Northrop says no bid on tanker unless…

Update, December 2, 3:00 pm: DOD Buzz reports that Rep. John Murtha, a powerful House member, says there has to be competition for the KC-X and doesn’t rule out Congress stepping in.

This is something we forgot to mention in our Update below. We fully expect an effort on the part of some Members of Congress to renew the effort for a split buy. As we have written many times before, we can think of many strategic reasons this makes sense, let alone the political solution. But this also only makes sense if the procurement is doubled from the 12-18 per year proposed by DOD to 24-36 a year. We also believe the KC-777 is the best replacement for the aging KC-10.

There is enough strategic need to go around for everyone. That this continues to be a political football should be an embarrassment to all concerned.

Update, December 2:

(See Original Post below the jump for background.)

The prospect that Northrop Grumman won’t submit a bid unless the Final RFP is changed to allow for the different sizes between the KC-30 and the KC-767 is very similar to what happened with the 2006 competition.

The USAF then initially did not plan an “extra credit” for larger capabilities exceeding the minimum requirements of the airplane. Northrop threatened to withdraw from that competition unless the FRFP allowed for extra credit–and prevailed.

During the evaluation period, Boeing called the KC-30’s extra capacity “gold plated” that was nice to have but unnecessary and more costly on a life-cycle basis. After Northrop won that competition on the basis of offering “more” (in the words of a general upon announcing the award), Boeing protested that it did not understand the extra capacity would be granted extra credit. The GAO upheld this and seven other protest points.

Today Northrop claims the DRFP favors the smaller airplane. We agree, but we have always said that if all the USAF wants is “just” a tanker, the KC-767 is the choice. If the USAF wants a more capable Multi-Role Tanker Transport, the KC-30 is the choice. We think a KC-777 is too big, but also believe Boeing would checkmate Northrop if bids were submitted offering the KC-767 and KC-777.

But setting aside the issue over size, we think a larger issue in the DRFP is the fixed-price contract provision for 18 years. This is fraught with risk for Northrop and Boeing, for “mission creep” by the services are often what cause cost-overruns in programs. Northrop is vocal in its criticism of this provision; Boeing won’t comment.

Whether Northrop stays in the competition or not, the fixed price contract provision needs to get some attention. This is the one that could really muck up the works.

Original Post:

Repeating a threat made in the 2006 KC-X competition, Northrop Grumman said it will not bid on the KC-X program unless significant changes are made to the Final Request for Proposals.

Here are the first of what will be many stories:

Bloomberg

Mobile Press Register

Reuters

20 Comments on “Northrop says no bid on tanker unless…

  1. Very predictable move. It worked the last time. It will probably work this time. I made a comment on DOD Buzz, which I won’t repeat in full here, but this is an opportunity for Mr. Carter to tell them to “put up” or “walk”. But if I were to bet, he won’t; DOD will cave.

  2. @Aurora
    As long as we do not know what changes Northrop Grumman are requesting in the RFP, your assumptions are merely speculative.
    In my view, Northrop Grumman simply tries to anticipate and avoid in this tanker competition the errors which EADS committed during their A400M development. EADS simply cannot afford such a desaster for a second time, as it would ruin the company.
    Northrop Grumman wisely tries to escape the old trap with government tenders: A ruinous outbidding war among competitors, who all are lured in by the sheer volume of orders which can be won at once. In such a competition, there is always a considerable risk of getting imprudent and bidding below the pain threshold.
    Boeing is in such a desperate situation now, they try to catch every straw, regardless of the risks.
    In my eyes, the risk is huge, also in a wider sense, as the rapidly rising US federal debts are posing a growing risk of state bankruptcy or at least state default.

  3. The problem for KC-X from the beginning has been a competition between two different sized airliners. Northrop Grumman has been pretty clear that they don’t like the focus on “just meet minimum requirements and have the lowest price by 1%” method the USAF has outlined. This benefits the smaller 767. So the only way Northrop could win is if that’s changed, but the only way to change it is to make a bigger aircraft more important than low price. Which would hand the contest to Northrop and Airbus.

    Northrop is making a smart tactical move here. Today we will no doubt see a raft of press releases from Senators McCain and Shelby and Sessions talking about the USAF’s stupidity and the need for “a real competition.”

