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Northrop Grumman has decided not to compete against Boeing for the $35 billion the U.S. Air Force will spend to buy its own fleet of refueling tankers. The KC-45 it had submitted is based on the highly successful A330 airliner, and is a derivative of the tanker/transport aircraft already selected for service in the air forces of Australia, the United Kingdom, the United Arab Emirates and Saudi Arabia.![Who Wants To Fuel Up?]()
Northrop walked on Monday from one of the few new U.S. defense contracts expected in coming years. It made good on its threat to abandon a contest it said was skewed against it, surprising top Pentagon officials, supporters in Congress and some industry analysts, who believed Northrop's statements had been a tough negotiating ploy.![Fueling Up]()
One senior Air Force general, upon learning Northrop would not bid, said, "You're kidding. Why not?" Others said tankers were never core to Northrop's business and the decision underscored new Chief Executive Wes Bush's determination to boost performance and profits in more vital areas such as space, electronics and data services.![Taking Off]()
"Northrop isn't looking to greatly increase its revenues, it's looking to increase its sustained profits in core business areas," said Loren Thompson, analyst with the Virginia-based Lexington Institute. Northrop Chief Financial Officer Jim Palmer, speaking at a J.P. Morgan investor conference on Tuesday, reiterated the company's 2010 earnings forecast, but Northrop shares closed 16 cents lower at $64 on the New York Stock Exchange.![Jet Fueler]()
Unless things change dramatically, Boeing is now set to win a sole-source contract this summer to build up to 179 refueling planes for the Air Force and will be in a good position to bid for big follow-on orders in later years.The deal will give Boeing two decades of orders for its 767 plane that was nearing the end of production, ensuring $3 billion a year in steady revenues at a time when the Pentagon is once again trying to kill orders for Boeing's C-17 transport plane.![B-2 Bomber Fuels Up]()
Rob Stallard, defense analyst with Macquarie Securities said it looked like Boeing had "round one sown up," but said there was still a chance for Northrop and its European partner EADS to sell the Air Force larger tankers in the future when it begins to replace its Boeing KC-10s.That could provide some hope for EADS officials, who pushed Northrop until the very end to stay in the competition.![KC-45 In Flight]()
Airbus Chief Executive Tom Enders and group finance chief Hans Peter Ring held meetings in Washington last Friday to plot strategy in the event that Northrop could not be convinced. EADS officials agonized over whether to mount a solo bid without Northrop's lobbying skills and Pentagon access, or find a new partner, but decided there simply was not time.![Fueling Device]()
"We wanted to do it, but in the end we could not," a source familiar with the company's decision-making process said. Thompson said Boeing's biggest gain was not the "tremendous amount of revenues" it could now expect from the 767, but that it had kept Airbus from establishing a production line in the United States -- at least for the time being.![KC-45 Demonstrates Its Refueling Capabilities]()
"The best thing about this situation for Boeing is that it precludes the company's biggest rival Airbus from establishing a commercial beachhead in North America," he said.![Tank on Empty]()
"Boeing needs the tanker far more than Northrop does. The end of the C-17 would leave a large gap in Boeing's defense revenues that the tanker can fill," Macquarie's Stallard said.![Refueling_the_Air_Force]()
In addition to facing a halt to U.S. orders for its C-17, Boeing was also hit harder than most by the Pentagon's cancellation of weapons programs over the past two years. It lost work on missile defense programs, watched its $160 billion Future Combat Systems modernization program shrivel, and was beat out on several big contracts by rival bidders.Northrop Grumman's Canceled Tanker
The KC-45 was set to replace the aging KC-135 as the backbone of the U.S. Air Force. No longer. Here, a look at the plane that Northrop has abandoned.
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- Northrop Grumman's Canceled Tanker
