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USAF awards $35 billion tanker deal to Northrop/EADS combine news
01 March 2008

EADS tankerWashington: The US Air Force on Friday awarded Los Angeles-based Northrop Grumman Corp and its European partner, European Aeronautic Defence and Space Co, (EADS), a $35 billion contract to build airborne refueling planes. The contract is a turning point in many ways for both EADS and front-runner Boeing Co.

Boeing, held a virtual monopoly on the supply of tankers to the USAF providing all its tankers over the previous 50 years, including the current tanker, KC-135.

For EADS, this is a significant moment for it is one of those rare occasions when a European firm has been able to break into the intensely competitive, and lucrative, US arms market. On offer by the Northrop-EADS combine was the Airbus A330 platform.

US Air Force officials have been quoted as saying that the larger size of the Northrop-EADS aircraft helped tip the balance in its favor.

The contract for up to 179 aircraft, will be one of the first of three awards worth up to $100 billion over 30 years. As winners of the first award, EADS and Northrop will now be strongly placed to win two follow-on deals for hundreds of additional planes.

The US Air Force, which was long overdue to replace its air-to-air refueling tankers, continues to fly 531 1950's-era tankers, along with another 59 tankers built in the 1980s by McDonnell Douglas, now part of Boeing.

Meanwhile, the contract opens up a very big opportunity for Northrop Grumman, whose chairman and CEO, Ronald Sugar said, "We do see this as being a very important component of our business for many years to come."

In a statement, US Air Force Gen Duncan J. McNabb said that the Northrop-EADS refueling tanker, the KC-45A, "will revolutionize our ability to employ tankers and will ensure the Air Force's future ability to provide our nation with truly global vigilance, reach, and power,"

Though few details were available Air Force officials have been quoted as saying that the larger size was the key, as the A330 offered more passengers, cargo and fuel to offload.

Industry analysts, however, were taken by surprise by the decision as the Boeing aircraft offered estimated savings of $35 million per plane, at a cost of $125 million per piece.

The USAF tanker contract has become hugely contentious with a procurement scandal in 2003 consigning a top Air Force acquisition official to prison for conflict of interest. The scandal also led to the collapse of an earlier tanker contract with Boeing.

The current tanker deal has also become a flashpoint with the entry of the Airbus aircraft into the fray. Boeing has portrayed the competition as a fight between an American company and its European rival, with Congressmen who stand to lose jobs in their districts saying, ''an American tanker built by an American company with American workers,'' ought to have been preferred.

Although the A330 would be mostly built in Europe the EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, Alabama. It would also use General Electric engines built in North Carolina and Ohio. Northrop estimates that a win for their combine would produce 2,000 new jobs in Mobile and support 25,000 jobs at different suppliers around the country.

Meanwhile, Boeing spokesman Jim Condelles said that the company wouldn't appeal the award until a debriefing by Air Force officials. Boeing says that it has offered the best value and lowest risk.

USAF officials have expressed the hope that the losers would accept the decision with grace.

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USAF awards $35 billion tanker deal to Northrop/EADS combine