Part 1
Published: March 13, 2008 at 11:24 AM
Source: United Press International
By MARTIN SIEFF
UPI Senior News Analyst
WASHINGTON, March 13 (UPI) — The enormous battle being waged between Boeing and the U.S. Air Force over the award of a giant air tanker deal to Northrop Grumman and the European Aeronautics Defence and Space Co. is filled with complexities and ironies that go far beyond the respective merits and problems of the aircraft involved.The reasons Boeing lost while Northrop Grumman won point a revealing light on a long-established U.S. Department of Defense procurement process that has malfunctioned far more often in recent years than it ought to — with increasingly costly and serious results for the U.S. taxpayer and for U.S. national defense.
Many of the causes for Boeing’s defeat were rooted in the company’s long-established successes and in some of its most spectacular failures in recent years in other fields. But the controversy also heightened the growing global contrast between the way the major corporations of the U.S. high-tech and defense sectors do business and the very different business model that prevails across the Atlantic in the European Union.
The Boeing Co. Tuesday lodged a protest with the Government Accountability Office over the U.S. Air Force’s decision to contract for a new medium-range air tanker to Northrop Grumman and its European partner, the French and German-controlled EADS, for their KC-45A rather than Boeing’s KC-767.
The $35 billion decision to buy 179 aircraft — expected to grow to a $100 billion commitment to buy 600 in all — came as a bombshell to Boeing and has rocked the U.S. aerospace industry. Congressmen and senators on either side of the aisle are up in arms over it.
Boeing said the U.S. Air Force didn’t note its experience when awarding a tanker contract to EADS and Northrop Grumman.
“Not only did this flawed decision deny the government the manufacturing benefits of Boeing’s unique in-line production capability, subjecting the Air Force to higher risk, but it also resulted in a distortion of the price at which Boeing actually offered to produce tankers,” the company said.
“In evaluating past performance, the Air Force ignored the fact that Boeing — with 75 years of success in producing tankers — is the only company in the world that has produced a commercial-derivative tanker equipped with an operational aerial-refueling boom. Rather than consider recent performance assessments that should have enhanced Boeing’s position, the Air Force focused on relatively insignificant details on ’somewhat relevant’ Northrop/EADS programs to the disadvantage of Boeing’s experience,” the company said.
“Boeing offered an aircraft that provided the best value and performance for the stated mission at the lowest risk and lowest life cycle cost,” said Mark McGraw, vice president and program manager, Boeing Tanker Programs.
“We did bring our A-game to this competition. Regrettably, irregularities in the process resulted in an inconsistent and prejudicial application of procurement practices and the selection of a higher-risk, higher-cost airplane that’s less suitable for the mission as defined by the Air Force’s own Request For Proposal. We are only asking that the rules of fair competition be followed,” McGraw said.
However, Northrop Grumman said Monday it won the U.S. Air Force’s new air tanker contract in a fair fight.
Part 2
Published: March 14, 2008 at 3:50 PM
WASHINGTON, March 14 (UPI) — Northrop Grumman is arguing that it won the U.S. Air Force’s new air tanker contract in a fair fight.The Boeing Co., whose KC-767 air tanker lost out in the contest for the $35 billion contract to Northrop Grumman and the European Aerospace and Defence and Space Co.’s KC-45A air tanker, has protested the deal and requested the U.S. Government Accountability Office to undertake an investigation.
The controversy on Capitol Hill crosses party lines but follows an otherwise predictable pattern. Congressmen and senators from states where Boeing and its industry partners who would have been involved in the program are furious at the decision. States where Northrop Grumman and its partners have plants, or can be expected to build or expand them, are all for it.
Boeing corporate officials and spokesmen have been outspoken in their criticism of the way the deal was awarded. But Northrop Grumman has hit back in championing the merits of the aircraft it will be building with EADS.
“The KC-45A competition underwent the most rigorous, fair and transparent acquisition process in Defense Department history,” Northrop Grumman said. “Throughout the process, both competitors in the KC-45A acquisition hailed the Air Force for conducting a fair and open competition.”
