Statement From Northrop Grumman on U.S. Air Force Aerial Refueling Tanker Program — Press Release
Filed under: Alabama, Boeing, Congress, EADS, KC-X, KC-X Tanker News, Syndicated Industry News
Statement From Northrop Grumman on U.S. Air Force Aerial Refueling Tanker Program
WASHINGTON, March 8 /PRNewswire-FirstCall/ — The following is a statement from Wes Bush, Chief Executive Officer and President of Northrop Grumman Corporation (NYSE:NOC) , concerning the U.S. Air Force aerial refueling tanker program.
“After a comprehensive analysis of the final RFP, Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program. We reached this conclusion based on the structure of the source selection methodology defined in the RFP, which clearly favors Boeing’s smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity.
“Northrop Grumman fully respects the Department’s responsibility to determine the military requirements for the new tanker. In the previous competition, Northrop Grumman was selected by the Air Force as offering the most capable tanker for the warfighter at the best value for the taxpayer. However, the Northrop Grumman and EADS team is very disappointed that the revised source selection methodology now dramatically favors Boeing’s smaller refueling tanker. We agree that the fundamental military requirements for the new tanker have not changed since the last competition, but the Department’s new evaluation methodology now clearly favors the smaller tanker.
“We continue to believe that Northrop Grumman’s tanker represents the best value for the military and taxpayer – a belief supported by the selection of the A330 tanker design over the Boeing design in the last five consecutive tanker competitions around the globe. Regrettably, this means that the U.S. Air Force will be operating a less capable tanker than many of our Allies in this vital mission area.
“Our prior selection by the Air Force, our firm belief that we provide the best value offering, and the hard work and commitment of the many individuals and communities on our team over many years made this a difficult decision for our company. But we have a fiduciary responsibility to our shareholders to prudently invest our corporate resources, as do our more than 200 tanker team suppliers across the United States. Investing further resources to submit a bid would not be acting responsibly.
“We have decided that Northrop Grumman will not protest. While we feel we have substantial grounds to support a GAO or court ruling to overturn this revised source selection process, America’s service men and women have been forced to wait too long for new tankers. We feel a deep responsibility to their safety and to their ability to fulfill the missions our nation calls upon them to perform. Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly.
“We recognize that our decision likely creates a sole-source outcome for Boeing. We call on the Department to keep in mind the economic conclusions of the prior round of bidding as it takes actions to protect the taxpayer when defining the sole-source procurement contract. In the previous round, the Air Force, through a rigorous assessment of our proposal, determined that it would pay a unit flyaway cost of approximately $184 million per tanker for the first 68 tankers, including the non-recurring development costs. With the Department’s decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less.”
Northrop Grumman Corporation is a leading global security company whose 120,000 employees provide innovative systems, products, and solutions in aerospace, electronics, information systems, shipbuilding and technical services to government and commercial customers worldwide.
Source: Northrop Grumman Corporation
Statement From Northrop Grumman on U.S. Air Force Aerial Refueling Tanker Program
Filed under: Department of Defense, EADS, Syndicated Industry News
March 8, 2010
WASHINGTON, -- The following is a statement from Wes Bush, Chief Executive Officer and President of Northrop Grumman Corporation (NYSE: NOC), concerning the U.S. Air Force aerial refueling tanker program.
"After a comprehensive analysis of the final RFP, Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program. We reached this conclusion based on the structure of the source selection methodology defined in the RFP, which clearly favors Boeing's smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity.
"Northrop Grumman fully respects the Department's responsibility to determine the military requirements for the new tanker. In the previous competition, Northrop Grumman was selected by the Air Force as offering the most capable tanker for the warfighter at the best value for the taxpayer. However, the Northrop Grumman and EADS team is very disappointed that the revised source selection methodology now dramatically favors Boeing's smaller refueling tanker. We agree that the fundamental military requirements for the new tanker have not changed since the last competition, but the Department's new evaluation methodology now clearly favors the smaller tanker.
"We continue to believe that Northrop Grumman's tanker represents the best value for the military and taxpayer – a belief supported by the selection of the A330 tanker design over the Boeing design in the last five consecutive tanker competitions around the globe. Regrettably, this means that the U.S. Air Force will be operating a less capable tanker than many of our Allies in this vital mission area.
