Path clear for Boeing to win Air Force contract

Northrop Grumman and its European partner EADS have pulled out of bidding for a $50 billion US Air Force air-to-air refueling tanker contract.  The announcement clears the path for Chicago-based Boeing to win the contract to replace the Air ForceÔÇÖs fleet of 1950s-built air tankers. It is one of the biggest US defense procurement projects on record. Follow-on deals could bring the total value of the contract to more than $100 billion. The news came as EADS said it made a net loss of Ôé¼763 million ($1 billion) last year, against a profit of Ôé¼1.57 billion in 2008, saying 2010 may be "volatile". Los Angeles-based Northrop said its reason for pulling out of the tanker deal was that the Air Force's contract proposal favors Boeing. The fourth-largest US defense contractor said that it would be a waste of resources to continue with a bid after concluding that, under the current rules, it could not win the contract. The Department of Defense rejected the charges, saying that the contest was fair to both parties. It has been under considerable pressure to run a fair contest, as the Air Force has been waiting such a long time for the fleet to be replacedÔÇöthe Department of Defense has failed to award the contract twice before. Boeing had been awarded the contract in 2004, only for it to be cancelled after a scandal that saw a US Air Force official convicted of criminal conspiracy. Northrop and EADS then won the contract in February 2008, which was then cancelled following an appeal by Boeing. This time, Northrop has claimed that the rules favored the smaller, less expensive 767 aircraft that Boeing is offering over EADS's A330. It also said the terms placed unacceptable risk on contractors by demanding an 18-year fixed price contract. Northrop said that although it had good legal grounds to challenge the competitionÔÇÖs criteria, it did not feel it would be responsible to delay the process further. Commenting on the decision, Wes Bush, CEO and president of Northrop said: "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. ÔÇ£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.┬áInvesting further resources to submit a bid would not be acting responsibly.ÔÇØ He continued: ÔÇ£We continue to believe that Northrop Grumman's tanker represents the best value for the military and taxpayerÔÇöa 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 US Air Force will be operating a less capable tanker than many of our Allies in this vital mission area.ÔÇØ The decision will come as a blow to EADS, which had been keen to use the contract to realize its ambition of breaking into the US defense market.┬á