. The dollar fell 11 percent versus the euro in 2007, reducing revenue converted into the European Union common currency.

Weak Dollar

Both EADS Chief Executive Officer Louis Gallois and Airbus Chief Executive Tom Enders have said Airbus's best shot at living with a weak dollar calls for moving jobs to the U.S. or to countries with lower costs than Europe. Paris- and Munich- based EADS has been building its position in the U.S., where it had little presence in the military area until two years ago.

Northrop and EADS ``put an enormous amount of effort and brainpower'' into thinking through the bid, Northrop Chief Executive Officer Ronald Sugar said in an interview.

``We took our best shot at it and apparently they thought it was a good one,'' he said.

The Northrop contract will bring about 5,000 jobs to Alabama, Republican Senator Richard Shelby said in a statement.

``The KC-30 is by far the most superior platform in design, fuel efficiency and overall capability,'' Shelby said.

[Thanas]

So..was the better plane picked, or did Airbus win because they promised jobs?

[Sea Skimmer]

So..was the better plane picked, or did Airbus win because they promised jobs?

The airbus is a bigger plane with more fuel to offload, but this was never really about which plane was specifically better, it was about which contract would be a better all around package deal and how the operating costs of more vs. bigger planes would balance.

[Vympel]

BBC

Apparently, it's going to be called KC-45A. Not surprisingly, reps in states which have the big Boeing plants (and their workers) aren't happy:-

Air tanker deal provokes US row
Boeing's loss of a $40bn contract to build a new in-flight refuelling aircraft for the US military has drawn angry protests in Congress.

Lawmakers from Washington state and Kansas, which have big Boeing plants, voiced "outrage" that it had gone to a consortium including Europe's Airbus.

The planes will be assembled in Alabama but constructed largely in Europe.

Boeing has said it is awaiting an explanation from the military before deciding whether or not to appeal.

The new aircraft, named the KC-45A by the US Air Force, is based on the Airbus A330 and will be manufactured in partnership with US defence firm Northrop Grumman.

Its job will be to refuel the vast array of US warplanes and the contract is worth in the region of $40bn over 15 years.

It is a huge blow for Boeing, the BBC's Vincent Dowd reports from Washington.

America has around two-thirds of all such aircraft in use anywhere, and a senior figure in the company said recently if it lost this contract it could be out of the refuelling market totally for years.

'Outsourcing'

Gen Arthur J Lichte, commander of the US Air Force's Air Mobility Command, said the winning design had many advantages over Boeing's tanker.

"More passengers, more cargo, more fuel to offload, more patients that we can carry, more availability, more flexibility and more dependability," he said.

In Everett, Washington state, a few dozen Boeing workers protested outside a Machinists Union hall holding up signs saying "American workers equal best tankers" and "Our military deserves the best".

Congressional lawmakers from the state's Seattle area issued a joint statement condemning the "outsourcing" of the contract.

"We are outraged that this decision taps European Airbus and its foreign workers to provide a tanker to our American military," they said.

Todd Tiahrt, a Republican congressman from Wichita, Kansas, called for "an American tanker built by an American company with American workers".

"I hope the Air Force reverses its decision," he added.

But the news was a boon for Alabama Republican congressman Jo Bonner.

"We are so very excited about having the opportunity to help the Air Force acquire the most modern and capable refuelling tanker - a tanker assembled in America by Americans," he said.

The deal will also safeguard thousands of British aviation jobs, the BBC's Andy Moore says. Wings will be made at factories in Bristol and in North Wales.

Breaking through

For Airbus's parent company, the European Aeronautic Defence and Space Company (EADS), it is a long-desired and potentially crucial breakthrough into the US market, our correspondent says.

Replacing America's ageing KC-135 refuelling planes - which date back to the 1950s - has proved controversial, he notes.

In 2002, the Air Force negotiated a $23bn deal with Boeing for 100 tankers to be based on the Boeing 767.

But that deal was declared invalid after allegations of fraud.

Two Boeing executives went to jail and eventually Boeing's chief executive resigned.

Political pressure on the Air Force over the deal was led by Sen John McCain, the front-runner to win the Republican nomination for the presidential elections this year.

Our correspondent adds that two further contracts are expected later as the US Air Force replaces the rest of its ageing fleet of refuelling craft.

Assuming the decision was made on the purely military merits - and it probably was, else Boeing would've won, this is a good wakeup call to US defense contractors that if they don't produce the best product, they will get beat out by someone who does. So take your crappy 767 and go home.

