Northrop Grumman defends right to keep tanker contract

Northrop Grumman is sending a message out on Capitol Hill: The defense company still holds the right to a $35 billion aerial tanker contract despite a stunning ruling in favor of rival Boeing .

Most lawmakers had reserved judgment on the high-profile defense industry dispute, awaiting the outcome of the protest filed by Boeing with the Government Accountability Office (GAO).

But now the GAO has issued its report saying the Air Force made “a number of significant errors,” and the political momentum is shifting toward Boeing, whose supporters on the Hill are pressing for the contract to be re-opened.

“The Air Force needs a new tanker, and nothing in the GAO report refutes the fact that the Northrop Grumman KC-45 is the most capable tanker and is ready now to go into production,” Paul Meyer, Northrop Grumman’s vice president of Air Mobility Systems, said in a statement.

It is down to the wire for Northrop Grumman and its tanker partner EADS North America, which could face the risk of losing the multibillion-dollar contract. Attention to detail will be crucial in the company’s next lobbying chapter on the Hill.

Much of the lobbying push will depend on how the Air Force and the Pentagon decide to go about the GAO’s recommendations. Northrop is also still waiting to see the redacted GAO report.

But the company is not wasting any time saying that the GAO ruling doesn’t mean a loss for Northrop; it is still the one holding the contract and arguing that the merit of the aircraft — the Airbus 330 — is in no way diminished.

“Northrop Grumman remains under contract and remains ready to serve with the most modern, most capable tanker in the world,” Meyer said.

The defensive position is not new to Northrop Grumman, but the stakes are now higher — given that the Air Force is feeling new pressure to take another look.

From the moment the Air Force awarded the tanker contract to the U.S. defense giant and its European partner — the parent company of Airbus and Boeing’s bitter rival in the commercial aircraft market — the decision sparked a dueling lobbying and public-relations campaign between Boeing and Northrop Grumman.

Both companies are armed to the teeth with high-profile lobbyists. Among them, Northrop Grumman hired the firm headed by former Senate Minority Whip Treant Lott (R-Miss.) and ex-Sen. John Breaux (D-La.). Boeing is paying the Gephardt Group — as in Rep. Dick Gephardt (D-Mo.), the former House Minority Leader — among seven other groups.

Northrop found itself not only defending the Air Force’s award and selection process, but also defending itself against allegations that American jobs will be lost to Europe, where Airbus has its main operations.

Northrop Grumman and EADS plan to assemble the tanker in Mobile, Ala. The companies have claimed the tanker contract would create 48,000 direct and indirect U.S. jobs in 49 states.

Across the ocean, EADS CEO Louis Gallois put on a brave face after the GAO report was publicized.

“We are still under contract and are convinced that our aircraft are the best,” Gallois told employees last week in Munich, according to German publication Der Spiegel. Gallois said that GAO had not evaluated the quality of the proposed aircraft, but had only examined whether bidding rules had been respected.

Also, Northrop Grumman officials are pointing out that Boeing had scores of grievances in its GAO protest, but that the watchdog agreed with only seven of them and threw the others out.

In its public statement, the GAO said that the Air Force conducted “misleading and unequal discussions” with Boeing. The Air Force informed the company that it had fully satisfied a key performance measure and later changed that assessment, but failed to notify the company, the GAO said.

The Air Force also erred in its evaluation of the likely costs of operating the tankers over time. Had those errors been corrected, the analysis would have shown Boeing’s offer was lower, according to the GAO.

 The Air Force and Pentagon leadership is likely to come back with the next course of action well before the 60-day deadline. Industry sources said that the Office of the Secretary of Defense and the Pentagonís acquisition czar could be taking over the issue instead of leaving it to the Air Force.

The service is in a period of transition after its secretary and chief of staff were forced to resign amid several flaps with nuclear components and other disagreements with Defense Secretary Robert Gates. The new Air Force leadership still has to be confirmed by the Senate and is likely to face questions over the tanker issue.

All eyes will be on the Air Force in its third try to replace its aging tankers. The first try went down as one of the most publicized corruption scandals in the Pentagon, landing a former Air Force acquisition official and Boeing executive in jail in 2004 over a sweetheart deal to lease Boeing tankers.

That scandal ultimately led to the open competition between Boeing and Northrop Grumman for the new tankers — a move that allowed EADS and Airbus the chance to grab a large slice of Pentagon business.

The stakes are extremely high for both Boeing and Northrop Grumman. The final word on the tanker will determine which company will reign in the tanker market for decades to come.

For now, Northrop Grumman canceled this week’s groundbreaking ceremony for the tanker facility in Mobile. At the same time, lawmakers from Washington state and Kansas are returning to Washington after meeting with Boeing employees to cheer the GAO outcome.