Airbus and Boeing will likely split the Pentagon's $35 billion tanker deal
Filed under: Company News, Technology, Boeing
The Pentagon recently announced its third attempt to find a supplier willing to accept $35 billion in exchange for 179 airborne refueling tankers. If BusinessWeek's reporting proves prescient, that $35 billion will be divided in some way between the two bidders -- Boeing (BA) and EADS' Airbus subsidiary in partnership with Northrop Grumman (NOC).
Before getting into why the contact will likely end up being split, it's worth focusing on the regional politics involved. The Boeing work for the tanker would be done in Washington, Connecticut and Illinois. By contrast, the Airbus/Northrop Grumman tankers would be built in Alabama and South Carolina -- not to mention Europe. In short, the Democratic party wants Boeing to win, and the Republican party favors Airbus/Northrop.
But what would be in the best interest of the Pentagon? A case could be made for divvying up the order based on the fit between different Pentagon requirements and the capabilities of the bidders' different aircraft. Specifically, the Airbus KC-30s would work best for the Pentagon's longer-range assignments across Asia, and the smaller Boeing KC-767s would cost less to operate on shorter refueling jobs.
The Air Force specifications for the tanker put Boeing at a disadvantage. That's because these specs put a heavier emphasis on the tanker's ability to fly long distances and carry more fuel -- thus ruling out Boeing KC-767.
But that's not all. The Air Force wants its tankers to be able to operate on long, 15,000 foot runways at its newer military bases as well as shorter 6,000-foot runways on bases in India and the Philippines. As BusinessWeek points out, this would again put Boeing at a disadvantage because its other possible tanker, a version of its 777 commercial jet, might not meet that spec.
Boeing is playing from behind on two other fronts as well. The Air Force wants early, so-called pre-production, versions of the tanker within 18 months of the July 2010 contract award at a "not-to-exceed" price per tanker. But since Boeing does not know when it will be able to build its KC-777 or how much it will cost, it may not want to comply with the deadline or the fixed-price requirement.
Nevertheless, the Pentagon could wind up back at square one if it awards the contract to one supplier because a single-source deal will almost certainly result in the loser filing a complaint. And that would only further delay the delivery of these badly needed tankers. So to make sure that the third try at awarding that $35 billion is the last, look for the Pentagon to split the bid.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
9-29-2009 @ 10:22AM
Will said...
I doubt that more than 1 out of 1000 Republicans want Airbus to win anything
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9-29-2009 @ 10:52AM
GCooper said...
People don't understand the workers are Americans for Airbus. Boeing lost and they got to the politicians to fix the results so guess what it costs us more. thank goodness for lobbyists
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9-29-2009 @ 11:02AM
wm rig said...
If Airbus wins, it will not be american workers; but french workers who will build the plane and then fly it to the right to work southern states and have american workers do the finish up work. The plane should be built in the US with US workers all the way, whether they are union or non union.
9-29-2009 @ 10:48AM
Ten Bears said...
I live in Mobile, Ala. Northrup Grumman EADS already won the first bid, but Boeing complained and their lobbist managed to get a re-bid. So if it has to be split, so be it, and that way nobody loses out. Three Bears
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9-29-2009 @ 11:06AM
John said...
Totally STUPID government at work for ya. Instead of ordering one type of aircraft, they ordered two. Now they have to purchase and warehouse parts for two different aircraft. Also train staff to maintain two aircraft instead of one. IDIOTS. That is why our government has no business making decisions that spend "OUR MONEY".
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9-29-2009 @ 11:12AM
john said...
where did you get that bull---- story that republicans want airbus to win pure bull===
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9-29-2009 @ 1:42PM
KAY said...
No U. S. Military equipment or weapons should be made by foreign countries. Northrup is only a token U.S. partner for contracts only.
What do we do when France says oh, your supporting Israel against the Muslims, therefore we will not allow any French made Military equipment sent/sold to the United States.
Only American contractors for the U.S. military.
9-29-2009 @ 2:08PM
Ol' Joe said...
Dont BS yourself, most of Boeings parts will be shipped in from overseas and merely assembled in the US.
In Alabama, we are getting a steelmill that actually makes the steel here and although some components would be made overseas as well, much will be made here in the US when Airbus wins the bid again.
Most anything is made overseas now and if not, much of it's components are. 100% American Made is mostly a fantasy now and there are no contrators large enough that are solely American contractors.
9-29-2009 @ 11:17AM
Rudolf said...
No tax payer funds should be allowed to be spent on foreign sourced equipment, labor or components if an acceptable U.S. source exists, even if the U.S. source is marginally higher pried. Buy American.
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9-29-2009 @ 11:23AM
bailoutsos said...
Do not build either. Bring our troops home from around the world. Didn't Obama just state that we cannot take care of the rest of the world?
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10-04-2009 @ 10:46AM
tom said...
Air bus is a French company. The profits will go overseas. Boeing is American, our tax dollars will stay here.
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9-29-2009 @ 11:38AM
john said...
Why is it that every Obama sticker was on a foreign car, and every McCain sticker was on an American car? To say REpublicans want to buy foreign products is a bunch of crap.
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9-29-2009 @ 12:23PM
Tom said...
buy American fools.......it will be modified in Alabama but built in France..........how many more industries are we going to destroy by being politicallu correct........Steel, automobiles, computers.....
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9-29-2009 @ 12:12PM
darin said...
and also dont forget. that every single tanker that exists today that the US military uses and has ever used. was BUILT by BOEING . Airbus does not have a tabnker that works at all. and they ( AIRBUS and not northrup) would have more trouble with the aurstrip length then boeing would. northrup is nothing here , they w ould have no job what so ever on the tankers . and how many jobs do you think that airbus/northrup would create if they win at most 1000 . boeing would create 1000 upon 1000 of jobs .
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9-29-2009 @ 12:48PM
JON BERGEY said...
We don't need these planes and if we did would you want they made in France and china???
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9-29-2009 @ 2:00PM
Dan said...
A clarification: Northrop Grumman is the prime contractor in competition with Boeing. Airbus is NOT a subsidiary of Northrop Grumman but has teamed with Northrop Grumman. I do agree with John, ordering two tankers is crazy to say the least. The logistics cost to support two configurations will go through the roof.
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