Breaking news on CNBC quoting WSJ. Will post link as soon as it is up. Nevetheless, this is a huge loss for Boeing.

And let the interminable contract protest begin!

I am all for "let the best man win". But....seeing how the European powers use their military budgets to support their defense industries, I wanted a little of "paybac". IIRC the engines for the A-400M transport were supposed to be P&W, as Airbus thought it would cost less, and since the technology was already existent, less risks for the overall projetc. But some Euro powers, wanted an "Euro" engine, (Europrop) and let it be known that they would not order the A-400M with a P&W engine.

Earliest article available:

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Northrop Beats Boeing for Tanker Program, Person Says (Update1)

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, according to a person familiar with the decision.

Northrop and partner European Aeronautic Defence & Space Co. won an initial contract of $1.5 billion for development and purchase of four test aircraft and options of $10.5 billion to build 64 aircraft, the person said. Boeing was the unanimous pick to win in a Bloomberg News analyst survey this month. The Air Force will announce the contract winner at a press conference at 5 p.m. New York time today.

``For Northrop it's a nice program win, but for EADS it's a major breakthrough in the most important defense market in the world,'' said Richard Aboulafia, an aviation consultant with Teal Group in Fairfax, Virginia, in a Feb. 25 interview.

Northrop rose as much as 4.3 percent to $82 in trading after the close of U.S. markets. Boeing shares fell as much as 4.5 percent to $79.19.

Boeing spokesman Bill Barksdale declined to comment ahead of the Air Force's announcement. A Northrop spokesman said the company had no immediate comment.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net ; Tony Capaccio at acapaccio@bloomberg.net .

Last Updated: February 29, 2008 16:35 EST

"person says"

A real source I think.

Contract announcement on a Friday afternoon at 5PM. Ouch. It will be a seppuku weekend over at Boeing.

Well, I didn't see that coming.



The original engine competition was between Rolls Royce's BR715 and the Snecma/Fiat/MTU M138. The PW180 was considered yet another option. The real political decision was to get all the European manufacturers to design the engine together (with predictable results, i.e. the first airframe is finished but still waiting for the engines ).

As for using military budgets to support one's own defense industry - you mean people actually do this? I'm shocked, shocked I tell you.

NG wins it

First the whole US101 thing and now this? It seems like the DoD wants to piss off our manufacturers.

I think it is more of the other way around. The DoD is mighty pissed off by huge cost overruns and the "get away" attitude of US defense contractors so they awarded to Northrop Grumman/EADS as a lesson to those that DOD won't be jerked around anymore.

So the US does not use its military budget to support its defence industries then?

It doesn't take Criswell to predict there will be much wailing and gnashing of teeth.

Exactly, its a very clear message that you have to design the best product at the best price (or compromise there of) and while you may have no or few domestic competitors anymore you've got the globalised western world to compete with. Simply being 'murrican won't get you the contract.

I wonder if that will be a case of cutting off the nose to spite the face.

When we were looking at the airplane issue before, I had said Boeing should have gone with the bigger aircraft. Oh well..... We had many on these boards who thought the smaller Boeing jet was the way to go. So much for that idea. Airbus has a huge, huge win with this contract. Boeing will be should just quit screwing around and buy a 51% share of Eads/airbus and be done with it. We need the A400 anyway. Win-win for all.

A little bit of Schadenfreude here. Personally I thought Boeing should have been barred from bidding at all on this contract after all the shenanigans with the KC-767. They had an incredible sense of entitelment, and the competition was theirs to loses.

In any case, the court battles will now begin, and eveything will soon cost 2x as much, all in the name of US jobs.

Remember Eisenhowers warning on the military-indsutrial complex??

Considering the increasing trend of foreign governments getting into American politics, cash in hand, you can expect all major competitions to be contested in court.

I do remember Eisenhower's saying. It was stupid then, it is stupid now. On page 86 of your Form 1040 instruction booklet, there is a couple of pie charts. Look at the one on the right.

BBC is reporting that it will be called the KC-45A

It seems a little unfair to accuse European manufacturers of being responsible for the inevitable round of post-award litigation - this has been happening in the US for years, even if Europeans aren't involved.

I'm amazed that NG/EADS had the nerve to take on the currency fluctuation risk of such a large sum over such a long period (assuming that the US Government hasn't some sort of limitations in the contract).

The recent decade has seen vast changes in the relative value of the Dollar and Euro (let alone the pound) and there is no way of telling whether that will continue or whether the system will go backwards - maybe they are all priced in the Cinese currency (which I can never remember how to spell).

.

