Northrop Threatens To Take Ball And Go Home On KC-X

(MoneyWatch)  Northrop Grumman (NOC) the U.S. partner in the team with EADS (EADS.P) who had been expected to propose for the third attempt at buying the KC-X aerial tanker wrote a letter to the Defense Department stating that they would not submit a proposal based on the current draft Request For Proposal (RFP). The missive to Ashton Carter, Undersecretary of Defense for Acquisition, Logistics and Technology (USD(ALT)), came to light yesterday.

Northrop and EADS subsidiary Airbus won the second attempt to contract for this program in 2008 but that was thrown out on protest by Boeing (BA). The current draft RFP will transition to the final one sometime in the next few weeks based on recent statements by Carter. The major difference between this one and the contract last awarded was a reduction in mandatory requirements and a shift to more cost conscious factors.

Since the draft RFP has come out Northrop has objected to the focus on cost as it feels it will penalize the larger A330 based system they proposed last time. They have also complained that as part of Boeing's protest cost data from their first proposal was provided by DoD and that will give Boeing and unfair advantage. Their attempts to gain similar data about Boeing have been stymied.

This may be a final attempt by the company to have the new RFP modified such to support their concerns. They may feel that their attempts through the questions submitted by Northrop as well as lobbying by their legislative allies may not influence the RFP to aid their bid. Since in the letter they state they are willing to work with the Air Force and DoD to modify it to support their bid this might be a shot across the bows to those organizations.

Of course the whole issue is one of competition. There need to be at least two bids for the contract or it really cannot go forward. At the same time the Air Force is under intense pressure to make sure that Boeing will win it from an industrial base, patriotism and political viewpoint. A sole source contract to Boeing though may not offer the best solution to the requirements at the best cost. This means that taxpayer's money is being wasted. The first attempt with a lease from Boeing collapsed under this very situation. This lead to the first competition that was thrown out on protest.

If Northrop does go ahead and bid next year then the whole protest issue hangs over the program again. A protest delays the start of the contract and ultimately deliveries of the aircraft. There is a chance that the protest will be upheld like last time leading to yet another do over. In reality the chances of Northrop not bidding are fairly low due to the size and importance of this contract. A win that holds up will offer EADS and Airbus a way into the U.S. market and establish an assembly plant in the U.S. which provides them some cost advantages. It will be an interesting next few months with this program.

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