“The size of the proposed tanker aircraft was not dictated by the Air Force nor was size an established criteria — each contractor was free to propose the best solution and platform to meet Air Force war fighter requirements,” Northrop Grumman said.
“Both contractors had ample opportunity in the protracted acquisition and source selection process to propose the best aerial refueling capability to meet the war fighter’s requirements,” the company said.
Northrop Grumman also said the new KC-45A air tanker was already a tested and reliable aircraft, unlike the KC-767.
Northrop Grumman said its first KC-45A tanker aircraft “was built in July 2007 and flown in September 2007.” The company said the KC-45A’s Aerial Refueling Boom System had already “completed 73 test flights totaling more than 200 flight hours.”
“The boom completed the first in-flight fuel transfer on Feb. 29, 2008 passing 2,000 pounds of fuel to a Portuguese Air Force F-16 combat aircraft,” the company said.
Northrop Grumman also said the KC-45A was “based upon the Royal Australian Air Force KC-30B Multirole Tanker — which has been built, flown, and is undergoing flight tests. It will be delivered on schedule to the Royal Australian Air Force in early 2009.”
“Boeing’s proposed KC-767AT tanker and refueling boom were never built, flown or tested,” Northrop Grumman said.
Northrop Grumman further claimed that its KC-45A tanker assembly program “will create a new aerospace manufacturing corridor in the southeastern United States.”
“The KC-45A program helps return competitiveness to the U.S. aerospace industry,” the company said.
Boeing said if it had been given the contract, it would have created 44,000 jobs across the United States. Northrop Grumman originally said its program for the KC-45A would create 25,000 jobs. But this week, it announced that in fact 48,000 jobs would be created.
It must be said that this last claim appears unlikely. Under the Boeing program, much more work would have been done on manufacturing the aircraft in the United States. Under the Northrop Grumman program, EADS would actually build most of the primary parts of the aircraft which are, after all, adapted versions of the Airbus A-300, in plants across Europe. Those parts would then be shipped to a new plant yet to be built in Alabama where they would then be assembled.
Part 3
Published: March 18, 2008 at 2:11 PM
WASHINGTON, March 18 (UPI) — The continuing conflict between Northrop Grumman and Boeing over the U.S. Air Force’s gigantic air tanker is unique in the recent history of U.S. military procurement.The interactions of the dozen or so largest U.S. defense contractors usually resemble an intricate minuet performed by gigantic dinosaurs with an infinite number of interacting appendages. The business of the biggest contractors is often closely intertwined. It is routine for divisions of one giant contractor — units that as companies of their own would be worth hundreds of millions of dollars, or even billions of dollars in their own right — to work closely and harmoniously with subcontractors for rival corporations. Even when competition may be intense for a particularly big contract, there is usually little, if any, bad blood afterward, at least in public.
However, the giant corporations of the U.S. defense industry are also like major nations that control their own territories and empires. Companies will develop areas where their own specialty will be taken for granted. General Dynamic Electric Boat therefore is the company that makes nuclear submarines. The Boeing Co. builds the finest strategic bombers and airliners in the world and breathtaking anti-ballistic missile systems too. Lockheed Martin is famous for the Patriot anti-ballistic missile for which it is the prime contractor.
But occasionally, just as entire provinces may change hands in a war, or overseas colonial empires become independent or change hands, one giant corporation will win a contract in an area which another corporation has looked upon as its own traditional preserve. This happened under the Clinton administration when Boeing won the main orders for the Future Intelligence Architecture — the next generation of U.S. intelligence, surveillance and reconnaissance satellites, wresting the business from Lockheed Martin, which had been dominant in the field for more than 30 years.
Now Boeing has suffered the same fate in the air tanker market. It has provided the U.S. air force with its fleet of KC-135 air tankers — originally versions of the Boeing 707 — for more than half a century. The KC-135s have been flying since the Eisenhower administration and Boeing has done a superlative job of keeping them reliable and efficient for decades longer than their original projected operational life.
But nothing lasts forever, and over the past decade the KC-135s have been more in demand than ever, serving the Air Force’s proliferating new military commitments from Kosovo to Afghanistan to Iraq. The time for their replacement was long overdue.
