Northrop Grumman Defends Tanker Award

Many were surprised when the U.S. Air Force chose the A330-based KC-45, offered by Northrop Grumman and EADS, over Boeing's KC-767 for its future tanker requirement. Boeing quickly protested the decision and elements of the U.S. Congress have begun lobbying to have the decision reversed. Northrop Grumman now is ramping up its own PR and lobbying efforts to keep the award intact. Credit: Northrop Grumman

WASHINGTON (AP) — Northrop Grumman Corp.'s chief executive said Congress would undermine the entire government procurement process if it tries to block a $35 billion (euro22.47 billion) Air Force contract won by his company and its European partner.

Two days after Boeing filed its official protest of the air tanker award, Northrop Chairman and CEO Ronald Sugar said letting Congress step in and change the rules of the procurement game would make companies simply not want to play.

"How do you get companies to bid when you discover at the end of the day that Lucy pulls away the football?" Sugar said in an interview with The Associated Press. "It would discourage companies from making significant investments to compete and then the Defense Department wouldn't get full competition. The stakes here are bigger than just one contract."

On Feb. 29, the Air Force awarded a high-stakes aerial refueling tanker contract to what many considered the underdog team of European Aeronautic Defence and Space Co. and Northrop Grumman. The contract to replace 179 refueling tankers is the first of three Air Force awards worth as much $100 billion (euro64.2 billion) to replace the entire fleet of nearly 600 tankers over the next 30 years.

While no Charlie Brown, Northrop Grumman and EADS weren't expected to beat out Boeing, which has been supplying refueling tanker to the Air Force for five decades.

Surprise quickly turned to furor as Boeing, its friends in Congress and labor unions registered their discontent over jobs, competitive fairness and foreign companies winning big U.S. defense contracts. Although Northrop Grumman is based in Los Angeles, EADS, parent of Boeing archrival Airbus, is headquartered in Paris and Munich.

Sugar's comments come as Northrop Grumman ramps up its public relations offensive to counter fierce criticism of the tanker deal on Capitol Hill. The company has run full-age advertisements in The Washington Post and several Hill newspapers this week. And on Thursday, Sugar started the day on CNBC's "Squawk Box" and Fox Business News before this interview.

On the lobbying front, the company has also hired former Senators Trent Lott and John Breaux to make its case.

GAO investigates

For now, the contract is in the hands of the Government Accountability Office, the investigative arm of Congress, after Boeing filed its formal complaint two days ago. The GAO has 100 days from the date of the filing to review the Air Force decision

Sugar said Thursday that Boeing's protest is more about the outcome than the fairness of the competition.

"This is really about who won," he said. "It's like the Patriots versus the Giants and now the losers are saying: 'We have to play the game over again because the team we thought would win didn't.'"

In its protest, Boeing says the Air Force changed its evaluation method for the two tankers even after issuing a request for proposals—allowing a larger tanker to be competitive even though the Air Force originally called for a medium-sized plane. Air Force officials have indicated that the larger size of the tanker offered by the EADS/Northrop team helped tip the balance in its favor.

But Sugar said Thursday that the Air Force gave both bidders the same request for proposal and the same basic capability requirements, leaving each company to propose its own solution. "We all played by the same rules," he said.

In addition, Sugar said he wants to diffuse "this jingoistic view that they picked the foreign airplane."

Although the EADS/Northrop tanker will be assembled in Mobile, Ala., many parts of it will come from Europe. That has led lawmakers from states that would have added jobs with a Boeing win—including Rep. Norm Dicks, Sen. Patty Murray and Rep. Todd Tiahrt—to charge that the Air Force decision will hurt America's defense industrial base and send jobs overseas. Dicks and Tiahrt are considering legislation to overhaul the federal procurement process or even block funding for the tanker deal.

Boeing tanker partly foreign too

Chicago-based Boeing also sources many parts from other countries, including the U.K., Italy and Japan—a point Sugar stressed.

"All modern aircraft makers work with a global supply chain because they need to acquire the best components at the best price," he said. "That's how the aerospace industry works today. It's a global industry."

Sugar added that the EADS/Northrop tanker will produce ''a substantial number of new jobs in the U.S.''

Northrop projects the tanker contract will support four new factories and 48,000 direct and indirect new jobs in 49 states, including more than 1,500 new jobs in Mobile.

Northrop Grumman's shares fell 55 cents to close at $78.80 Thursday. Boeing's shares rose $1.73 to close at $74.18.

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