US lawmakers blast Boeing defense contract snub
March 1, 2008 - 8:29PM


US lawmakers reacted angrily to the award of a 35-billion-dollar Defense Department contract to a Northrop Grumman/EADS team, a major coup for Europe's Airbus at the expense of US giant Boeing.

Reacting to Friday's decision by the US Defense Department to award the contract for a fleet of in-flight refuelling aircraft, Republican Senator Sam Brownback said he was "shocked at this decision and very disappointed.

"I'll be calling upon the Secretary of Defense for a full debriefing and expect there will be a protest of the award by Boeing," Brownback added.

"It's stunning to me that we would outsource the production of these airplanes to Europe instead of building them in America."

Republican Representative Todd Tiahrt said he was "deeply troubled."

He added: "We should have an American tanker built by an American company with American workers," he said.

"I cannot believe we would create French jobs in place of Kansas jobs."

According to the Boeing website, the company is the largest employer in Kansas.

But a senator from Alabama, where some of the work will be done, welcomed the decision.

"Not only is this the right decision for our military, but it is great news for Alabama," said Richard Shelby, a Republican.

The contract was expected to bring up to 1,800 jobs to the Mobile area and 5,000 to the state, he added.

Airbus will assemble the tankers in Mobile, Alabama, and had said that if it won the contract it would transfer assembly of its commercial 330 aircraft there, creating jobs.

Los Angeles-based Northrop Grumman and the European Aeronautic Defense and Space Company (EADS), parent of Airbus, will provide up to 179 tankers for the US Air Force.

The Boeing Company, the second leading US defense contractor after Lockheed Martin, had been considered the heavy favorite.

The contract for the newly named tanker, the KC-45, is one of the largest Pentagon contracts in recent years and the first order on a tanker market valued at more than 100 billion US dollars in more than 30 years.

It marked an unprecedented triumph for EADS, which has achieved a foothold in the world's largest defense market after a history of minor contracts.

"The tanker is the number-one procurement priority for us right now. It is the first step in our critical commitment to recapitalize our aging fleet to move, supply, and position assets anywhere," General Duncan McNab, US Air Force chief of staff, said in a statement.

The Northrop Grumman/EADS team "clearly provided the best value for the government," said Sue Payton, assistant secretary for air force procurement.

Ronald Sugar, chairman and chief executive of Northrop Grumman said: "Northrop Grumman's vast expertise in aerospace design, development and systems integration will ensure our nation's warfighters receive the most capable and versatile tanker ever built."

The competition had been closely watched because of the size of the contract and the political implications of a choice between an all-American contractor or a mainly US team that includes a foreign contractor.

In Paris, EADS CEO Louis Gallois told AFP the contract was a "great subject of pride" for the company and would "encourage it to pursue its strategy in the United States."

Price had not been the deciding factor in the mater, said Gallois, as the choice had been made on "the qualities of the plane."

Boeing expressed its strong disappointment and said it would ask the air force for an explanation.

"Once we have reviewed the details behind the award, we will make a decision concerning our possible options," said Boeing spokesman William Barksdale, hinting at a possible protest.

Boeing and the EADS-Northrop team had been competing for more than a year for the prize, which offers a cushion for decades in case of a downturn in the highly cyclical market for commercial aircraft.

Richard Aboulafia, an analyst at Teal Group Corporation, said the contract was a "major boost" for EADS.

"This is, by far, the biggest US defense contract ever obtained by a continental European company," Aboulafia said.

EADS's winning offer is a modified version of the Airbus 330. The commercial plane will be militarized by Northrop Grumman and its American partners to prevent the transfer of sensitive technology to a foreign entity.

Boeing proposed a version of its long-haul cargo plane, the 767-200.

In May 2003, a similar tanker contract was awarded to Boeing, but it was annuled under allegations of procurement fraud, for which Boeing paid a record 615-million-dollar settlement to the government. (My emphasis)

© 2008 AFP

This story is sourced direct from an overseas news agency as an additional service to readers. Spelling follows North American usage, along with foreign currency and measurement units.

I was always under the impression that a production in the USA circumvents the Dollar vs. Euro currency fluctuation issue?

Still, congratulations to EADS for this deal!

Unlike the US?

A protest shall most likely be lodged, and then when the protest is annulled, Boeing will have two options. Hit the courts, or go home mad.

It was Boeing's to lose. Boeing has a pretty nasty rep in the defense industry right now. At least in aviation with the aviation systems people I deal with. Unfotunately, Northrop isn't much better.

With the flak this creates - or may create - is there any chance of the Marines now choosing a European platform for their new LAVs?

