The Air Force decision is a blow to Boeing's prestige. The deal ultimately could be worth $100 billion.
By Peter Pae, Los Angeles Times Staff Writer
March 1, 2008
In a stunning upset that could reshape the nation's aerospace industry, Northrop Grumman Corp. and European partner Airbus were tapped Friday for a $40-billion Pentagon contract to build 179 aerial refueling tankers for the Air Force.
Century City-based Northrop upset rival Boeing Co. in a surprising win that analysts said could alter the companies' fortunes and erode Pentagon's long-standing policy of buying weapons systems made by U.S. companies.
...... But the decision to purchase a tanker based on a plane developed overseas is likely to rile "Made in America" proponents and lead to a protracted battle in Congress.
"The decision means billions of taxpayer dollars will be used to create and sustain jobs in foreign countries, rather than here in the U.S.," said Tom Buffenbarger, president of the International Assn. of Machinists and Aerospace Workers, a major union at Boeing.
The stakes are huge. The contract, initially worth $40 billion, could grow to $100 billion with follow-on orders; the Air Force is considering acquiring more than 400 tankers over the next four decades.
"This restores Northrop to the top ranks of military aircraft suppliers in the U.S.," said Loren Thompson, a defense policy analyst for the Lexington Institute. "For Boeing, this is a blow that will significantly diminish military business prospects for decades to come."
Aerospace remains one of the largest private employers in Southern California, where Boeing has more 31,000 workers -- most of them in defense-related programs -- and Northrop has about 27,000.
The Northrop-Airbus contract is expected to provide a modest economic boost to California, where 40 companies employing about 7,500 people would make parts for the plane. Those firms include safety wire maker Gerard Daniel Worldwide in Fontana and Parker Aerospace in Irvine, which makes refueling devices. Northrop estimated that the contract could generate $360 million in economic activity annually.
"We took our best shot, and we're delighted that the Air Force selected us," said Ronald D. Sugar, Northrop's chief executive.
Sugar made a risky career move by partnering with Airbus to go up against what analysts thought was a clear favorite. "If you don't take big swings and you only bunt, you won't hit any home runs," he said.
Northrop's win is likely to intensify debate over globalization, particularly its effect on defense programs as nationalistic ties are blurred. In recent years, the Pentagon has awarded several controversial contracts for military equipment designed overseas, including a fleet of presidential helicopters.
The surprising award is likely to add to one of Pentagon's more sordid and tangled procurement scandals that evoked the wrath of a presidential candidate and led to prison sentences for two Boeing executives.
The Air Force has been trying since 2001 to buy new tankers with the hope of retiring the KC-135s, which play a crucial role in the ability of the U.S. to project military might overseas.
But the first effort, a deal to lease 100 planes from Boeing, came under intense scrutiny from Congress, led by Sen. John McCain of Arizona, the leading Republican presidential contender.
Subsequent government probes led to prison sentences for Darleen Druyun, a top Department of the Air Force procurement official who left the Pentagon to become a Boeing executive, and Michael Sears, the company's chief financial officer.
In the wake of the scandal, the lease deal was canceled and the Air Force restarted competition, which prompted Northrop in 2005 to partner with Airbus parent European Aeronautic Defense and Space Co. to bid for the contract.
Northrop risked a political "Buy American" backlash but was lured by prospects of packing the plane with its own high-tech military electronics as the Air Force considered using the planes for multiple roles, including as a transport and acting as an aerial command center. Northrop executives estimated that the work on installing the electronic equipment could generate $10 billion in revenue.
Lobbying in Congress has been intense as both companies spent hundreds of thousands of dollars hiring top lobbying firms to sway lawmakers. In recent days, Boeing flooded the Washington, D.C., area with early morning radio ads touting the "44,000 American jobs" that its program would create.
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