Strategic Moves For Pentagon Contract

March 10th, 2008  
Team Infidel

Topic: Strategic Moves For Pentagon Contract

Los Angeles Times
March 10, 2008
Pg. 1
Northrop-Airbus won a big air tanker deal by helping shape criteria.
By Peter Pae, Los Angeles Times Staff Writer
In a high-stakes rivalry pitting two of the world's largest defense contractors, Century City-based Northrop Grumman Corp. gambled and won.
The word came down Feb. 29 from the Air Force that a $40-billion contract for aerial refueling tankers would go to Northrop and its partner, Airbus, a unit of Netherlands-based European Aeronautic Defense & Space Co. Shut out was rival Boeing Co., which thought it had a winner.
It was a decision likened to last month's stunning Super Bowl loss by the heavily favored New England Patriots, with the favorite losing a cliffhanger. The contract is expected to be the last new major Pentagon purchase for at least a decade, and Boeing has been mulling over whether to challenge the decision.
The reasons behind the military's decision are only starting to emerge, but experts point to little-noticed moves by Northrop that may have given the edge to its tanker, which will be able to carry more fuel and troops than the plane offered by Boeing.
In a highly risky move, Northrop threatened at one point to pull out of the competition if the Air Force didn't change the way the aircraft would be evaluated. The demand paid off.
"Boeing allowed Northrop to skillfully shape the criteria for selecting the winning plane," said Loren B. Thompson, a defense policy analyst who closely followed the tanker competition. "In particular they allowed Northrop to shape a scenario that made its larger plane more appealing."
The Air Force wants to buy 179 planes -- to be called the KC-45A -- that can be used to refuel fighters, bombers and transport planes in the air. They also will be used to carry cargo and passengers. The new planes will replace KC-135 tankers that were built in the late 1950s and early '60s.
How Northrop upset Boeing is expected to be at the heart of a broader inquiry by Congress this spring as "buy America" proponents argue that major U.S. military contracts should not lead to jobs being sent overseas. The Northrop-Airbus proposal calls for converting new Airbus 330 passenger jets, currently built in Toulouse, France, into tankers. Northrop said the planes for the Air Force would be assembled in Mobile, Ala.
The contract announcement surprised Boeing and its supporters, who thought the Air Force had long favored its tanker candidate, a modified version of the 767 jetliner.
But experts who followed the competition said a closer look at three key moves by the Northrop-Airbus consortium may help explain how it won.
Even before the competition began, the company cobbled together a small cadre of military strategists who determined that Northrop's tanker made more sense for the Pentagon's shift of strategic focus from Europe to the Middle East and the Pacific.
The larger tankers could fly longer distances and stay "in station" to refuel U.S. fighters and bombers for a longer period, crucial requirements for missions in the vast expanse of the Pacific region.
They pointed to a key study showing that there were only 15 airfields for every 1 million square miles in Asia, compared with nearly 40 in the Middle East and 55 in Western Europe. That issue countered Boeing's argument that the Pentagon needed a smaller tanker that could fly out of more bases.
Because of the great distances that would need to be traversed, the new tankers could also be used to carry cargo and troops, a requirement the Air Force initially balked at but eventually was persuaded to add.
The new requirements would be crucial in the evaluation -- the Northrop-Airbus tanker could carry about 90 more passengers and 13 more cargo pallets than Boeing's smaller offering.
Second, Northrop executives made sure there would be no language in the Air Force's competition documents that would hinder their bid and undermine "a fair and open competition."
Among the issues was language that would have asked the competitors how government subsidies would help pay for the design and development of the tanker, part of a lingering World Trade Organization dispute between the U.S. and the European Union.
Some lawmakers had vowed to ban the Pentagon from doing business with a company involved in the WTO case, effectively eliminating Northrop because its partner, Airbus, was at the center of the trade dispute.
Last, Northrop tried a long shot, throwing what one Pentagon official described as a Hail Mary pass, when it threatened to withdraw its bid if the Pentagon didn't include a way to score the tankers' divergent capabilities above and beyond the minimum requirement that they carry at least 50 passengers and six cargo pallets.
The move put the Air Force in a political pinch because without a competitor, it would have incurred the wrath of Sen. John McCain, a presidential contender and the chief critic of earlier Air Force plans to lease a fleet of tankers from Boeing. The lease deal resulted in a procurement scandal and prison sentences for two Boeing executives. Some Democrats now blame the Arizona Republican for Boeing's loss.
With the scoring system, the Air Force found it could conduct a military operation with nearly two dozen fewer planes if it chose the Northrop-Airbus tankers rather than Boeing's.
"When this competition began, a larger plane seemed a liability," Thompson said. "By the end, it became an asset."
A Boeing spokesman said its executives Friday "spent several hours with Air Force leaders, listening and probing, all in an effort to better understand the reasoning behind their decisions."
But Mark McGraw, Boeing's program manager for the tanker bid, said that he "left the room with significant concerns" and that the Chicago-based aviation giant was considering challenging the decision.
The company has 10 days from the day of the briefing to file a protest.
As perplexed Boeing executives weighed their next move, outcries over the contract continued unabated in Congress.
"We are at risk of losing a major part of our aerospace industry to the Europeans forever," Sen. Patty Murray -- a Democrat from Washington state, where the Boeing tanker would have been built -- said on the Senate floor Thursday.
"What makes this so disturbing is that we're outsourcing those jobs to a company that has spent years blatantly working to dismantle the American aerospace industry."

Similar Topics
iRobot Wrests Army Contract From Rival Robotic FX
Protest Leads Army To Reconsider Big Contract
Army Freezes Contract With iRobot Rival
Agent: Bonds won't sign revised contract
$1.15 Billion Defense Contract Goes To Boeing Operation Based In Mesa