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Northrop Beats Boeing

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News flash: Northrop Grumman (NYSE: NOC  ) just beat out Boeing (NYSE: BA  ) in the contest to refuel America's warplanes. (No, not that contest. The other one.)

As I'm sure you know by now, the KC-X competition to build the next generation of Air Force refueling tankers remains, ahem, up in the air. The Air Force published the contest rules last week, and an actual award looks a long way off. But in a prequel to KC-X, the Air Force had also asked Northrop and Boeing to bid on a contract to service its existing fleet of flying dinosaurs.

That's the one that Northrop just won: a nine-year, $3.8 billion deal to service the Air Force's KC-10 tankers. (So far, Boeing still has the contract to service the rest of the fleet, comprised mainly of KC-135s.)

Northrop 3.8, Boeing 0
Now, there's more to this story than the obvious: "Northrop wins, Boeing loses." What we have here is a preview into how the parties will react to the impending KC-X decision.

KC-10 was clearly a humiliation to Boeing, which built the planes and had previously serviced the Air Force's KC-10 fleet. While Boeing has so far promised only to "review the Air Force's selection decision and process before deciding on our next course of action," the last time Boeing lost a major tanker deal to Northrop, it went crying to the Government Accountability Office (and won).

KC-X is already a train wreck, a five-year history of controversy that has yet to result in any actual planes being built. The latest round of bidding got off to a bad start; no sooner had the rules been published than Northrop cried foul, alleging Boeing has access to Northrop's previous bid, while Northrop got no such opportunity to review Boeing's numbers. Given the project's history, it seems a certainty that whoever ultimately wins KC-X, the loser will appeal -- and again, the USAF will get no tankers.

Unilateral disarmament
This, however, is not in the customer's interests. It's time for both parties to declare a truce. Boeing should grin and bear the Air Force's decision on KC-10 today. If and when Boeing wins KC-X, Northrop should reciprocate, do the honorable thing, and not protest that decision.

Believe it or not, there's precedent for defense contractors playing nice. When Oshkosh (NYSE: OSK  ) won the M-ATV competition this summer, it promised to dole out subcontracts as required to former competitors to help it meet the military's production targets. To my knowledge, none of the losers in that contest -- General Dynamics (NYSE: GD  ) , Navistar (NYSE: NAV  ) , Force Protection (Nasdaq: FRPT  ) , or BAE -- has appealed the decision. As a result, the lawyers may not be making hay, but the military is getting its M-ATVs.

Foolish takeaway
This is the way the system is supposed to work. It hasn't worked right for quite some time. But it can -- and it should.

Now it's time for you to tell us what you think of KC-10 and KC-X. Does Northrop's win in the former foreshadow a victory in the latter? Can defense contractors play nice with one another -- and should they? Scroll down, and sound off!

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?

Enter your email address below to find out what made Jobs so enraged!

Fool contributor Rich Smith owns shares of Boeing. General Dynamics is a Motley Fool Inside Value selection. The Motley Fool has a disclosure policy.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 02, 2009, at 4:51 PM, jrusso9722 wrote:

    With all Respect to Motley Fool for paying for my ability to comment here, I say that your statement that Boeing "went crying to DOD" is "junior varsity". Even though you made an attempt to even things out by saying that EADS sort of did the same, the statement that Boeing went "crying" is a loser, without merit, and should be condemmed. Yes, condemmed, because USA rules permit a challenge. And, as all of us know, it was upheld. So, please cut the drama, report only the facts and keep the "flavor" out of it. Joe

  • Report this Comment On October 02, 2009, at 4:59 PM, tgmAgoura wrote:

    I believe ther is a minor technical error in this article. Isn't the KC-10 based on the DC-10, designed and originally manufactured by McDonnel-Douglas? Doesn't lessen the impact of the contract loss though.

  • Report this Comment On October 02, 2009, at 5:15 PM, FlyingKnignt wrote:

    Let's gets the fact straight Mr. Smith. Both jrusso9722 and tgmAgoura are correct. Keep in mind the the WTO says EADs aka Airbus has received billions in illegal subsidies from European governments for years. The Northrup deal is a farce i.e. a pig with lipstick. There will be no large production factory in Alabama. Airbus will fly the planes to Alabama and the mods for needed for refueling will be done in Alabama. Northrup is getting a a cut because it will do the mod work but most importantly it allows Airbus into the competition. Boeing on the other hand has a new fleet of 767 fleet of tankers flying for the Air Forces of Japan and Italy. If Boeing is selected hundreds of more jobs will be saved and added. If Airbus wins there will be a net loss of American jobs period. If we can bailout GM and Chrysler we need to give Boeing a fair chance.

