Bidding War To Start Anew In 2009

Boeing and Northrop Grumman revealed hints last week on how each company will approach the next round of their bidding war for a US Air Force tanker contract.

The infamous KC-X competition is expected to start anew in 2009. Northrop won the last competition... only to have the award overturned on challenge, and the entire contract process overturned by the Defense Department. The Air Force has been left to fly its half-century-old KC-135 tankers years longer than expected, and is committed to making the next competition as protest-proof as possible.

The contenders are lobbying hard for bidding terms which will favor their designs. The Mobile Press-Register reports top executives from both Boeing and Northrop tipped their hands on strategy at last week's Reuters Aerospace and Defense Summit in Washington, DC.

Boeing favors an approach in which the Air Force would define needed capabilities first, then award the contract to the manufacturer which delivered those needs at the lowest cost. Reuters predicts that approach may look compelling in a period of economic challenges, and appeal to a new administration which has promised military spending cuts.

Northrop Grumman, and its European partner EADS, are pushing for a "best value" approach, using a common formula to rate both entries on price and capability, leaving the door open to capabilities beyond minimum needs.

"We would hope that we see a rapid restart of the program and ... that the competition will be conducted as a best-value competition, very much as the F-22 and the F-35 were ... as opposed to just simply a low-ball bid," Northrop CEO Ron Sugar told attendees.

Boeing defense chief Jim Albaugh, while offering assurances that Boeing, "...will play by any set of rules that they put in place," criticized the best-value approach as more complicated and more susceptible to challenge. That's a big deal to the Pentagon, which has taken over the bid evaluation process from the Air Force to allow tighter supervision.

At stake is a 179-plane order worth at least $40 billion to the winner, and the chance for EADS to penetrate the US defense market. But it's not clear the simpler cost-basis structure Boeing wants would really be an advantage in the bidding.

In the last round, Northrop was awarded the win based on "best value," but also came in $3 billion dollars lower than Boeing's bid for the first 68 aircraft... and Boeing knows it. As the losing bidder, Boeing got to see details of the winning Northrop bid. Details of Boeing's bid were not disclosed.

James McAleese, a defense industry consultant, would be surprised if that happens again. He commented at the summit, "I don't think (Boeing) will be caught sleeping a second time."

FMI: www.boeing.com/ids/globaltanker/index.html, www.northropgrumman.com/kc45/