"Our prior selection by the Air Force, our firm belief that we provide the best value offering, and the hard work and commitment of the many individuals and communities on our team over many years made this a difficult decision for our company. But we have a fiduciary responsibility to our shareholders to prudently invest our corporate resources, as do our more than 200 tanker team suppliers across the United States. Investing further resources to submit a bid would not be acting responsibly.
"We have decided that Northrop Grumman will not protest. While we feel we have substantial grounds to support a GAO or court ruling to overturn this revised source selection process, America's service men and women have been forced to wait too long for new tankers. We feel a deep responsibility to their safety and to their ability to fulfill the missions our nation calls upon them to perform. Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly.
"We recognize that our decision likely creates a sole-source outcome for Boeing. We call on the Department to keep in mind the economic conclusions of the prior round of bidding as it takes actions to protect the taxpayer when defining the sole-source procurement contract. In the previous round, the Air Force, through a rigorous assessment of our proposal, determined that it would pay a unit flyaway cost of approximately $184 million per tanker for the first 68 tankers, including the non-recurring development costs. With the Department's decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less."
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Department of Defense (DoD), EADS, KC-45A Tanker, KC-767 Tanker, Northrop Grumman (NYSE:NOC)
KC-X Fully Funded In 2011 Budget
Filed under: Boeing, Congress, EADS, KC-X, KC-X Tanker News, Northrop Grumman Corp.
President Obama sent his 2011 budget to Congress yesterday. It contains as part of its record defense spending $12 billion for the development and initial production of the new KC-X tanker. The Administration and the Air Force have a goal of awarding a contract this Summer and beginning the development of the new aircraft fairly fast.
This plan is fraught with difficulties based on the history of the program. The two main competitors, Boeing (BA) and the Northrop Grumman (NOC) team, have their own supporters in Congress and their own issues with the approach the Air Force is taking. It can be expected that the source selection will be difficult and the chances for a protest fairly high if both groups do submit bids.
Split Buy Again?
Filed under: Boeing, Congress, EADS, KC-X, KC-X Tanker News, Northrop Grumman Corp., Syndicated Industry News
One of the solutions that has been mooted to solve the KC-X issue is to buy aircraft from both Boeing (BA) and EADS (EADS.P). This would certainly eliminate many of the issues around the source selection. The Defense Department and Air Force have not supported this idea in the past due to the logistical costs related to operating two dissimilar aircraft. Of course the problem the Air Force faces is that the KC-30 and KC-767 are too dissimilar.
Some in Congress and in the industry suggested the split buy last Summer and now it has been raised again. If Northrop Grumman (NOC) does refuse to submit a bid then the contest is on hold unless there is the will to do a sole source contract again. The split buy would solve that issue and keep Northrop playing.
We will have to see how this plays out.
EADS Continues Efforts To Gain Support Of Tanker
Filed under: Alabama, Congress, EADS, KC-X, KC-X Tanker News, Syndicated Industry News
It has been reported that EADS spent almost $200,000.00 last quarter on just tanker related lobbying. It is not uncommon for larger companies of all sorts to spend time in Congress working to support their programs and proposals.
The KC-X contract being so important this effort will be even more concentrated. EADS work with its supportive Congressional members has already worked out well especially with the delegation from Alabama. Support like this will be key as the RFP goes final, proposals are submitted and the source selection works its course. The next quarter reports should show similar numbers.
John McCain Inserts Himself Into KC-X Competition
Filed under: KC-X, KC-X Tanker News, Syndicated Industry News
Senator John McCain (R-AZ) whose efforts frustrated the Air Force’s attempts to award Boeing a lease deal for the new tanker back in 2001 – 2004 started the whole competition now says that he wants an independent “watchdog” as part of this source selection. He was not clear as to who he would want to do this but hopes to have an unbiased source selection.
If there is a protest over the latest attempt the GAO will be the “independent” agency tasked with sorting that out. If they fail there is always the U.S. Court of Appeals. Those should be independent enough for Senator McCain.
Air National Guard To Have Role With KC-X
Since 9/11 the U.S. military has moved to integrate even more their National Guard and Reserve Forces. They have been called up at high rates and have received more and upgraded equipment. Currently the Air National Guard of various states like Alabama fly KC-135 tankers. If the full fleet of KC-X aircraft are built then some of the states will receive these new tankers. Recently it was announced that the Air National Guard will provide participation on the KC-X source selection. This is most likely to help make sure that any specific requirements of the Air Guard are considered and is not common with programs of this size.