  • Report this Comment On October 02, 2009, at 8:16 PM, Fool wrote:

    This is an American defense contract. Pure American and should remain completely American. How have we degraded ourselves into even jokingly considering anyone else ? We may as well roll over and offer our nation and way of life to China or Russia or anyone else..-

  • Report this Comment On October 02, 2009, at 8:24 PM, toolz4foolz wrote:

    To jrusso9722:

    You're an idiot. If you were familiar with the GAO protest Boeing filed, you'd know that they did go crying because they brought forth somewhere near 100 reasons why the source selection was awry. In other words, they thought if they threw enough darts at the board, they might just get lucky. And, they did, but with only 7 or 8.

    Also, to you other idiots out there talking about Boeing keeping jobs here in America. Do your research ~ Boeing's current KC-10 Engine Overhaul facility is NOT in San Antonio but rather in Ireland. And, they're the king of outsourcing for parts. And let us not forget that Boeing has also been accused of accepting illegal subsidies with an interim report (like the INTERIM report issued on EADS) due out from the WTO in less than six month.

    Boeing is indeed a crybaby ...

  • Report this Comment On October 02, 2009, at 8:27 PM, dukejtn wrote:

    Just a few points here.

    -jrusso wants the fool to keep the "flavor" out and just report the facts, but only refers to EADS and not the prime Contractor Northrop Grumman. An obvious effort to try an make the KC-45 look like less of an American Tanker.

    -tgmAgoura, Boeing and McDonnell Douglas merged in 1997 and use the name Boeing for all of the products made by both companies.

    -I would love to find out where FlyingKnight gets his facts. How does he know there will be no assembly factory in Alabama? He does not say anything about the Japan and Italian tankers being years late or that both those countries as well as others like China build large portions of the 767.

  • Report this Comment On October 02, 2009, at 8:34 PM, dukejtn wrote:

    Just read Fools comments above. What a joke. You don't know anything about the airline business or military programs if you think the "Boeing" offering is completely American.

  • Report this Comment On October 02, 2009, at 9:36 PM, jaebow wrote:

    I find it difficult to understand why we can't build a military aircraft no matter the configuration in the USA. I live on the Gulf Coast neat Mobile Alabama where the ASSEMBLY of the EADS aircraft is scheduled to take place. They think it will be the ticket for economy salvation. I have searched a number of blogs, news articles etc. in trying to determine the breakdown of the money between EADS and the USA and can't find it. Anyone have knowledge,please post...

  • Report this Comment On October 03, 2009, at 1:05 AM, JetCityKnight wrote:

    "Alabama 's largest aerospace manufacturer, Boeing Co. in Huntsville , was named the Large Manufacturer of the Year for 2005 Wednesday by the Business Council of Alabama and the Alabama Technology Network." from al.com

  • Report this Comment On October 03, 2009, at 1:18 AM, JetCityKnight wrote:

    Hey dukejrtn you are wrong. Boeing uses Japan parts makers on the 767 not Chinese. But the majority of the 767 is made and assembed in the United States. Even the highly outsourced 787 has 1/3 of it parts made in the United States and remember final assembly is done in the United States. The Airbus Tanker will be made and assembled in Europe by Airbus and then FLOWN to the United States for the tanker mods. An entirely different production model. Basically Northrup is taking the Airbus nameplate off the Airbus and using theirs just to extort money from Airbus. How many jobs do you think Alabama will get?