Way back when, Boeing was talked about as possibly offering two aircraft for the Tanker project and let the Air Force decide which one it wanted. They should have gotten off their ass and offered the two plane option. This would have allowed the Air Force to make the decision on which jet, (small or large) it wanted to buy. I don't know why Boeing didn't follow up on this. Well, I still say Boeing needs to buy a controlling stake in EADS and be done with it. The A400 will be a winner that we really need for the future. Boeing could be the domestic builder of the A400 for U.S. use. As usual, I'm not for handing this contract to foreign sources unless Boeing had nothing to offer. Oh well.....Boeing needs to keep on growing the business the best way they can. EADS has pulled off a major coup of immense proportions. Congrats to EADS!

I am surprised, but somehow it felt increasingly likely the last weeks. I heard to many Lakota references in the last weeks and people comparing it to the ARH program.

I wish you'd stop saying this. It is not ever going to happen, unless the sun stops shining.

Firstly, EADS and Boeing are of comparable size, how would Boeing finance this? (Boeing revenues 66 billion in 2007, EADS 40 billion euro, 2006, current exchange rate is $1.5 = 1 euro)

Secondly, the anti-trust organisations in Europe and in the US would force the split of Airbus and Boeing's Commercial aviation - there's no way they would allow such a monopoly to exist.

Sadly, he's one of those "America is and always shall be first crowd" which extends to American companies. Used to be true on the face of it in the 70s and 80s, not so true today.

I've been doing some reading on Boeing's commercial business lately and how they do things and how EADS got to where they are, and Boeing caught a break when EADS went for the Jumbo instead of the money maker. Otherwise, Boeing would have been hurting badly within ten years IMO.

EADS still has the hungry look, and Boeing is looking over it's shoulder. Looks like it paid off this time. Just hope Northrop doesn't mess it up.

If Boeing is smart, they'll take the punch, smile and get on with business.

A protest will just ensure that the USAF brass will remember the nasty side of Boeing as future contracts come up.

Not what Boeing wants or needs.

Well, I guess this will quiet some of the whining about how US military procurement is always about 'NIH'...

I did not kind of expect this, but on the other hand: what point there is to arrange expensive and lengthy bidding contests and evaluations, if the winner is nevertheless pre-determined?

(that there is no point does not of course stop that happening...

It would not be the first time that Boeing has tripped themselves up. The tainted tanker lease-buy deal from before I guess could not be lived down. It is also true that the 767 based a/c for the Japanese and Italian AF had yet to be delivered, one a tanker and one a AWACS, I forget which-which. That's a bit embarrassing. Northrop-Grumman also is not a slouch in USAF circles and if they have done well with the E-8 JSTARS delivery and the all important post delivery support, that might have leveled the playing field. Boeing mobilized all the political support they could, also theatened to leave the tanker business if it did not get the contract; a little petulant, to say the least. Then there is the new plant NG offered to build in Alabama?

This was also a repeat of the F-35 contract, where Boeing touting all its advantages, was smacked down. I guess their acquisition of McDonnell-Douglas will not count for much, although the F-18 may go on forever and there will be several more years of rebuilding F-15s? How long will KC-10/KC-135s be in the air? The replacement of the tanker fleet will take a hell of a long time, esp when the postwar budget Black Hole opens up.

One wonders also how the need to keep all the industry healthy plays in DOD circles; industrial capacity, mobilization, etc. Boeing will ride the commercial scene for decades, as long as the 787 flies.

It could very well be that the procurement people in Washington felt that Boeing needed the proverbial "shot across the bows" to keep them in line. That's the sucky thing with duopolies and quasi-monopolies; not only does such an environment permit inefficiencies, it seems to attract managerial stupidity. Assuming Boeing gets its head back in the game, DOD can then go back to competing programs on merit.

That's one of the sucky things about consolidation in government markets. The government more or less has to act as a virtual board member to "manage" their supplier, because in the absence of competition, there is a strong tendency for the supplier to get stupid.

In the general case, even if it had not been for past malfeasance on Boeing's part, I'm not overly sympathetic to their cause. While they have cost issues like everyone else, from what I see they haven't clued in to the reality that the risk/return of working for Boeing, particularly on the shop floor, is not what it used to be.

They lost a lot of sympathy from me when I heard they were trying to charge a program office 12-14 million for about 200 lines of code and integration testing. No development, just a software mod and making sure it will meet spec and play nice with the rest of the cockpit.