  4. A fairer or more precise analysis than the one you put forward is unimaginable.

    You rightly identify the AF has to decide on what it needs a simple tanker os offered by Boeing or a more versitile multi role type as offered by Northrop/EADS

    Given the fact that as the US declines as a global player & as a consequence AF international role is on the decline it follows that the demand for IFR is also diminishing.

    As this cycle continues one should consider two points. Firstly does the AF in its modern operational role still demand the size of IFR fleet we see being negotiated here, it seems not. Secondly the need for fewer airframes that offer a more flexable multi purpose role would seem the more logical operational & cost effective choice.

    Make no mistake the RFP will be ammended to remove any point scoring biase, but not in a manner that allows the more capable airframe to be selected.

    • It’s nice in theory to say the AF might require a more versatile aircraft, but the reality is that they already have one in the form of the 60 KC-10 aircraft, which are even more capable than the KC-30. If they actually needed the versatility of the KC-10 they would be using it as a cargo transport more. When they bought the KC-10 they projected they would use this capability for 30 percent of all missions, but they don’t. Cargo is less than 2 pecent for all tanker missions. We can speculate all we want about it might be nice to have a bigger plane, or one that carries more cargo or does this, but actual usage of the KC-10 says the extra capacity offered by the KC-30 is a waste and competely uneeded. Until we see the AF change it’s operational proceedures to actually utilize the capacity it has now there is no justification for considering the extra cargo capacity of the KC-30.

      • Cargo is an important mission for KC-X. The USAF has been clear on that. They don’t want another KC-135, which has very little ability to carry cargo. However, the idea that the KC-45A is the only aircraft that carries a significant amount of cargo that I see around the internet isn’t accurate. It carries more cargo than KC-767 because it’s bigger, but the KC-767 can carry a substantial amount of freight as well.

  5. Pingback: Northrop Grumblin’ threatens to quit « Machinists News

    • Ahh, the Citroen Dyane of the airways argument.

      On the other hand dual use as freighter/passenger
      transport would allow to accumulate some real
      flighthours on the frames in contrast to a
      single purpose aircraft that rots on the ground
      overtaken by innovations left and right.

      And recent production aircraft have a lot more “life”
      in them than the 707 generation.
      KC-X could have a projected servicelife counted
      in centuries. Would _that_ make sense?

  6. This announcement makes more of an impact this time around as not many (Boeing people and their supporters) took the NG/EADS bid very seriously the first time around. Now that they had won the award once, these people shall be much more vigilant.
    I agree with Mr. Whitman’s statement about not changing the RFP (their requirements) to suit one competitor or another. This is all well and good. But do they really have any idea what their requirements, or even wants, are?
    It seems to me that, either they do not, or they are being pressured to establish requirements they do not want.
    Sal and Aurora must be very happy right now.

  7. Why doesn’t anyone in the mainstream press report on NG’s complaints on this tanker process, the largest contract issued by DOD. Boeing is based Chicago and Bill Daley, Rahm’s protege, sits on their board. Isn’t this a conflict? Who engineered the media hit job on Murtha in the Spring of this year? Was someone trying to elevate Norm Dicks? Isn’t Melanie Sloane of CREW, a Rahm operative? Why won’t someone conenct the dots?

  8. Pingback: No KC-30 means no A330 plant in Mobile « Leeham News and Comment

  9. It seems clear to me that the AF never really wanted the larger plane, notwithstanding Gen Licht’s “more, more” statements at the news conference when NG/AB won. Having given the larger plane a chance the first time around, the AF has created a massive constituency for it which can and will block any deal they don’t get a piece of, as can Boeing’s supporters. Thus, Scott is absolutely right that we must go to a split buy.

    So, why not spin that reality as a good thing, much the way Boeing is spinning its move to South Carolina. In fact, the two are similar in that each creates a massive new aerospace presence somewhere where it had not existed before, and has resulted in hysterical claims that Wash St’s aerospace industry will cease to exist as we know it.

    Boeing’s supporters should grow up. These fears are illusory. Boeing will be in Seattle for years to come building the planes they are building now, plus the KC 767, while vast new economic opportunities and jobs will open up in Ala. Those jobs, plus tax revenues, economic growth and lots of intangible factors may well equal or surpass in economic value the higher cost of buying and operating two planes. As Sen Lindsay Graham said at Boeing’s Charleston ground breaking, “Instead of everyone’s saying no, they said yes!”

