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!
