Northrop joins race for tanker contract

WASHINGTON — Northrop Grumman on Thursday said it will compete against Boeing for a $40 billion Air Force contract to replace 179 aerial-refueling planes, ending speculation there might be just one bidder.

The Los Angeles-based company had hinted as recently as last week it might bow out, saying Air Force specifications seemed to favor Boeing.

But Northrop said Thursday it was satisfied with changes the Air Force made to address its concerns in the formal request for bids.

Northrop will partner with European Aeronautic Defense and Space (EADS), the parent of Boeing's archrival, Airbus.

Had Northrop declined to compete, the Air Force would likely have faced unwanted scrutiny from Congress, analysts said, and this may have given Air Force officials incentive to try and satisfy Northrop's concerns.

The tanker program has been on hold for three years, after Boeing lost the contract amid an ethics scandal that resulted in prison for former Boeing Chief Financial Officer Mike Sears and Darleen Druyun, a former Air Force procurement official later hired by Boeing.

"The Air Force needs a competitor to Boeing in order to get this contract under way," JSA Research analyst Paul Nisbet said.

But the Air Force also held some leverage over Northrop, Nisbet said.

Northrop is vying for an estimated $100 billion contract to upgrade the Air Force's fleet of B-2 Bombers. "They didn't want in any way to jeopardize their position with the Air Force by backing out and causing a delay in the tanker program," Nisbet said.

Northrop spokesman Randy Belote said, "The Air Force has addressed the vast majority of our team's concerns."

Northrop sought language in the contract that would allow for planes with significant cargo space, thereby justifying the higher price of its aircraft, compared with Boeing's.

Boeing spokesman Bill Barksdale declined to comment on Northrop's decision but said the company will disclose Monday which of its aircraft it will use in the contest.

Analysts say Boeing is certain to stick to its 767 jetliner, which already has been modified into a refueling tanker for Italy and Japan, Reuters reported. Boeing has said it would manufacture the planes in Everett.

The Northrop-led team is offering a modified version of the Airbus A330 plane.

The list price of the Airbus A330 is about $164 million, while Boeing's 767-200 is listed at about $120 million. However, both jets sell at large discounts.

Thai Airways recently let slip Airbus had offered it A330s at a cut-rate $90 million each, in part to compensate for the delivery delays of the A380 superjumbo the airline has ordered.

Last month, Aircraft Value News reported Airbus was offering even better deals for "strategic" orders, of "$80 million or lower."

Aircraft-valuation firm Avitas estimates the price of a new Boeing 767 — with standard discounts for purchase of one airplane, not a large order — at about $83 million.

Defense analyst Loren Thompson of the Lexington Institute said Northrop's decision might signal the company's willingness to offer its aircraft at a discounted price.

Or, he added, executives may be entertaining the outside chance the Air Force will purchase refueling tankers from both Boeing and Northrop.

The Air Force previously has said there will be only one winner.

The $40 billion contract to replace 179 refueling planes is just the first of an expected three-phase deal that calls for more than 500 planes and is worth an estimated $100 billion.

The Air Force has called it one of its highest priority contracts, replacing a portion of the military's older fleet of KC-135s, a Boeing-made midsize refueling plane critical to military operations in Iraq and elsewhere.

"We aim to provide as level a playing field as possible," Air Force Secretary Michael W. Wynne said in a statement. "We are pleased to see our industry partners have determined this process has allowed them to compete and win."

The deadline for bidding is April 2. After a six-month review, the Air Force will make its decision at the end of October.

Information about the price of the 767 and A330 was reported by Seattle Times aerospace reporter Dominic Gates. Associated Press reporter Ben Evans in Washington also contributed to this report.