Pressure on Northrop Grumman over EADS link

One of the military’s biggest procurement scandals could turn into one of the defense industry’s most heated competitions after the Pentagon’s receipt Monday of a key document that will help determine the future of its midair-refueling tanker fleet.

The fleet’s future could also spur a congressional fight between lawmakers who support Boeing and strict “Buy America” provisions and those who support competition for the program — competition that would come from European defense giant EADS.

One of the military’s biggest procurement scandals could turn into one of the defense industry’s most heated competitions after the Pentagon’s receipt Monday of a key document that will help determine the future of its midair-refueling tanker fleet.

The fleet’s future could also spur a congressional fight between lawmakers who support Boeing and strict “Buy America” provisions and those who support competition for the program — competition that would come from European defense giant EADS.

U.S. defense company Northrop Grumman, which intends to work with Boeing’s archrival, EADS, the European Aeronautic Defence and Space Co., said that some lawmakers have been putting the company under pressure because of its intended partnership and that partly as a result it has not yet officially announced the partnership.

Northrop said it is making progress toward a decision but is still examining the business case for participating in the tanker program and assessing the political environment.

The company has not yet seen the Pentagon document, an analysis of alternative procurement strategies put together by the nonprofit research organization Rand Corp. The Pentagon has 60 days to conduct the sufficiency review of the report.

The analysis of alternatives, which looks at every available option, is intended to help the Pentagon decide how to replace its tanker fleet. It could include a recommendation to solicit competitive bids for new tankers, and that would open the way for EADS.

Northrop Grumman could give the European firm the punch of a U.S. prime contractor.

“We have heard point blank that this may not be a good thing to bring an international aircraft into this program,” said a Northrop Grumman official, who asked not to be quoted by name. House Armed Services Committee Chairman Duncan Hunter (R-Calif.) and Rep. Norm Dicks (D-Wash.) have been the most vocal opponents, the official said. Hunter is known for his buy-American views, while Boeing is a large employer in Seattle.

“How much credibility can there be on this issue when Norm Dicks says that? There is no independence,” the official said. “Our position is that competition brings out the best. Why go into this with one arm tied behind your back?”

EADS, a parent company of Airbus, has been lobbying the Air Force and Capitol Hill for its tanker solution, the A330, a competing aircraft to Boeing’s 767, which the Air Force initially had planned to lease.

That $23.5 billion lease deal went sour and led to a three-year-long contracting-abuse investigation, the resignation of Air Force Secretary James Roche and the imprisonment of two Boeing officials.

Both Boeing and EADS are preparing for intense competition next year. The Air Force recently established an office for the tanker program.

Northrop is playing its cards cautiously, saying it is still in its fact-finding and data-gathering stage. It is trying to figure out how to move ahead with what it believes would be the best solution for the Air Force, said Randy Belote, a Northrop Grumman spokesman.

“We are talking to people about the requirements and waiting,” he said. If the company decides to jump into the fray, he added, it most likely will be with an EADS partnership.

Northrop stirred controversy in June when the company was expected to announce its partnership with EADS at the Paris Air Show but said nothing.

The planned announcement also coincided with a World Trade Organization (WTO) dispute. Washington is accusing the European Union of providing unfair aid to Airbus. The EU says Boeing gets unfair tax breaks from Washington.

The WTO dispute flared up shortly after the House passed a resolution in its version of the 2006 Defense Authorization Act that would prohibit the Pentagon from buying large defense systems from foreign companies that receive government subsidies.

The resolution, pressed by Buy America hawks, such as Hunter, favors dealing with Chicago-based Boeing to replace the tanker fleet.

“Northrop Grumman would have never announced any partnering on this program during the air show. Paris was not the right time nor the right place to announce a potential foray,” said the Northrop Grumman official.

Northrop is using the August recess to gauge congressional attitudes toward future tanker procurement. Northrop CEO Ron Sugar and Vice President of Business Development Bob Helm are on the Hill regularly talking to people about the tanker program, according to the company official.

Northrop does not appear to have much to worry about in the Senate, where a number of powerful senators, including Armed Services Committee Chairman John Warner (R-Va.), Jeff Sessions (R-Ala.), Richard Shelby (R-Ala.), Trent Lott (R-Miss.) and John McCain (R-Ariz.), have suggested that they would not support any curb on competition.

Through its Newport News shipbuilding business, Northrop is the largest non-retail employer in Virginia, with 35,000 employees. Mississippi also enjoys significant employment through Northrop’s shipbuilding.

EADS chose Mobile, Ala., as the location where it will build tankers if it wins a contract. Thus, it may employ thousands of people of special interest to Shelby, who is known for his combativeness in the Defense Appropriations Subcommittee. He has vowed to push for competitive bidding on the tanker program.

Sessions, chairman of the Strategic Forces Subcommittee, also supports competition. He said he expects to be part of the conference committee that will work out differences in the House and Senate defense authorization bills.

Boeing, cowered by the tanker scandal, has been keeping a low profile on the issue but has continued lobbying the Hill, a company official said. “We are keeping in continuous contact with staffers and other people who can help the right information get to the right decisionmakers,” he said

Boeing welcomes fair competition but Airbus is not fair competition, said Brian Ames, director of communications for the Boeing tanker program. “Our competitor will propose the A330, and Airbus is subsidized by the EU government,” he said. “The addition of Northrop Grumman, while offering a U.S.-company front, does not change any of those facts about Airbus.”

Boeing and Airbus airframes are the only ones suitable for the Air Force’s requirements.