Air Force goes European with new refueling planes Update: Did spec change treat Boeing unfairly?
posted at 9:59 am on March 1, 2008 by Ed Morrissey
Send to a Friend |
Share on Facebook | printer-friendly
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.
UPDATE: Michelle is following the political fallout, so be sure to keep an eye for updates there. Also, I do agree with one commenter that the US has a strategic interest in keeping its manufacturing and procurement activities in the US — but if that was the case, then EADS should not have been allowed to bid on the project at all. EADS, by the way, has American facilities, and I assume most of the work would be done at those locations.
UPDATE II: Some believe a change in the specs during the R&D phase of the contract could gain Boeing some traction on the appeal:
As Boeing awaits news due at 2 p.m today of the Department of Defense’s decision on the long-awaited air refueling tanker contract, a controversial late change to the Air Force’s selection criteria has emerged that may provide grounds for a formal protest by the losing side.
Two analysts who have closely followed the tanker competition confirmed independently that the Air Force recently changed some of the criteria used to assess the performance of the competing planes, Boeing’s 767 tanker and its rival based on the Airbus A330 proposed by Northrop Grumman and Airbus parent EADS.
Each expressed surprise that the Air Force, after going out of its way to appear painstakingly scrupulous and fair, made such a last-minute adjustment.
“What we have is an appearance of fairness issue. The rules of the game were changed after the game commenced,” said aviation industry analyst Scott Hamilton. “This just really smells.”
Well, it wasn’t exactly a “last-minute” change. Forbes reported it in January 2007, 13 months before the award. That’s later in the contract than optimal, obviously, but not a surprise. Both bidders knew about the change in direction, and Boeing had time to adjust their approach. They apparently did not read the tea leaves correctly.
You must be logged in to post a comment.
Blowback
Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.
Trackbacks/Pings
Trackback URL
Comments
Comment pages: « 1 [2]
I don’t believe for a second that, given the same requirements, Boeing could not build a superior piece of equipment to Airbus.
Boeing knew what the requirements were! In fact, goddamn Boeing probably told the Air Force what the requirements were! Boeing was in there from day one (and even before) getting the Air Force to issue an RFP that exactly matched what Boeing intended to offer. The requirements were exactly the same for Boeing and EADS, and if Boeing couldn’t come up with a better plane, tough titty said the kitty.
Boeing thought they were going to win this based on pure political muscle - and heck, all the defense pundits thought they had it in the bag for just that reason. Too bad for Boeing it didn’t work out that way.
Lehuster on March 1, 2008 at 10:32 PM
Typical strawman arguement. Overblown Hyperbole.
Accuse the opponent of making an arguement they are not making. Take it to extremes… nice… while Laughing…
Hmmm… protectionism… and what exactly is wrong with that? You do know that the whole Europeon aircraft industry is partly financed by their governments?
Quid pro quo… why should we not protect AMERICAN industry? So we can actualy defend THIS country.
Romeo13 on March 1, 2008 at 11:16 PM
ah, the evil American Corporation meme… Boeing Knew… they probably wrote it…
Yeah… right…
What Boeing probably read was the latest Fighter requirements which said they have to be able to fly from smaller airstrips… and read it into a strategy that the Pentagon has been talking about… being leaner, meaner, and much more mobile…
Romeo13 on March 1, 2008 at 11:18 PM
To determine whether Romeo13 misspoke.
You say:
This is in response to my saying:
This in response to you saying:
So, Romeo13, did you mean to make the chickenhawk argument and now are accusing me of using a strawman for bringing it up, or did you misspeak when you brought it up in the first place?
Christoph on March 1, 2008 at 11:36 PM
Mobile must be jumping!
Bubba Redneck on March 2, 2008 at 1:15 AM
The overly socialized/subsidized Airbus/EADS wins over Boeing and you call yourselves free traders and capitalists?
You all should be happy with McCain!
Offloading more of the military industrial base to foreign countries? Another wise decision for your tax dollars?
Plane construction in Mobile, Alabama? Large High-tech experience work crew living on that area, is there? Guess many people will be forced to relocate?
Disappointed in the lack of intelligence permeating this thread!
Oxybeles on March 2, 2008 at 1:21 AM
This contract should have remained in the US for many reasons. This was a foolish and ill-conceived decision to not go with Boeing. I will definitely protest this to my congressman and senators. I hope Boeing fights and wins this decision on appeal. BTW, didn’t John McCain have something to do with preventing Boeing from getting a similar contract a couple of years ago?
I know pilots who’ve flown Boeing and Airbus airplanes, and prefer the Boeings for a number of well-founded reasons.
ET USN 71-78 on March 2, 2008 at 1:25 AM
Yeah. In America. You saying southern American workers aren’t good enough?
Christoph on March 2, 2008 at 1:26 AM
Given the appropriate time and training, following the relocation of experience workers from other locations, successful production will be achieved.
This is a historical fact on numerous manufacturing activities moved to the South–from autos to rockets.
Oxybeles on March 2, 2008 at 1:34 AM
You’re certainly free to protest the decision. Not sure how far that will get you. Boeing has said they won’t make that decision until after they’ve had a debriefing from the Air Force on March 12.