Alabama Expresses Pessimism On KC-X
The Northrop Grumman and EADS team will build their tanker in Mobile, AL if they win the contract again. Last year when they had done so before the Boeing protest the plant was ready to go. This means that the team has the support of Alabama’s politicians and media. Senator Sessions had tried to get language inserted into a defense funding bill that might have helped Northrop but lost that vote.
Now the Mobile Press-Register has an article where the experts they interviewed question the structure of the new draft RFP and how it may be unfair to Northrop and EADS. It is certainly true that a focus on price over capability might affect the Air Force’s source selection but it may be too early to tell that. Plan on seeing more articles supporting the local favorite in Alabama media.
Army fantasies on ARH
The Army is hoping with the termination of the Bell contract for the ARH that a new competition can be conducted and a new aircraft and contractor can be chosen. They are living in a fantasy land. The way that past competitions for these types of aircraft have been going any RFP and source selection will take a few months and a protest is almost guaranteed. Without changing the requirements for the system the Army will be seeing the same bidders, Bell and Boeing. If they do not want a larger aircraft then before Agusta Westland, EADS and Sikorsky will have a hard time preparing a proposal. One also hopes that the Army will also prepare a more realistic cost and schedule estimate.
See Rueters for the story.
KC-45 fallout continues
Filed under: Boeing, Contract Awards, Department of Defense, EADS, GAO, Military Aviation, Northrop Grumman Corp., Proposal, Protest, U.S. Air Force, commercial aviation, logistics, production program
With the decision to not go ahead with the KC-45 recompete and the cancellation of the planned source selection, the Pentagon has decided that due to the decision to cancel the original contract Northrop Grumman, and EADS, will receive some termination fee. This will pay the company for any work that the did while the contract was active prior to the protest and GAO recommendation to recompete the proposal. Termination fees are common for when the Government cancels the contract for administrative reasons. If ti is canceled due to non-performance then it gets a little more difficult. Due to the high visibility of this decision, I am sure the Congress will take a look at any money payed to Northrop Grumman.
See the Los Angeles Times for more on this.
House marks appropriations bill
Filed under: Bell, Boeing, Congress, Contract Awards, EADS, Federal Budget Process, Military Aviation, Northrop Grumman Corp., development program, logistics, production program
The House Appropriations Committee marked the FY09 budget before taking their August recess. See a story here. The Army’s struggling Armed Reconnaissance Helicopter (ARH) program was marked to delete 13 aircraft, and the Navy’s Presidential Helo was also decremented. The House also ordered that consideration of jobs would be a criteria for the source selection of the KC-45 tanker. Boeing won its protest of the award to Northrop-Grumman and EADS and forced DoD to reconsider the contract. The Senate needs to also mark the bill and then there will be a Conference mark up as well.
KC-45 protest summary report released
Filed under: Boeing, Contract Awards, Department of Defense, EADS, GAO, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, development program, logistics
The GAO released a summary of why they upheld the protest by Boeing over the KC-45 award. See an article here. The chief reason was due to the Air Force’s failure to properly apply the criteria for source selection. Of the several reasons listed two ones that stand out is that they gave EADS credit for exceeding a requirement when they should not have, and rather than just noting the risk associated with the Boeing bid the Air Force calculated a dollar figure to overcome that risk. This alone drove up the cost proposal of the Boeing K-767 aircraft. The Air Force technically still does not have to withdraw the award to Northrop Grumman and EADS, but they would be best off reopening the competition.
Boeing’s protest sustained by the GAO
Filed under: Boeing, Contract Awards, EADS, GAO, Military Aviation, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, development program, logistics, production program
The GAO ruled today in Boeing’s favor on the KC-45 protest. They decided that the Air Force failed to properly apply its source selection criteria and did not calculate some of Boeing’s costs correctly. See a story here. The GAO recommended that the competition be reopened. This is what happened with the CSAR-X contract, ironically enough won by Boeing but now back in source selection. The Air Force is not required to follow the GAO’s recommendation, but if it does not Boeing is sure to go to the Court of Appeals and Congress could make it very difficult for the Air Force to execute the contract.
