Posted on 03/01/2008 7:42:30 AM PST by jdm
The Air Force snubbed longtime partner Boeing and awarded a lucrative contract to Northrop and EADS, the European maker of the Airbus, to build a fleet of refueling aircraft. The decision stunned Boeing and elected officials in the Northwest, who immediately objected to the decision to reject the all-American option. However, officials claim that Boeing’s submission simply didn’t measure up — literally:
Air Force officials offered few details about why they choose the Northrop-EADS team over Boeing since they have yet to debrief the two companies. But Air Force Gen. Arthur Lichte said the larger size was key. “More passengers, more cargo, more fuel to offload,” he said.
“It will be very hard for Boeing to overturn this decision because the Northrop plane seemed markedly superior” in the eyes of the Air Force, said Loren Thompson, a defense industry analyst with Lexington Institute, a policy think tank. And as the winners of the first award, EADS and Northrop are in a strong position to win two follow-on deals to build hundreds of more planes.
Boeing spokesman Jim Condelles said the company won’t make a decision about appealing the award until it is briefed by Air Force officials. Boeing believes it offered the best value and lowest risk, he said.
Stifel, Nicolaus & Co. analyst Troy Lahr said in a research note it was surprising the Northrop-EADS team won given the estimated $35 million per-plane savings offered by Boeing. Lahr estimated the Boeing aircraft would have cost $125 million apiece. “It appears the (Air Force) chose capabilities over cost,” Lahr said.
In short, Boeing gave a better price, but Northrop/EADS gave more capabilities. It can deliver more fuel or carry more personnel and/or cargo, depending on configuration. That may be a rational trade-off, and the Air Force is the organization best positioned to make that choice. They understand what their missions require and should know which airframe best complements them.
Appeals rarely if ever work, as the GAO assumes the client (Air Force) knows what it’s doing. It will only have a chance of succeeding if Boeing can demonstrate that the Northrop/EADS offering does not meet the specifications demanded in the RFP, or if the competing bid has unfair pricing or other violations of the process. And even then — as I know from personal experience — Boeing is unlikely to succeed, and could damage their chances for future contracts.
In the mid-1980s, the FAA put out an RFP for a system to completely replace the air-traffic control system across the nation. Two companies got selected to compete for the prime contractor position, IBM and Hughes Aircraft. The spec had three bedrock requirements: the system had to use all-new components in the ATC suite, it had to be functional at the time of submission (no mock-ups), and it had to use IBM’s computer as its core. IBM was required to give Hughes its at-cost pricing to ensure fairness.
IBM won that contract, as it bid significantly lower costs than Hughes. After the debriefing, Hughes found that (a) IBM had priced its core higher for us than for them, (b) their model reused existing components in the ATC suite, and (c) they didn’t have a working system. Hughes appealed the decision, which was considered something of a scandal in its own right at the time, but got overruled.
Three years later, IBM gave up on the contract, admitting that it could not produce the system. By that time, Hughes had sold its system to Canada, as well as other nations, while the US remained reliant on ATC computer systems dependent on tubes.
If that deal didn’t cause Congress to demand a redirected result, this one won’t, either. Congress may have the Air Force explain their decision to send some of their procurement budget to Europe rather than employ Americans, but unless someone turns up corruption or compromised safety, the decision will likely stand — and it might just be the best decision in any case, at least in terms of support for the missions the Air Force has to accomplish.
Well of course the Bush Administration Air Force gave the bid to foreigners! Why would one want jobs here in the States?
The beauty and benefits of competition.
America keeps going downhill. Some day, we will be at war with China, and we will have to stop fighting int the middle of a skirmish, to buy bullets from them. Anytime the defense of the country is farmed out to anyplace but home, I have to ask congress WTF?
I don’t think this is a bad decision. And it may work to Boeing’s advantage vis-a-vis EADS in the end.
I also would not be surprised if President Obama cancels the contract altogether.
This is great for Mobile and the State of Alamaba.
But I HATE Airbus.
Alamaba? Where the heck is that.
A-men. Boeing is two for two right now. They need to get their act together.
bye bye boeing refueling jets
When our defense contractors realize that price points and design innovation really matter then they’ll get the business back.
The plane is going to be assembled in Alabama, but the parts will be made mainly in Europe. EADS is charging $35 million more per plane, but giving a superior product.
I suspect they are going to take a bath though. With the dollar going down, it may end up costing less than what Boeing was going to charge depending on how the contract was written.
It may be that part of the way thru this contract, EADS will find it financially advantageous to move a lot of the fabrication to the Alabama facility, rather than doing it in Europe.
It does sound as if the production of the airframe will be moved to the US for both military and commercial version..so we may be gaining in the longer run.
EADS is admitting that Eurolabor is non-competitive.
Another note..maybe Washington State and Illinois(Corp HQ of Boeing)..needs to elect more republicans to defend their interests with the next republican administration.
I wonder if this will be brought up in the election?
This is a slap in the face to the American worker...They had Jeff Sessions saying that it was a good deal because Alabama gets a plant...maybe 2000 jobs. What an idiot, this contract is worth billions. I guess they think Americans are stupid. I noticed as always the GOP (stupid party) was out there defending this decision. The Democrats were no where to be seen.
Right between Greogia and Mippississi.
Everybody knows that. ;-)
>With the dollar going down, it may end up costing less than what Boeing was going to charge
Unless the EAD bean counters are brain dead, any production and sales in foreign currency have FOMEX hedges against currency swings.
Of course the hedges would only be partial, and I suspect that the higher price per unit reflects that expense to EAD.
The bulk of the plane will be made in Europe. Only a few token jobs will be sent to Alabama.
Yeah, I suspect that they thought about the declining dollar, but I also suspect that they determination to get the contract led them to look at it from an optimistic viewpoint. They probably have some protection in the contract. They probably have some hedging protection. But most importantly, they are probably counting on their government to bail them out if they misjudged.
This just stinks. We should not reward any company that France is involved with. Remember them. The French were involved in the oil for food scheme in Iraq. Then spit in our faces when we ask them for help and they told us that there money was more important than an ally. If any total American aircraft was not good enough, they should have been told to come up with a better plane. Tax payer money should be should only be spent for American jobs.
“This is a slap in the face to the American worker...”
For which, among a multitude of other slaps, the GOP will pay in November.
Sorry in the long run the few piddly dollars going to Alabama do not offset the billions going to Europe. This is a disaster and will surely prevent John McCain from winning the presidency. Free trade has decimated the Midwest. The high tech ‘good’ jobs promised by free traders did not materialize or have been given to the H visa crowd.
One poster suggested that Illinois residents vote for more Repubs, I don’t think this will be necessary after the next election.
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