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Northrop Abandoning $35b DOD Tanker Battle

Wed, 12/02/2009 - 3:15am
Joshua Freed, AP Business Writer

December 2, 2009

Northrop Grumman Corp. said on Tuesday it won't bid on a huge contract to make a new Air Force tanker plane unless the Defense Department changes the rules.

Northrop has been tussling for years with Boeing Co. over a contract worth at least $35 billion to build 179 new Air Force tankers.

The Pentagon had circulated a draft of its request for proposals. Northrop said asked for revisions on Nov. 4. But the Pentagon said the revisions would not be included, according to a letter sent Tuesday from Wes Bush, Northrop's president and chief operating officer, to Ashton B. Carter, undersecretary of Defense for Acquisition, Technology, and Logistics.

Without those changes, Northrop Grumman "cannot submit a bid" for the tanker program, Bush wrote.

The Pentagon's preliminary request includes what Los Angeles-based Northrop called a "clear preference" for a smaller plane with limited flexibility. Critics have said the request appears tailored for Boeing, which is based in Chicago.

The initial Pentagon request "places contractual and financial burdens on the company that we simply cannot accept," Bush wrote.

In a written statement, the Defense Department said it regretted "that Northrop-Grumman and Airbus have taken themselves out of the tanker competition and hope they will return" when the request for proposal is issued, which it expects in January. Northrop's partner, Airbus, is owned by Paris-based European Aeronautic Defence & Space Co.

The Defense Department said both companies suggested changes to its request for proposal that would favor their own planes.

"Both companies can make a good tanker. The department wants competition but cannot compel the two airplane makers to compete," the statement said.

The Pentagon needs to replace its aging fleet of tankers that refuel military planes in-flight. It has tried twice, and failed twice, to award a contract. The deal awarded to Northrop last year was overturned on appeal. And in 2004 an ethics scandal nixed an award to Boeing.

Lawmakers have taken an interest because the winning company will need thousands of workers to make the tankers. A Boeing win would help Washington, Kansas and other states. If Northrop and EADS win, a new plant will be built in Mobile, Ala., and Florida and West Virginia might benefit, too.

Alabama's Republican Gov. Bob Riley, who has supported the Northrop proposal, called the tanker competition process "blatantly unfair."

"All along, we've said the process should be fair and the needs of our warfighters must come first," he said in a written statement. "That definitely isn't happening. The question is why is this (request for proposal) so radically different than the one Northrop Grumman won last year?"

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