Team Infidel
Forum Spin Doctor
Seattle Post-Intelligencer
August 16, 2007 Boeing and Northrop group are asked to offer fixed price
By Tony Capaccio, Bloomberg News
The contest to pick the builder of a new aerial refueling tanker may be delayed by at least two months because the Air Force is pushing The Boeing Co. and a team led by Northrop Grumman Corp. to offer a fixed price for as many as 80 planes, almost half the planned order, the service's top acquisition official said.
That's a change from previous competitions in which the service sought bids on only the first production batches, delaying negotiations on later orders until a winner was picked.
"That's when we found a lot of increased costs," Air Force Assistant Secretary for Acquisition Sue Payton said in an interview Tuesday. This time, "they'll be bidding knowing they have competition, so they have to be careful," she said.
This factor and the service's determination to do all possible to show the contest is fair are the reason the winner of the $40 billion program won't be chosen until December at the earliest, Payton said.
"We are documenting every single question, every single answer," she said. "The selection-decision document has got to be written with enough detail" so that the loser knows "exactly why they lost," she said.
Boeing and the team of Northrop Grumman Corp. and Airbus parent European Aeronautic, Defense and Space Co. are competing for the tanker program, which the Air Force says is its top acquisition priority.
The service plans to build 179 planes over 15 years to replace its Boeing-built KC-135 fleet, which has planes that are an average of 44 years old. The service is budgeting $13.9 billion to buy as many as 48 of the aircraft by the end of 2013.
Payton said the negotiations are more comprehensive and demanding than earlier bidding contests because the Air Force is negotiating not only the price of the first production batch of about 18 planes but also locking in a fixed price for the next five batches of as many as 80 aircraft.
Loren Thompson, a defense analyst at the Lexington Institute in Arlington, Va., and Richard Aboulafia, a military aircraft analyst, said this approach might give the Northrop Grumman-EADS team an advantage.
"They are expected to offer a very low-priced aircraft because Airbus is eager to penetrate the North American market," Thompson said. "That will put great pressure on Boeing to meet the price even if it means lower profit margins."
Aboulafia said negotiating for 80 aircraft means providing volume discounts that EADS is prepared to make; still, its candidate plane has higher long-term operating costs.
"Boeing is more focused on profitability," said Aboulafia, an analyst with the independent Teal Group in Fairfax, Va.
August 16, 2007 Boeing and Northrop group are asked to offer fixed price
By Tony Capaccio, Bloomberg News
The contest to pick the builder of a new aerial refueling tanker may be delayed by at least two months because the Air Force is pushing The Boeing Co. and a team led by Northrop Grumman Corp. to offer a fixed price for as many as 80 planes, almost half the planned order, the service's top acquisition official said.
That's a change from previous competitions in which the service sought bids on only the first production batches, delaying negotiations on later orders until a winner was picked.
"That's when we found a lot of increased costs," Air Force Assistant Secretary for Acquisition Sue Payton said in an interview Tuesday. This time, "they'll be bidding knowing they have competition, so they have to be careful," she said.
This factor and the service's determination to do all possible to show the contest is fair are the reason the winner of the $40 billion program won't be chosen until December at the earliest, Payton said.
"We are documenting every single question, every single answer," she said. "The selection-decision document has got to be written with enough detail" so that the loser knows "exactly why they lost," she said.
Boeing and the team of Northrop Grumman Corp. and Airbus parent European Aeronautic, Defense and Space Co. are competing for the tanker program, which the Air Force says is its top acquisition priority.
The service plans to build 179 planes over 15 years to replace its Boeing-built KC-135 fleet, which has planes that are an average of 44 years old. The service is budgeting $13.9 billion to buy as many as 48 of the aircraft by the end of 2013.
Payton said the negotiations are more comprehensive and demanding than earlier bidding contests because the Air Force is negotiating not only the price of the first production batch of about 18 planes but also locking in a fixed price for the next five batches of as many as 80 aircraft.
Loren Thompson, a defense analyst at the Lexington Institute in Arlington, Va., and Richard Aboulafia, a military aircraft analyst, said this approach might give the Northrop Grumman-EADS team an advantage.
"They are expected to offer a very low-priced aircraft because Airbus is eager to penetrate the North American market," Thompson said. "That will put great pressure on Boeing to meet the price even if it means lower profit margins."
Aboulafia said negotiating for 80 aircraft means providing volume discounts that EADS is prepared to make; still, its candidate plane has higher long-term operating costs.
"Boeing is more focused on profitability," said Aboulafia, an analyst with the independent Teal Group in Fairfax, Va.