DOD to EADS: You’ve got 60 days

Update, April 1, 0800PDT: Boeing just issued this statement in response to the DOD announcement yesterday:

ST. LOUIS, April 1, 2010 – The U.S. Department of Defense on March 31 said it will extend the deadline to receive proposals in the U.S. Air Force KC-X Tanker competition from May 10 to July 9 if European Aeronautic Defence and Space (EADS) makes a formal request for an extension. The Boeing Company today responded with the following statement:

“We are deeply disappointed with EADS-Airbus efforts to further delay this vital warfighting program and tilt the U.S. procurement process in its favor. EADS-Airbus has been fully engaged in the competition for four years and was always expected to provide the vast majority of its team’s work content.

“We welcome the denial of EADS’s repeated requests to alter U.S. warfighting requirements, and we support the Air Force’s stated intent to provide a level playing field for qualified competitors. We do not see a legitimate reason for EADS’s bid deadline extension request, and we believe an extension that favors any individual competitor does not further the goal of ensuring fair competition.

“Boeing remains fully prepared to submit a competitive proposal by the May 10 deadline originally set by the Air Force. However, this latest development, along with the World Trade Organization’s recent final ruling that Airbus has been heavily and illegally subsidized for decades, requires Boeing to review all of our options for going forward while we wait for a final determination on a deadline extension.”

Original Post:

DOD just announced that it will extend the deadline from May 10 for 60 days to July 9 in order to give EADS the opportunity to submit a bid for the KC-X contract. This is contingent upon EADS notifying the Pentagon of its intent to bid.

EADS hoped for 90 days.

The Pentagon will compress its evaluation schedule to stay on its delivery date timeline for an early-fall contract award. No changes will be made in the RFP. The Pentagon also rejected questions whether political interference was involved.

Boeing supporters were already opposing the 90 days, so we expect they will also oppose the 60 days. Our thoughts about this opposition are contained in this previous post. We find the commentary by the supporters overblown, considering these very same people raised no objection to Boeing’s protest of the 2008 contract award and the delay (which has turned out to be two years) resulting from that. An additional 60 days is inconsequential in a process that began in 2002. DOD’s intent to compress the evaluation schedule in order to stick with its contract award should, but probably won’t mollify the Boeing supporters.

EADS spokesman Guy Hicks issued this statement:

“Since the Department of Defense indicated their interest in EADS’ participation as prime contractor in the KC-X tanker competition, the company has carefully assessed the many requirements necessary to participate.   We have firmly indicated that a 90 day extension would be the minimum time necessary to prepare a responsible proposal for this $40 billion program.  We will consider the Department’s decision to offer a 60 day extension.”

6 Comments on “DOD to EADS: You’ve got 60 days

  1. If one listens carefully, within 48 hours, the cry of ” unfair unfair OBAMA promised . . .” will echo throughout the land.

    And the recent revelations about existing Airbus tankers being vunerable to groundfire, etc will somehow be submerged in the Euro press, to be replaced by ” unfair unfair ” with a decidely french accent.

    But it may be worthwhile to keep BA feet to the fire. – If ONLY we could get rid of John S McDonn ell and his gang of corporate mendacity

    Boeing may yet snatch defeat from the jaws of victory !

  2. So what are you afraid of? That somehow Boeing would get itself caught in another scandal in those extra 30 days?

  3. It’s getting more and more absurd + ridiculous.
    .
    EADS WILL NOT BID IN THIS TANKER TENDER !
    .
    EADS as well as Airbus stated time and again, they will neither bid on their own nor with another partner than Northrop-Grumman. And they are right ! Regardless of how long the DoD extends this tender. It would be far too risky for EADS/Airbus to do so.
    .
    What you’re actually seeing is ONLY FOR SHOW. For some reason, which I don’t know, the DoD is playing for time. As it seems, placing a firm order with Boeing for those tankers is inconvenient for them at the moment. I can’t figure it out right now, but it may be a funding problem or something.

  4. In 2008 dollars, EADS could probably offer the 332 for as little as US$150 million.(approx 10% below NG price)
    This will cause some dismay to Boeing, but could be great for the US taxpayer.

  5. The NG prices was approximatley $184 million for the first 69 aircraft. After which the price for the next batch would be renegotiated. Lopping 10% off would give you a price closer to $166 million. One of NGs biggest complaints was the fixed price nature of the new contract that limited the amount of money that could be charged for subsequent batches of aircraft, so right off the bat the $184 million price would need to rise to cover the additional risk associated with the fixed price contract. Also, given the limited amount of work NG was actually doing I very much doubt they were taking 10% or $18.4 million of the top of each aircraft as profit. Actually estimating $18.4 million in work per aircraft would be very generous and saying NG was taking a 100% profit is just not reasonable.

    EADS is certainly more competive acting as the prime contractor and cutting NG out of this position, but a maximum profit margin of 7% to 12% (that’s 7%-12% for the actual work performed not the price of the equipment) for a prime contractor is more reasonable. For US government contracts purchasing services (otherwise known as a level of effort contract) 7% is the maximum legal profit margin. Simply assuming EADS can lop nearly 20% off the price of the previous NG offer is not realistic. Especially given the fixed price nature of this contract, with it’s greater risk and need to offer a higher price, given the limited room to renogotiate that price once the government has accepted it.

    Just look at the pain EADS went through with the A400M due to the fixed price contract they signed for it, Ender’s has been very clear he won’t offer a dumping price, and he won’t do any more A400M contracts, saying, “”We should never have concluded that contract in the first place,” We were stupid enough to do that.”

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