Oh, and it was Darleen Druyun that prevented Boeing from getting the contract five years ago, not Sen. McCain:
“In May 2003, the US Air Force announced it would lease 100 KC-767 tankers to replace the oldest 136 of its KC-135s. The 10 year lease would give the USAF the option to purchase the aircraft at the end of the contract. In September 2003, responding to critics who argued that the lease was vastly more expensive than an outright purchase, the DoD announced a revised lease of 74 aircraft and purchase of 26.
In December 2003, the Pentagon announced the project was to be frozen while an investigation of allegations of corruption by Druyun (who had moved to Boeing in January) was begun. Druyun pleaded guilty to inflating the price of the contract to favor her future employer and to passing information on the competing Airbus A330 MRTT bid (from EADS). In October 2004, she was sentenced to nine months in jail for corruption, fined $5,000, given three years of supervised release and 150 hours of community service. She was released from prison on September 30, 2005. The ramifications extended to Boeing CFO Michael M. Sears, who was released from Boeing involuntarily, and Boeing CEO Phil Condit resigned. On February 18, 2005, Sears was sentenced to four months in prison. Boeing ended up paying a $615 million fine for their involvement.[1] According to an issue of The Federal Times Darleen Druyun will still be receiving a federal pension.”
A little research goes a long way. I suggest you try that before your next post.
Since there are so few mind-readers visiting HotAir, you may also want to expound on the “many reasons” parts of your post.
Are you aware that the Northrop contract will employ 25,000 workers here in the U.S., with 60% of the aircraft construction done stateside? Boeing’s plane would be 70% stateside, with the rest going overseas.
However, this is a moot point that people continue to argue. The selection of the new aircraft was never about the creation of new jobs. From yesterday’s New York Times:
“At a news conference, Air Force officials said that the creation of domestic jobs was not a factor in the decision. In response to questions about possible negative reaction to the deal in Congress, Gen. Arthur J. Lichte, head of the Air Force’s Air Mobility Command, said, “This will be an American tanker, flown by American airmen with an American flag on its tail and, every day, it will be saving American lives.”
And while it may be true that certain pilots prefer certain airplanes, the fact remains that the men and women flying them understand that their chief priority is to complete the mission regardless of what name is stamped on the fuselage.
The KC-45A is the plane that will allow them to do just that. Bear in mind, the competition was about five criteria: mission capability, proposal risk, cost and price, past performance and aircraft design characteristics. If “pilot preference for manufacturer” was a factor in the decision, it certainly had a low priority.
By the way, Northrop’s entry bested Boeing’s plane in all five criteria. A snippet from yesterday’s Chicago Tribune:
“Air Force officials declined to say where Boeing’s proposal came up short. However, they rated the Northrop/EADS plane superior in every one of the five categories used to assess the tanker offerings. The fact that the Air Force thought there wasn’t a single measure where the Boeing proposal was ahead suggests their chances of an appeal aren’t good,” said Loren Thompson, defense analyst with the Lexington Institute, a public-policy think tank.”
From the same article, the AMC commander sums up the Northrop proposal: “more passengers, more cargo, more fuel to off-load, more availability, more flexibility, more dependability and it can carry more patients,” said Gen. Arthur Lichte, commander of the Air Force’s Air Mobility Command.”
Et tu Brute on March 2, 2008 at 9:18 AM
Now we just have to get EADS to build it. I hope none of the funding gets moved to support the Euro Jumbo.
davod on March 2, 2008 at 10:14 AM
Yep, we Southerners are just a bunch of ignorant hillbillies who don’t know nothin’ ’bout buildin’ no airplanes. Well, except maybe the ones at NASA’s Marshall Space Flight Center in Huntsville, Alabama. And the ones at the Johnson Space Center in Houston, Texas. Oh, and the Kennedy Space Center in Florida. And NASA’s Langley Research Center in Virginia. And the Stennis Space Center in Mississippi. Yep, we is jus’ po’ unedjumikated folk when it comes to the aerospace industry.
If Boeing wanted the contract, maybe they should have tried giving the USAF what they asked for instead of something that was only, as the saying goes, “good enough for government work”. On the plus side, maybe Boeing can shift some of those workers to figuring out why their “virtual fence” is a shoddy piece of non-functional crap.
Rip Ford on March 2, 2008 at 10:16 AM
For the uninitiated and “RFP” is a Request For Proposal.
All bidders’ must adhere to the requirements of the RFP or take specific exception to those items where or when they can’t meet the specification or… or where they propose significant improvements to the published [requested] RFP.
This acceptance by the DOD may have been an award with respect to the latter.
As an olde soldier who used to fly sorta’ high and very low…or relatively fast or very slow; I was always concerned that the contract for building the particular means of transporting my sorry butt…always went to the lowest bidder…?
But that’s just me…!
J_Gocht on March 2, 2008 at 12:03 PM
The “real heavy weights”… now lumber in…with moral difference and complete umbrage…?
The staid, paid and laid respond…!
http://www.breitbart.com/article.php?id=080301224212.az5r6vht&show_article=1
J_Gocht on March 2, 2008 at 1:51 PM
It’s come to this.
Is this what Boeing really wants?
Et tu Brute on March 10, 2008 at 7:50 PM
Comment pages: « 1 [2]