EADS executive says tanker contract 'critical' to U.S. business

The new CEO of EADS North America acknowledged Friday that a new Air Force refueling tanker contract is “critical” to the European aerospace conglomerate’s business in the United States.
 
Sean O’Keefe, a former NASA administrator, made his comments after EADS’s tanker partner, Northrop Grumman, recently threatened to pull out of the tanker competition. EADS fully agrees with Northrop that without changes to the selection criteria, that team should not bid for the contract, worth at least $40 billion.
 

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With the prospect of not competing for the multibillion-dollar contract, EADS could be curtailing its chance to an aggressive and fast growth in the U.S. military market and would have to reassess its business strategy.
 
A withdrawal from the tanker contest would also leave rival Boeing the only contender for the massive contract. That would run afoul of congressional preferences for competition on all major defense contracts.
 
Boeing has been in a lobbying and public-relations war with Northrop and its partner EADS North America, the parent company of Airbus, for years over the tanker contract.
 
O’Keefe said that the threat to pull out of the competition was “not a negotiating ploy.”
 
“This is a serious effort,” O’Keefe said at a breakfast meeting with reporters.
 
O’Keefe said that EADS and Northrop Grumman are “very willing” to continue the discussion and the dialogue with the Defense Department over the tanker competition.
 
Both the Northrop-EADS team and Boeing met with Pentagon and Air Force officials in Dayton, Ohio, to discuss the issues that emerged after a draft request for proposals was issued. O’Keefe described the meeting as a “very earnest, spirited and honest exchange.”
 
As a result of hearing out issues brought up by both competitors, O’Keefe indicated that the Pentagon will now push back the release date for the final request for proposals. The Pentagon likely will issue that request mid-January instead of Dec. 18, as initially planned.
 
But O’Keefe said the final request would have to be written in a way that would give “reflection” to the “value of the different attributes, characteristics [and] capacity capabilities unique in both proposals.”
 
If the request is “stagnant” and does not take into consideration capabilities that would exceed the minimum requirements, “then we really do not have a basis for evaluation,” O’Keefe said.
 
In a letter sent to Pentagon acquisition chief Ashton Carter on Dec. 1, Northrop Grumman President and COO Wes Bush said his company has determined it cannot submit a bid for the contract unless defense officials  “substantially” address Northrop’s concerns when it releases its final request for proposals (RFP). Copies of the letter were also sent to Deputy Secretary of Defense William Lynn and Secretary of the Air Force Michael Donley.
 
Among Northrop’s concerns is that the Pentagon has a “clear preference” for “a smaller aircraft with limited multi-role capability.”
 
Northrop Grumman is competing for the contract with the Airbus 330, a larger plane than the 767 that Boeing is expected to offer. Northrop Grumman is also taking issue with the “imposition” of “contractual and financial burdens on that company that we simply cannot accept,” Bush said.
 
Bush said his company has determined it cannot submit a bid for the contract unless defense officials “substantially” address Northrop’s concerns when the Pentagon releases its final RFP.
 
While EADS agrees with Northrop not to compete under those conditions, O’Keefe indicated that non-participation in the competition would alter EADS's business strategy for the U.S. defense market. A win for the tanker contract would mean a fast and significant growth for EADS in the U.S. military market. Absent that contract, the company faces a different — and likely a much slower — path to grow in the U.S. market.
 
The tanker “is a very important program” for EADS, said O’Keefe. “It is one that we believe that we can be responsive to and [that] we can provide a quality capability,” he added. “If that is not what the government is looking for, then there is not a lot of point in offering something.”

The exit from the tanker competition could also have implications on the commercial side. Airbus planned to move the production of its civilian A330 freighter aircraft to Mobile, Ala., the same place Northrop and EADS would assemble the tankers. This move is expected to chip away at Boeing’s manufacturing foothold in the U.S. market, which could change the landscape in the cutthroat commercial aircraft market. Airbus already sells hundreds of planes in the United States, but the Mobile plant would be the first U.S. manufacturing center for the European giant.
 
The move, however, is conditional at this point on whether the Northrop-EADS team wins the tanker contract.
 
Northrop-EADS last February won a $35 billion contract for the Air Force’s new tankers. Boeing successfully protested the contract with a Government Accountability Office — a move that led to the Pentagon starting a new competition this fall.

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