[MKSheppard]

I hated the 767 because boeing fucked over the designation system KC-767 my ass.

[Vympel]

Wasn't the DC-10 called KC-10? So there's precedent - however, given the A330 = KC-30 didn't happen and it's actually going to be KC-45A, who knows, maybe Boeing's "KC-767" would've been called something else.

Heck, the whole designation system's a mess anyway - "100" series fighters in the 50s and 60s, and then all of a sudden they're in the teens? WTF?

Also - Boeing might still might win something in the next stages of the buy, since the ~500 KC-135s are going to be replaced gradually.

[Big Phil]

The view here in Washington State is pretty interesting. Besides the expected anger over the decision because EADS is European, there are a number of people pissed off because this smacks of pure politics. Alabama (where the planes will likely be built) is a "Red State," and Richard Shelby (R-Ala) and John McCain (R-Ari) were both heavily involved in this deal, McCain helping to kill the original tanker deal and Shelby pressuring the Pentagon to choose Northrop Grumman. Who loses in this scenario? The very Blue state of Washington, with two Democratic senators and a Democratic Governor who is up for re-election (insert conspiracy theories here).

Whether Boeing product was inferior or not, it does raise the question of why was Boeing selected the first time around, and not this time? I'm personally surprised that the Pentagon didn't do something like what they did with the F-22 and JSF - they picked the Lockheed Martin-Boeing F-22 over the Northrop YF-23, and the Lockheed-Northrop-BAE F-35 over the Boeing X-32, thus giving every company a little piece of the pie.

I don't really see the point in ordering two different types of tankers, so it wouldn't make sense for 300 to be Airbus and 200 KC-767's, so I suspect that option isn't on the table at the moment.

[phongn]

Heck, the whole designation system's a mess anyway - "100" series fighters in the 50s and 60s, and then all of a sudden they're in the teens? WTF?

Blame McNamara, who unified the services' naming schemes in the 1960s, which also reset the numbers.

Also - Boeing might still might win something in the next stages of the buy, since the ~500 KC-135s are going to be replaced gradually.

Possibly, but Douglas thought the same thing would happen with the KC-135 contract - and as it happens, the USAF bought only Stratotankers until the KC-10 came along.

Whether Boeing product was inferior or not, it does raise the question of why was Boeing selected the first time around, and not this time? I'm personally surprised that the Pentagon didn't do something like what they did with the F-22 and JSF - they picked the Lockheed Martin-Boeing F-22 over the Northrop YF-23, and the Lockheed-Northrop-BAE F-35 over the Boeing X-32, thus giving every company a little piece of the pie.

Um, you know there was a huge scandal over the KC-767 leasing program a few years back? People went to jail over that mess. As for the F-22 and F-35, er, I don't think it was necessarily to give everyone a piece of the pie, either.

EDIT: As for technical superiority, the A330 pretty much does everything better than the B767 but it costs more. The B767 is a pretty old design by this point. Also, this marks the third aerospace program in a row (IIRC) where a European company (and their American partners) has won; the previous wins being the VH-71 and UH-72.

[Big Phil]

Whether Boeing product was inferior or not, it does raise the question of why was Boeing selected the first time around, and not this time? I'm personally surprised that the Pentagon didn't do something like what they did with the F-22 and JSF - they picked the Lockheed Martin-Boeing F-22 over the Northrop YF-23, and the Lockheed-Northrop-BAE F-35 over the Boeing X-32, thus giving every company a little piece of the pie.

Um, you know there was a huge scandal over the KC-767 leasing program a few years back? People went to jail over that mess. As for the F-22 and F-35, er, I don't think it was necessarily to give everyone a piece of the pie, either.

It may not have been the primary decision, but spreading the wealth around is a long tradition in the defense industry. It's important that the US have multiple defense contractors capable of doing the work.

[The Duchess of Zeon]

Not like this plane will ever actually reach production. I wouldn't be surprised if both Obama and Hillary come out and promise that they'll force the USAF to accept the 767.

[Pelranius]

Isn't there some sort of clause which allows Boeing to appeal the decision? (Or I am mixing it up with something else?)

Meaning this mess will still be kicking around the Pentagon for years.

[Beowulf]

I hated the 767 because boeing fucked over the designation system KC-767 my ass.

It was announced that whoever won, the plane would be called the KC-45.

[phongn]

Isn't there some sort of clause which allows Boeing to appeal the decision? (Or I am mixing it up with something else?)

Boeing can appeal to the GAO if they want.