Boeing understandably was confident — and even complacent — that it would get the order to replace them with its new KC-767 air tanker. After all, no other corporation in the world knew as much about air refueling tankers, had built so many of them or had operated them efficiently for so long as Boeing.
But nothing lasts forever in the world of military weapons systems and procurement either. Northrop Grumman joined forces with the German and French run European Aeronautics Defence and Space Co. on a proposal to adapt the European A-330 Airbus into the KC-45A air tanker.
The odds against Northrop Grumman and EADS winning seemed enormous. First, there was Boeing’s 52-year record in having a lock on the USAF’s air tanker business.
Second, Boeing and Airbus are currently locked in a bitter row embroiling the U.S. government and the European Union over the European governments’ massive subsidies to Airbus trying to make it more competitive than Boeing in the world market.
This enormous level of government subsidy and support is a significant reason why EADS was able to undercut Boeing on projected costs of the sale.
Boeing also claims that the U.S. Air Force found that operational costs will be much higher on operating the KC-45A. And since the KC-45A is a much larger aircraft than the KC-767, its fuel operating costs will be much higher too.
However, the KC-45A’s larger size will give it a longer range and enable it to carry much more fuel than the KC-767, though Boeing argues that this was not in the Air Force’s original specifications for the aircraft it said it wanted.
But where Northrop Grumman and EADS clearly beat Boeing hands down was in their hunger for the contract and the efficiency and aggressiveness with which they went after it.
Part 4
Published: March 19, 2008 at 7:14 PM
WASHINGTON, March 19 (UPI) — The debate over the rival merits of the Northrop-Grumman-EADS KC-45A air tanker and the Boeing KC-767 is one of the most intense and difficult in the recent history of U.S. military procurement because of the broad range and complexities of the issues involved.The KC-45A is a far larger plane. It will have a longer range and be able to carry far more fuel. However, it will be consequentially far more expensive to operate and will require far more fuel itself. At a time when global oil prices are around $100 a barrel and could go even higher, that is a significant factor, too.
Northrop Grumman and its partner, the European Aeronautics Defence and Space Co., satisfied U.S. Air Force assessors they would be able to master the immense challenges of building different parts of the aircraft in different countries — including Germany, France, Spain and the Netherlands — and then shipping them to a new plant to be built in Alabama for assembly and adaptation by Northrop Grumman. After all, Airbus is already built that way and the KC-45A is an adaptation of the A-330 Airbus.
However, EADS has had no experience of building aircraft for tankers. It certainly performed the impressive feat of creating a refueling boom for their prototype KC-45A and then successfully operated it for U.S. Air Forces officials. Boeing, slow and complacent in seeking what it thought was an assured contract, did not come near to doing that.
However, as we have noted before, Boeing has unmatched experience at operating the Air Force’s old fleet of Boeing KC-135s — originally adapted Boeing 707s designed in the 1950s — and keeping them flying for decades longer than originally planned. And that expertise cannot be duplicated by Northrop Grumman and EADS.
This is very important because the recent history of U.S. military high-tech procurement teaches repeatedly that there are great risks involved when switching responsibility for major programs from companies that have successfully implemented them for decades and giving them to brash newcomers in the field.
Ironically, as we have noted before in these columns, Boeing undermined its own reputation by rashly taking on prime responsibility for the next generation of intelligence, surveillance and reconnaissance satellites from Lockheed Martin in the Clinton administration’s Future Intelligence Architecture program. The Bush administration was eventually forced to scrap that program after $4 billion had been spent on it.
Here, the dangers of lack of experience combined with entropy — the inevitable tendency toward delay, disorganization and chaos of any new program carried out by a major corporation that has no prior experience with it — will be far greater.
Construction of the KC-45A will be carried out not in the United States at all but a continent away, and in plants in different countries, none of which has had any previous experience running aircraft production lines for a military customer as demanding as the U.S. Air Force.
No high-tech program of such complexity involving so much work in so many different countries has ever been attempted before. It is straining credulity to assume that the program will flow on time as smoothly and effortless as the European businessmen convinced the U.S. Air Force that it would. Nor is it reassuring that EADS posted a $446 million loss for the 2007 financial year.
The future therefore, remains filled with uncertainty.
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