BusinessWeek reports that Boeing Inc.'s (NYSE: BA) loss to Northrop Grumman (NYSE: NOC) and EADS for the $100 billion contract for Air Force tankers -- aircraft that refuel fighter craft while they're in the air -- was a no-brainer from the Air Force's perspective.
BusinessWeek quotes Loren Thompson, a Lexington Institute defense analyst, who concluded that "Northrop Grumman's victory was not a close outcome." Here are two reasons he cited:
- Northrop offered more bang for the buck. While both Boeing and Northrop Grumman satisfied requirements established by the Air Force, Northrop was clearly the better buy. With Northrop, the military could have "49 superior tankers operating by 2013," Thompson said, while Boeing's proposal would give it "only 19 considerably less capable planes" by then.
- Boeing's Tankers did not perform as well as Northrop's. "Boeing didn't manage to beat Northrop in a single measure of merit" -- not in flight range, fuel capacity, speed of delivery, or cost. "Boeing would have to find a lot of problems to overturn this outcome," Thompson told BusinessWeek. The Northrop tanker carriers 250,000 pounds of fuel, compared to 202,000 on Boeing's, a crucial difference considering that refueling tankers must often circle for many hours when military operations require.
I'm writing a book about Boeing and if Thompson is right, the loss raises questions about Boeing's competitive vigor. Not winning this $100 billion deal is obviously not a help for its stock either.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.











Reader Comments (Page 1 of 1)
3-05-2008 @ 12:21PM
David Huston said...
Also, one of Boeing's high ranking officials admitted (or was convicted, I forget which) to having bribed the government into giving Boeing the last tanker contract. Bad start for the latest round of negotiations.
3-05-2008 @ 3:54PM
tgthornbury said...
I have been a Boeing S/H for many years. When GAO finishes their investigation I expect them to conclude that the original specs for this plane more closely paralled an existing Boeing design. When the specs were amended they closely paralled an existing Airbus design, and no existing Boeing design would fit the new specs. You cannot expect Boeing to compete successfully against an existing, government subsidized design if they must create a new design. Let's wait and see.
3-05-2008 @ 9:19PM
Chris said...
The Airbus A330 has already thoroughly walloped the Boeing 767 in the commercial market; that is why Boeing is shutting down the 767 production line. In some ways, this contract is just bad timing for Boeing. Boeing's replacement for the 767, the 787, isn't on the market yet and likely would have been a tough sell to the Air Force. The A330 tanker has already been built and selected by 4 other nations, which also gave EADS a considerable leg up.
Perhaps this will allow BA to reallocate some resources to the 787 program and get that line up to speed more quickly.
3-06-2008 @ 2:13PM
Lee said...
This decision by the Air Force is UN-AMERICAN! The fact that EADS is subsidized by France makes it even worse.
3-07-2008 @ 1:49PM
Howard said...
I am frankly schocked that any American can justify this award. If there was bribery involved the people have been punished. There is no way airbus ever built a better aircraft than Boeing. Make them reverse this award.
3-07-2008 @ 1:52PM
Howard said...
All Americans should look hard at something they buy. If you save an Americans job by paying a few dollars more who cares. Part of the problem with ouyr country is that no one cres about America first.
3-08-2008 @ 6:59PM
Walt said...
I WISH THEY WOULD STOP TRYING TO "SELL US" ON THE USAF DECISION BY SAYING "Northrup" and CALL it like it really IS EADS ( European Aeronautic Defence and Space Company EADS N.V. (EADS) is a large European aerospace corporation) NOT U.S. Made. The Airplane is BUILT IN EUROPE by European labor NOT U.S.. Boeing is Northe American Managed and Manufactured.
Whatever Happened to "Buy American"?????
Walt
3-09-2008 @ 9:02PM
Bertrand Johnson said...
If the Air Force is suppose to include the location of jobs as a factor in its decision, then congress should change the guidelines and mandate it. Congress should not cast a negative light on the Air Force for doing the "right thing" and making the "right decision".
The states of Alabama and California will reap financial benefits for many years.
3-10-2008 @ 2:16AM
NurseWilliam said...
New poster here, howdy all.
I live in the Land of the Lazy B. I also happen to be a military aviation afficionado. Here is my take, FWIW:
This is not the first time in history that America has bought a foreign design in favor of an American one. There was the Martin B-57 (from English Electric's Canberra), the AV-8 (From Hawker-Siddelly), and the more recent T-34 Goshawk Jet trainer (yet another pre-existing British design).
The question seems tom me to be whether or not the Notrhrop/EADS design is a better performer and a better value than the Boeing 767 design. France is, if I recall, more pro-American than a lot of Boeing's foreign sub-contractors (China, Tunisia, etc.)
I have a hard time buying Boeing's sob story, based on history. That's all I'm saying.