  • Report this Comment On October 03, 2009, at 10:06 AM, dukejtn wrote:

    Sorry JetCity but you are wrong. The 767 fuselage is made up of large panels made in Japan, the vertical tail is made in Italy, Boeing used Engineering services from China. When NGC-EADS wins the tanker contract, only the first few test aircraft will be "FLOWN" to the US. After that final assembly will be in an EADS facotry in Alabama (with American workers) and then Military Integration will be at an NGC factory in Alabama. The 767 is an old airliner that no one wants. So Boeing is trying to save the line. It is too small and the 777 is too big to land on AirForce required runway lengths. In addition to building tankers in Alabama, EADS will shift final assembly work of commercial A330 to that factory. Sounds like a lot of US jobs. Lets not forget that the A330 tanker will consist of almost 60 percent US made products from engines, avionics and systems from 230 US companies in 49 states. Oh, one more thing, the A330 has one the last 5 tanker competitions.

  • Report this Comment On October 03, 2009, at 3:16 PM, JetCityKnight wrote:

    dukejtn now you are making up stuff. First you said the Chinese built the parts of the 767 now its engineering. Niether are true. Parlez-vous français ?

  • Report this Comment On October 03, 2009, at 3:34 PM, JetCityKnight wrote:

    From wikipedia

    "The USAF was listed as giving four main reasons for this selection of the KC-767 over Airbus's KC-330 (aircraft's name at the time).[2]

    * ""The KC-330 increase in size does not bring with it a commensurate increase in available air refueling offload,..." (USAF quote)

    * The KC-330 "..presents a higher-risk technical approach and a less preferred financial arrangement." (USAF quote)

    * " the size difference of the EADS-proposed KC-330 results in an 81 percent larger ground footprint compared to the KC-135E it would replace, whereas the Boeing 767 is only 29 percent larger." (USAF quote)

    * The KC-330 requires "..greater infrastructure investment and dramatically limits the aircraft's ability to operate effectively in worldwide deployment." (Summary of Quote by MAT magazine)

    "

  • Report this Comment On October 03, 2009, at 3:35 PM, JetCityKnight wrote:

    The 767 and 777 are faster too.

    Look it up

  • Report this Comment On October 03, 2009, at 9:34 PM, dukejtn wrote:

    Wow, most of your quotes are related to the first competition in 2004, where Boeing was awarded a lease deal that was cancelled because they bribed Air Force officials. The reality is that at the time of this award the A330 based Tanker was already in flight test for the Australian Air Force, yet the 767 varient Boeing proposed was one they had not completed the design for, thus making it the higher risk option (or a paper airplane). If the quotes above were all truly relative, how is it that the Air Force selected the KC-30?

    Here is a quote for you:

    "Proposals from both offerors were evaluated thoroughly in accordance with the criteria set forth in the Request for Proposals. The proposal from the winning offeror is the one Air Force officials believe will provide the best value to the American taxpayer and to the warfighter." (USAF quote)

    A few facts:

    The KC-30 carries 19% more passangers, 68% more pallets, and 21% more fuel. Oh, and the airspeed is the same as the 767. Sorry, no French spoken here.

  • Report this Comment On October 04, 2009, at 7:10 PM, JetCityKnight wrote:
  • Report this Comment On October 04, 2009, at 8:38 PM, dukejtn wrote:
  • Report this Comment On October 04, 2009, at 8:54 PM, DanteSparda wrote:

    You're wrong! I'm wrong! Everyone's wrong! Clearly the best solution is to give the contract to a company that can operate totally outside of the narrow scope that's being proposed here. I vote we award the contract to build these planes to Utz.

    That way your plane will essentially be a giant pretzel and then you can have your own mid flight snack by taking a huge bite out of the arm rest!! Then instead of fuel you can load Tang!! C'mon man, I'm giving you gems here!!!

  • Report this Comment On October 05, 2009, at 12:09 PM, tankersquadron wrote:

    Being a procurement officer for the USAF for many years I agree!!

    The USAF is looking for a digital platform to base the USAF tanker. The A330-200F provides this digital technology that the USAF can build from.

    The 767-200F is based on the old analog technologies, no fly by wire technology, and the 767-400 would need to be incorporated into the design to accomplish this.

    Tanker fuel capacity is another big consideration. The smaller B767 would require numerous aux fuel tanks in the lower lobe compartments, restricting cargo carrying capacity. The reason we selected the A330-200F in the first round was the aircraft uses fuel in the wing tanks, providing us with unrestricted cargo capacity in the lower lobes.

    Regards,

    Maj. General H. Swartwout III ret.

    Patterson Airforce base, UPAC-DRT11

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