Northrop drops out of bidding for $35B tanker

Northrop Grumman said Monday that it would not compete for a $35 billion Air Force refueling tanker contract after complaining the bidding process favored its competitor.

The decision is a huge victory for rival Boeing, which is now expected to be the only company to bid for the lucrative contract.

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Executives at Northrop had complained for weeks that the structure of the proposal favored Boeing and warned that without changes, it would pull out of the competition.

“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,” Northrop CEO and President Wes Bush said in a statement.

Bush said the competition favors Boeing’s smaller tanker design.

Northrop’s exit likely ends a controversy surrounding Air Force plans to replace an aging fleet of air refueling tankers that has stretched on for years and led to multimillion-dollar lobbying and advertising campaigns as the competing teams struggled for an edge.

The service originally planned to lease planes from Boeing. Questions about cost and a controversy concerning unethical interaction between the Air Force official responsible for the leasing program and Boeing executives led to a Pentagon decision to abandon that approach.

Former Air Force acquisition chief Darleen Druyun was sentenced to prison in 2004 for illegally steering contracts to Boeing in exchange for a lucrative job. Boeing Chief Financial Officer Michael Sears also served jail time.

Northrop, which was competing for the contract as part of a team that also included EADS North America, then won a follow-on competition.

But the Government Accountability Office (GAO) upheld a Boeing protest, forcing the Pentagon to open another competition.

Northrop, EADS and their supporters on Capitol Hill have lashed out at the Air Force for skewing the competition in favor of Boeing, a dispute both the service and the rival bidder denied.

Sen. Richard Shelby (R-Ala.) said the Air Force “blew it.” Northrop, teamed with EADS, was expected to assemble the new aircraft in Mobile, Ala.

“This so-called competition was not structured to produce the best outcome for our men and women in uniform; it was structured to produce the best outcome for Boeing,” Shelby said.

Members from Washington state, where the 767 will be built, celebrated Northrop’s decision.

“Today’s decision should allow the Defense Department to move forward expeditiously with the replacement of the KC-135 tanker fleet,” said Rep. Norm Dicks (D-Wash.).

“I believe the Northrop Grumman Corp. has made a prudent decision to forgo responding to the Air Force’s request for proposals, based on the requirement to replace the KC-135s with an aircraft that fulfills the aerial refueling role in the most cost-effective manner.”

Dicks said the Air Force would have paid much higher fuel costs with the larger Northrop-EADS plane.

For that reason, Dicks, the likely new House Appropriations Defense subcommittee chairman, said it was unlikely the service would choose the Northrop-EADS bid.

Sen. Patty Murray (D-Wash.) responded to concerns that costs could rise without the benefit of a competing bid.

“I am going to work to ensure that in the end this contract serves the taxpayers’ best interests,” Murray said. But she said Washington-state workers deserve the opportunity to build the tanker.

Northrop’s Bush said the new competition “dramatically favors” Boeing’s smaller tanker bid, which is based on a 767 frame.

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But Bush added that Northrop would not protest the contact to the GAO or file a lawsuit against the Air Force, although the company believes it has “substantial grounds” for winning either challenge.

“America’s servicemen and -women have been forced to wait too long for new tankers,” Bush said.

The Northrop-EADS team had pushed a design based on the A330, a plan built by Airbus, which is a subsidiary of EADS.

Northrop’s statement acknowledged that Boeing would now likely be awarded a sole-source contract, an indication that EADS does not plan to try to find another partner to continue in the competition.

The bids are due in two months, leaving little prospect EADS could submit a viable proposal.

Northrop was also reportedly worried the structure of the Air Force contract, known as a firm fixed-price contract, left little room for profit.

In the contract Northrop won, the Air Force agreed to pay approximately $184 million per tanker for the first 68 tankers.

“With the department’s decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less,” Bush said in the statement.

Ian Swanson and Kevin Bogardus contributed to this article.