    How can this country be hurt by such an EADs presence in Ala? Just yesterday, Mercedes Benz announced they would build cars (as opposed to SUVs) in the US for the first time. We need to get some benefit from the collapsing $.

    It is time to say “yes” to the split tanker buy, and milk it for all it is worth. This includes making clear to EADs that they will not get any of the order if they do not build the tankers and the freighters here.

  10. The USAF cannot afford a split buy. To make running a tanker line efficient, they say they need to build 12+ aircraft a year on that line. To make a split buy work, they need to buy 24+ tankers every year of the program, but they don’t have the procurement cash to spend that much on that many tankers every year.

    • Hate to be cynical but is this really about our national interest and what the USAF needs? Isn’t it about what Boeing needs because Bill Daley is a director and Rahm needs to do his bidding?

  11. Christopher, as a general rule, the U.S. does not export a lot of automobiles. Consequently, the move by DB to produce cars in Alabama is welcomed. In fact, I would welcome more EADS presence in the U.S., but I do not favor using federal funds to set up competition with one of our largest exporters. Of course, there are a host of state incentives that EADS, or any foreign manufacturer for that matter, could avail themselves to in order to set up manufacturing in the U.S. EADS is trying to do it under the smoke screen of a collaborative defense project.

  12. As usual good blogging on this site. Thx all.

    Royce, if a split buy is the only way to get the tankers, DOD will come up with a way. The tip off will be whether DOD caves to NG’s demands to change the RFP to make it more large-tanker friendly.

    Mark – This is not about ward healers in Chicago (or national defense for that matter). In today’s economy (or lack of it), “It’s jobs stupid.” Thus, my bet is that Obama himself will step in and essentially say he wants the EADs line in Mobile, while assuring Washington that they will get 50% of the program. The cover will be the warfighers’ “urgent” need for the tankers.

    Aurora – You do get up early. DB is building its C Class cars in the US for the same reason it started with SUV’s 10 years ago: The declining US dollar, and this time around apparent satifaction with the business/labor climate in Ala. This is a bet that the US dollar is not going away as the world’s reserve currency any time soon.

    EADS is not smoke screening in any way. They are being very clear that they want into the US in a big and to be a good US citizen, at least according to Galois last month.

    Like all things, an EADS line in the US will have pros and cons, but we cannot predict for certain what those will be or whether there will be more pros than cons. All we can do is solve the problem before us (tankers and jobs), and not let some vague unverifiable fears of the future ham string us from doing that. “The only thing we have to fear is fears itself” (FDR), and “The only cause of problems is solutions” (Eric Severeid). No matter what we do two things are clear: (1) We will face problems, some very serious, in the years to come, and (2) we have the power as a nation and individually to solve them, something we seem to forget often particularly is discouraging times such as these.

    • Thank you too. I agree comments on this site are great but the site is irrelevant. The Chicago fix is in for Boeing. What taxpayers really need is a congressional investigation of the NG complaints, the conflicts of interest the West Wing has in this matter, and the attacks perpetuated by Rahm and his operatives against the House Military Appropriations Committee.

  13. Well put Christopher.

    If I may, I would just like to point out that the $300 (++) million required for the investment in a Mobile-based FAL by Airbus/EADS is essentially an investment in duplicate facilities to what they already have in Toulouse, and this duplicate investment would be for a plane which is at least midway through it’s production life span.

    As regular readers of this blog may have observed, in previous comments I’ve argued, among other things, that Airbus/EADS and NG should offer a re-engined version of the KC-30.

    Due in part to the major revision of the latest RFP, I now tend to believe that the KC-30 will have too many stacks against it in order to prevail in the KC-X competition.

    As for Airbus “threatening” Boeing with a presence in Mobile, I believe that a far more “threatening” move by NG/EADS would be if they changed the aircraft platform for the tanker, to a new platform based on the same fuselage as the one on the A350 XWB. Perhaps this is a totally unrealistic move, but looking at the latest RFP, clearly the added value of the KC-30’s multirole characteristics will not be given extra points by the Air Force (if outside 1 percent to the right of Boeing’s offer), and as such will not improve the competitiveness of the aircraft in the competition. Now, Boeing clearly has an advantage having had access to the other side’s pricing information, and in the event of a war on price (to the bottom), the cheaper product (i.e 767) will win over the best valued product.