Democrats plan to interfere with KC-45
Filed under: Boeing, Congress, Contract Awards, EADS, Federal Budget Process, GAO, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, logistics
In this story it is clear that the Democratic members of Congress will interfere with the KC-45 award, no matter what the GAO says. The House is moving to defund the program if the GAO opens up the contract. Mr. Murtha misspoke when he said that the GAO would overturn the award. They cannot do that, just direct, as with the CSAR-X award, that the source selection be reopened. It is also clear that members from states that Boeing is in will move to conduct an investigation no matter what that will delay the program. It is also interesting that they are now blaming John McCain, the Republican presidential candidate, for throwing out the lease with Boeing. They weren’t supporting Boeing when their executives and USAF acquisition people were going to jail over the deal. As previously reported any attempt by Congress to muddle up the deal purely on political and nativist grounds will only make it difficult in the future to get competition on other contracts.
OSD expresses concern over protests
Filed under: Boeing, Contract Awards, Department of Defense, EADS, Federal Budget Process, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, development program, logistics
In this story Mr. Young, the Assistant Secretary of Defense of Acquisition, Technology and Logistics expresses concern over the recent amount of protests with large systems. Part of the story is letting Boeing know not to focus on the recent lost KC-45 award, but to look to future competitions. He also generally agreed with the recent GAO report that systems are over cost and behind schedule, but that is to be expected. Read more
Air Force leadership interfered in contract award, disciplined
Filed under: Contract Awards, Federal Budget Process, Protest, U.S. Air Force
It turns out, according to this article, that the Air Force violated all sorts of laws and regulations in awarding a media company a contract to help promote the Thunderbirds aerial demonstration team. The company that won cost twice as much as the other bidder, who protested the contract award in 2006. It turns out that the company that won had a recently retired Air Force general as a partner and the current uniformed leadership of the Air Force interfered to steer it to that company. Now several people have been admonished and reassigned. Read more
Boeing claims USAF cost estimates for KC-45 favored EADS
Filed under: Boeing, Contract Awards, EADS, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, development program, logistics
As part of the source selection for any program the Government does an Independent Cost Estimate (ICE) for the various proposals. If it is for an ACAT ID program the OSD Cost Analysis Improvement Group (CAIG) does it, and if it is ACAT IC then the service’s cost people do it. Boeing is claiming that the ICE for their aircraft was flawed and that the USAF deliberately favored the Northrop Grumman proposal. See the story here. Having been involved in the process of generating these estimates I find it hard to believe that the independent cost analysts would deliberately do this. Read more
Good summary of the problems facing Boeing with the GAO
Filed under: Boeing, Contract Awards, EADS, Northrop Grumman Corp., Protest, U.S. Air Force, commercial aviation, logistics
The Saint Louis Post-Dispatch has a good article summarizing the protest process. See the story here. It stresses that the GAO will overturn only if they find that the acquiring agency did not apply their criteria correctly during the source selection process, and even if they uphold the protest, the most likely result will be a reopening of the competition. Of note, 29% of protests last year were upheld.
Congress, the media and the KC-45 award
Filed under: Boeing, Contract Awards, EADS, Northrop Grumman Corp., U.S. Air Force, commercial aviation, logistics, production program
I made the mistake of watching Lou Dobbs on CNN this Saturday who had a rant about the KC-45 award to Northrop Grumman and EADS. The only guest he had on was the head of the machinist union from Boeing who was obviously not unbiased. He had no guest from DoD or Northrop to talk about the award. It was clear that Mr. Dobbs does not understand how DoD buys things. Here is the video from Mr. Dobbs blog on this issue. Read more
Senator’s Shelby view of the KC-45 contract
Filed under: Boeing, Contract Awards, EADS, Northrop Grumman Corp., U.S. Air Force, commercial aviation, logistics
This article in The Financial Times by Senator Shelby sums up the view from Alabama on the KC-45 contract award. He stresses the fact that the Air Force utilized the proper DoD regulations and instructions on requirements and source selection. Unfortunately for Boeing there is no standard for number of US jobs in these kind of selections.
Congress begins political war to overturn KC-45 decision
Filed under: Boeing, Contract Awards, EADS, Northrop Grumman Corp., U.S. Air Force, commercial aviation, logistics
Based on this story run in The Hays Daily News, Senators and Congressmen from the losing states are beginning the process to use politics to overturn the KC-45 award to Northrop-Grumman and EADS. Unfortunately there are Senators and Congressman from the states that stand to gain from the award. Read more
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