5 years, 5 months ago
Boeing wins by default. Northrup Grumman has pulled out of the refueling tanker competition. Apparently they won low bid about two years ago, but the stipulations and structure of the contract is suspect. Northrup Grumman has pulled out because they have decided that they can’t make any money.
Defense giant Northrop Grumman said Monday that it is pulling out of the $40 billion competition to build aerial refueling tankers for the Air Force, a move that defense analysts and procurement specialists say leaves its rival Boeing as the likely winner.
Northrop’s decision marked the latest twist in the nearly decade-long fight over one of the Pentagon’s biggest and most controversial contracts and raised questions about the impact of procurement reforms proposed by the Obama administration.
In announcing its withdrawal, Northrop said that the government’s requirements did not recognize the value of the larger refueling platform it had proposed and instead favored Boeing’s proposal to build a smaller tanker using a prototype of its 767 aircraft.
Wes Bush, chief executive of Los Angeles-based Northrop, said that under those conditions, it no longer made financial sense to stay in the competition …
Northrop executives and defense industry analysts have questioned how profitable the tanker contract would be, given the Pentagon’s push for setting a fixed price for the contract before design and testing of the aircraft are completed.
I had previously weighed in against the awarding of contracts based solely on low bid because of the requirements of the awful Sarbanes-Oxley Act. Bidders learn to game the system. Northrup Grumman had previously won under the provisions of Sarbanes-Oxley, but this time around apparently wanted to perform design and testing under a time and materials arrangement.
As for the technical aspects of the refueling tanker, General John Handy makes an outstanding case for the smaller Boeing 767 tanker. Furthermore, the large Airbus is able to land on only about half as many airfields as the Boeing KC-767. Finally, EADS is foreign-owned, and in fact Vladimir Putin now holds enough stock to have a significant influence in the corporation.
Andrew Exum danced on the apparent grave of Boeing’s demise in this contract, and extended his dislike of military contractors and heavy spending to F-22 appropriations. Indeed. Now with the F-35 over budget and behind schedule, the F-22 might not have been such a bad idea after all. UAVs are all the rage now, but their slow, lumbering air frames make them sitting ducks if they ever come up against anything but poorly armed insurgents.
Things are often not quite what they seem, and the big, bad, evil defense contractors occupy the same space as the big, bad, evil health insurance companies and other corporations. There are some of them, and their senior management makes way more money than they’re worth. But in the end, that is oftentimes an accidental rather than an essential feature of the problem. Giddiness over the demise of a major defense contractor can mean joy over lost jobs in the U.S., technology transfer to foreign companies, and unintended consequences of our decisions.
Northrup Grumman surely has many highly skilled people in the U.S., and I hope that they fare well through subsequent competitions. We need good competition to keep our contractors honest. Northrup Grumman folks can’t help that Vladimir Putin holds a significant interest in their company. But as for the apparent Boeing success in the tanker wars, it appears that the best candidate has won (from technological capabilities to national security), and the U.S. military will be better off for it.