    Therefore, as Scott Hamilton indicated, the fixed-price contract provision for 18 years looks like an invitation to compete in a race to the bottom where, among other things, the investments in the Mobile FAL would be hard to recuperate for both NG and EADS/Airbus.

    In my opinion, if this fixed-price type contract will stand, Airbus/EADS would be much better served by offering a smaller A310-sized tanker based on the state-of-the art airframe of the A350. If they did this, the investment in a Mobile FAL could be used for an entire family of aircraft with a full production life span ahead of it (i.e 1000++ units), instead of realistically some 300 units (total) likely produced in an A330 FAL.

    Now, due to the “never-ending” KC-X procurement story, technology has moved on, and the A350 programme continues apace with a schedule that calls for Airbus to have begun parts manufacture, cut first metal for the tailplane cruciform, and laid-up the initial composites fuselage panel before year-end.

    Although the A380 and A400M programmes have been severly impacted by poor management decisions, Airbus nevertheless has proven that engineering-wise, they can run two new programmes simultaneously. With most of the engineering design of the A400M completed and an A380 programme just about “out of the woods”, Airbus will soon have spare engineering capacity to undertake an A350 derived programme (i.e new wings, MLG and horizontal tail plane (HTP) etc), but not an alltogether new programme.

    The A350 fuselage will essentially replace the 222-inch wide circular WB fuselage used on the A300/A310/A330/A340 and it’s likely it will be re-used (in the same way they re-used the A300’s fuselage) on future single-deck Airbus wide body models. Due to the KC-X competition, the right strategic move for Airbus/EADS at this point in time, would perhaps be to accelerate a true A310/A300 replacement programme (i.e. original A30X programme).

    An A310-sized 48m long tanker based on an aircraft (A360-800X) re-using the A350’s “xwb” fuselage and vertical tail plane (VTP); outfitted with new composite A350-derived and A310-sized wings carrying two de-rated GEnx-2B-55 (thrust: 55,000 lbs) engines; in addition to a RR offer of scaled down Tent-XWB derived engines); MTOW of about 150 (metric) tonnes (80 tonnes less than the A330; range about the same as the current A330-200; and if implemented would lead to a tanker that would easily trump the 767-based tanker in all categories, and make such an undertaking worthwile when combined with the introduction of a whole new family of aircraft: A360-800X, A360-900X (length 53-54m), A360-1000X (length 58-59-m).

    Now, if there currently is a market for such a new family of aircraft is alltogether a different matter, but I, for one, believe there would be significant interest from the airlines out there in a state-of-the art intermediate ranged A310/A300 sized airframe if it was on offer.

    More importantly, and directly related to the KC-X competition and the likelihood of a fixed price competition; it’s the significantly lower cost of production (estimate) of this conceptual A360-800 compared to the alloy-based A330-200 in addition to the formentioned point of not dublicating FALs which, in fact, would make such an undertaking in Mobile much more worthwile for Airbus/EADS.

    And finally, Spirit AeroSystems recently broke ground in St. Nazaire, France, for a factory that will assemble 65-foot-long A350 Section 15 composite center-fuselage sections following their shipment from the composite panel plant in Kinston, North Carolina, where Spirit also will produce forward wing spars.

    On a conceptual A360X, I would imagine that the assembly of the entire section 15 would be undertaken in an all new factory constructed alongside Spirit’s existing facilities in Kinston.

    As the A350 already has significantly more US content (not including the engines) than the A330/A340, my conceptual A360X would have in addition to the A350, its final assembly line located in the US (Mobile) as well as the assembly of section 15 of the vehicle entirely undertaken in the US. This should solve the political part of the equation even though Dicks & company would likely try to construe new or revised interpretations of everything from the WTO to alleged “foul play” etc.

  14. Folks: If the tanker competition, has been rigged to be a Boeing sole-source contract as Sen. Shelby suggested (as reported by the WSJ) shouldn’t there be a Congressional investigation?? Maybe we can find out if Boeing director Bill Daley is offically protected by Executive Privilege like WH Social Director Desiree Rogers!!

  15. My Sunshine Initiative: let’s have a congressional inquiry into the alleged Boeing tanker-bid rigging issue. Don’t taxpayers need to know how many times Boeing Diretor Daley discussed this matter with Rahm or other senior officials and what was discussed? This is the largest contract ever issued by DOD, for God’s sake. Or is Senator Shelby just kidding about this matter?

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