Of course NG and EADS are the very paragon of defense contractor virtue. I'd wager that whomever won the contract, the future was to be filled with underperformance, cost overruns and the usual contractor/Defense Dept. shenanigans that will cost the taxpayer far more than contracted for by the time it's over. There are so many glass houses in that business that stones should be ruthlessly hunted down and pulverized.

If you factor in the obligatory small horde of underpaid fresh-outs who needed an 8 month trainup, chargeable time of 4 matrix managers, plus the projects office, plus overhead, not to mention the cost of hiring and firing the guy who actually knew how to do the work, 14 mil sounds like a bargain.

Often I think these cases are a situation where the prime is trying to tell the customer that "I wouldn't start my car for a contract of that few hours" and DOD showing them who's boss by accepting the insane bid amount. The system really is that nutty. In a sane world, a small consulting firm could efficiently snap up lots of little work orders like that and perform a useful function in the market. Sadly, the procurement people instinctively conflate size with competence and integrity (yes, yes, I know; stop it, I'm killing you).

Remember, a lot of these contract price quotes are managed to pay for off the book black projects.

And the Boeing B50/Stratocruiser/KC97 and Boeing Dash80/KC135/707 wasnt?

Hello???

9mm pistols, Italian and Swiss/German
.45 Pistols, German
9mm SMGs Israeli and German
5.56mm rifles, Belgian
7.62mm rifles, Belgian
5.56mm LMG, Belgian
7.62mm GPMG, Belgian
81mm Mortar, British
120mm Mortar, Israeli/Finnish
105mm Howitzer, British
155mm Howitzer, British
105mm tank gun, British
120mm tank gun, German
And so on.....

Yes, but reasons for whining do not need to be rational...IIRC, we in fact had "US NIH" thread here some time ago, and it was found that Americans aren't quite so bad in that respect as ofter perceived. (compared to, say, Russia).

From the Pentagon's question and answer session after the contract award announcement:




Q And just to follow, did size matter in this issue? I mean, the KC-30 is twice as large as the 767. Did that play into cost savings, and was that an issue in this decision?

GEN. LICHTE: Well, I -- from a warfighter's perspective, and I know the team looked at a whole number of things, but from my perspective, I can sum it up in one word: more.

More passengers, more cargo, more fuel to offload, more patients that we can carry, more availability, more flexibility and more dependability. And so from my aspect, the team did tremendous work and now we will take that and put it into the fight.

And the good thing is that the USAF now can set big penalties for not fulfilling the contract price or delivery schedule and really take the money without having to care about destroying one of their most important suppliers.

Don't know all that much about the 767 and A-330 aircraft, but isn't the A 330 a somewhat newer design?

Yes it is. The A330 is about a decade newer than the 767.

wonder if Boeing has a 777 team ready for the KC-Y competition ??

Good point. Also, the Armor on the M1 is derived from British research, the Penguin ASM was Norwegian, the new 20mm ammo is German, the Carl Gustav (RAAW) is Swedish, the Marine SMAW(?) is Israeli, the M-855 ammo is a Belgian design, the FOX NBC recon vehicle is German, and there are numerous others.

Alot of them are produced here though.




-K

Not only that, but the bare stats are embarrassing; the Boeing position was that it was the most affordable, better fuel economy...in a tanker??
Max take-off weight: 513K lbs vs. 400K
Fuel capacity: 250K lbs vs. 202K
Boom offload: 8K lbs/min vs. 6.8K
Passengers: 226 max vs. 190 max

I assume the 767 conversion had some advantage, somewhere; but we will have to see. Already, they are calling KC-35 a "French" airplane, not a good sign for rational discussion.

No actual deliveries to date of either model, but NG made a lot of the failure to complete testing of the 767:

Northrop-Grumman??

It seems that as a consolation for those unhappy that the KC-45A will not have as much "Made in USA" components as the KC-767 would, Airbus is prepared to transfer the entire A-330 freighter assembly program to the same Alabama facility.

It seems that the KC-767 was too small, a KC-777 (Boeing 777 tanker) would be too big and the A-330 was the right size. However, can the new KC-45A (A-330) land and use most of the base and facilities that the current KC-135 use? Will more money be required in infrastructure to accommodate a larger aircraft?

It it interesting that Boeing has increasingly positioned itself as a global company that happens to be headquartered in the United States while EADS increasingly positioned itself as an American company.

I speculate that Boeing's problems delivering KC-767As to Italy and Japan did not help its cause. The fact that the 767 is fundamentally a 25 year old airplane (albeit extensively modernized over the past 25 years) probably didn't help either.

I think that really stands out, given all the other shadows cast on Boeing in recent years. It remains a hard fact.