[Stuart]

Heck, the whole designation system's a mess anyway - "100" series fighters in the 50s and 60s, and then all of a sudden they're in the teens?

The scene in Crusade that explains this is literally true. Robert McNamara made an impassioned speech in Cabinet about how the Air Force and Navy wasted huge sums of money by developing two aircraft with identical performance specs, the F-110 Spectre and the F4H-1 Phantom when a single aircraft could have done both jobs. At the end of his speech, a Presidential voice was heard to quietly remark "Robert, they are the same aircraft."

If you want an explanation as to why any aspect of the US defense industry is screwed up, just say "Robert Strange McNamara". In theory, you won't be right all the time but if you are wrong, it'll be a first.

Word from the herd on this deal. The primary reason why N-G got it was that McCain led the charge against Boeing. This decision is Washington insiders telling you who they think is going to win in November.

[Sidewinder]

I think Boeing's overreacting slightly. Yes, the USAF has chosen Airbus' design over theirs, but other nations are buying the KC-767, e.g., Japan and Italy, so there should be plenty of jobs still available at Washington and Kansas.

Not like this plane will ever actually reach production. I wouldn't be surprised if both Obama and Hillary come out and promise that they'll force the USAF to accept the 767.

Conspiracy or not, I doubt forcing the USAF to buy KC-767s will help the Air Force when the tankers they now have are 50 years old and literally falling apart at the seams, i.e., they must be replaced YESTERDAY.

[Phantasee]

I think Boeing's overreacting slightly. Yes, the USAF has chosen Airbus' design over theirs, but other nations are buying the KC-767, e.g., Japan and Italy, so there should be plenty of jobs still available at Washington and Kansas.

But will Japan and Italy make up for the loss of the USAF contract? Is any other country in the world going to spend nearly as much on tanker planes as the US will?

[That NOS Guy]

But will Japan and Italy make up for the loss of the USAF contract? Is any other country in the world going to spend nearly as much on tanker planes as the US will?

IIRC, the combined total from both of those countries is no more then 10 at best.

[Darksider]

Not like this plane will ever actually reach production.

This may seem tangental to the overall discussion, but why won't this aircraft ever reach production?

Can't they just convert it to carry hydrogen or some other fuel once the oil runs dry?

[Fingolfin_Noldor]

Not like this plane will ever actually reach production.

This may seem tangental to the overall discussion, but why won't this aircraft ever reach production?

Can't they just convert it to carry hydrogen or some other fuel once the oil runs dry?

I think Duchess is referring to the political reasons rather than Peak oil related?

[Ma Deuce]

This may seem tangental to the overall discussion, but why won't this aircraft ever reach production?

Can't they just convert it to carry hydrogen or some other fuel once the oil runs dry?

She's not talking about peak oil, she's talking about Clinton or Obama somehow forcing the Air Force to shitcan the Airbus tanker contract and go back to Boeing should either of them become President. While I'm unsure exactly how they'd be able to pull it off, I wouldn't put it past them to try if they could, considering the strong protectionist tendencies of the Democrats, a tendency which is clearly not lost on either Obama or Hillery, both of whom have stated they wish to opt out of NAFTA.

[Darksider]

I understand the need for some trade protectionism, but denying the military the best possible option just so they have to use an american-made product is fucking stupid.

[Vympel]

I was reading an article about the comp (before it was revealed the "KC-30" won) and it made a couple of points:-

- The USAF will resist any attempt for a split buy. It doesn't make much military sense, and they can't afford it (lol, the USAF can't afford something!)

- The 767 was always at a disadvantage (apart from it's practically universally inferior performance) because the 767 is reaching the end of its life and noone's buying it anymore (unless you count the handful of tankers for Italy or whatever, which mean nothing). The A330, on the other hand, has a huge order book, assuring cheap support and spare parts for decades

[Ma Deuce]

The USAF will resist any attempt for a split buy. It doesn't make much military sense, and they can't afford it (lol, the USAF can't afford something!)

The first "KC-30" isn't scheduled to enter service until 2013, more than enough time for the next administration to scrap it before it's even built.

But anyway, the labor unions and politicians (especially from Kansas and Washington, where the KC-767 would have been built) are already venting their fury. Given the importance of unions to the Democrats' support base, this could very well become a major political issue, and in any case I don't foresee the controversy going away anytime soon.

Linky

Unions furious over Boeing's loss of tanker bid

They question how the Air Force contract went to a partnership with links to Europe instead of Boeing.

By Michelle Dunlop
Herald Writer

EVERETT -- Politicians and union leaders on Monday continued to rail against the Pentagon's decision to award a coveted tanker contract to a company with European ties over the Boeing Co.

"This contract is a $40 billion subsidy to Europe to invest in Airbus and its foreign work force," said Sen. Patty Murray, D-Wash. "We need to be investing in the American aerospace industry and the high-wage, high-skill jobs it supports. The Airbus contract is a European stimulus plan subsidized by the American taxpayer."

On Friday, the Air Force selected Northrop Grumman and EADS, the parent company of Airbus, to supply 179 aerial refueling tankers to the agency over the next 10 to 15 years. Boeing had offered its KC-767, which would have been built in Everett and finished in Kansas.

Murray joined the Washington and Kansas congressional delegations Monday in urging defense officials to provide Boeing the details of the Air Force's decision by the end of the week. The military debriefing allows Boeing to move forward in a protest of the decision, should the company choose to do so. The Air Force said last week it would debrief Boeing on March 12.

Also Monday, leaders of three unions called for Congress to pass legislation blocking the Pentagon's ability to award military contracts to foreign ­corporations involved in trade disputes with American companies.

"We have a superior product," said Richard Michalski, general vice president of the International Association of Machinists and Aerospace Workers, during a press call Monday. "For the Air Force to turn their backs on us is sinful."

Boeing alleges European governments provided illegal subsidies for Airbus to develop certain commercial jets, including the A330 on which the EADS tanker is based. In turn, EADS and Airbus claim Boeing has received unfair handouts, including the tax incentives Washington state offered to secure final assembly of Boeing's new 787 Dreamliner jet. The U.S. Air Force said it did not consider World Trade Organization disputes when deciding which company would build 179 tankers to replace its aging fleet of KC-135 tankers.

"No one expected the Air Force to hand over the Holy Grail of defense contracts" to a foreign company, said Ed Fills, with the Texas State AFL-CIO.

Los Angeles-based Northrop and Franco-German EADS will assemble their tanker in Mobile, Ala. The duo say their tanker program will create 25,000 American jobs. Boeing has said its KC-767 would support 44,000 jobs in this country. The Air Force says job creation was not a factor in its decision.

The agency won't discuss publicly the factors influencing its decision until it debriefs Boeing. However, Pentagon officials said Friday that they considered several criteria in evaluating both Boeing's and Northrop-EADS' tanker proposals, including mission capability, proposal risk, past performance and cost. Analyst Loren Thompson with the Lexington Institute suggested in a brief that Boeing essentially missed the mark on all points.

Boeing, which built the KC-135 tankers, had lauded its experience in producing tankers as an advantage. But that didn't sway the Air Force in terms of proposal risk. The agency initially rated Boeing's tanker as "high risk" because it viewed the KC-767 as an aircraft that Boeing hadn't built, Thompson wrote. Boeing's proposed tanker combined the structural elements -- fuselage, wings -- of different 767 models. In the end, the Air Force pushed Boeing to scale back its tanker build schedule to lower risk, which added cost.

Chicago-based Boeing has the opportunity to protest the Air Force's decision with the Government Accountability Office. Pentagon officials emphasized their hope that Boeing won't delay the delivery of the new tankers by protesting their decision.

"It's absolutely important and critical for us to get on with this," said Air Mobility Commander Gen. Arthur Lichte on Friday. "Anything that would slow down this process has an impact on the warfighter."

[Jade Falcon]

I can imagine the rage from those very same unions if foreign countries that end up buying US military goods downright refused to consider them automatically in favour of homegrown products.

[General Trelane (Retired)]

She's not talking about peak oil, she's talking about Clinton or Obama somehow forcing the Air Force to shitcan the Airbus tanker contract and go back to Boeing should either of them become President. While I'm unsure exactly how they'd be able to pull it off, I wouldn't put it past them to try if they could, considering the strong protectionist tendencies of the Democrats, a tendency which is clearly not lost on either Obama or Hillery, both of whom have stated they wish to opt out of NAFTA.

Cancelling such a contract is easy. But they would have to pay penalties for doing so.

This reminds me of Canada's attempt to replace its aging fleet of Sea King helicopters. Mulroney's conservative government had signed a contract to buy the EH-101, but this was promptly cancelled by Chretien's newly elected liberal government in 1993 at a $500 million penalty. But we still needed new helicopters, so they re-opened the bid process and ordered the CH-148 instead.

I would not be surprised in the least if this tanker contract becomes political fodder.