Will Boeing win the $35 billion tanker competition?

Posted Jul 9th 2008 12:42PM by Peter Cohan
Filed under: Boeing Co (BA), Northrop Grumman (NOC)

BusinessWeek reports that Defense Secretary Robert Gates is expected to make an announcement today about whether the Air Force will reopen the bidding for the $35 billion tanker program. Boeing Inc. (NYSE: BA) thought it had a lock on it but earlier in the year, the Air Force awarded the contract to EADS, parent of Airbus, and Northrop Grumman (NYSE: NOC). Boeing protested and last month, the General Accounting Office (GAO) reported that the award process was flawed.

That should come as no surprise. After all, Senator John McCain (R-AZ) was pushing for the European company to win the competition -- possibly since his then national finance chairman lobbied for that company. One of the sources I spoke with said that people suspect McCain arranged for a change in Tanker specifications to tilt the playing field in favor of EADS. This source also said that the Air Force neglected to notify Boeing of the change. Evidently, the GAO agreed that something was fishy here. It would be at least the fifth time that McCain had been influenced by lobbyists.

Now attention turns to Gates and Congress which hosts a battle between Senators from Washington, where Boeing has operations, and Alabama, where Northrop employs workers. BusinessWeek quotes Senator Patty Murray (D-Wash.), who introduced a Senate resolution on July 8, calling on the Pentagon to rebid the flawed tanker contract, as saying: "The GAO's decision was clear, and today we are reiterating that message so that the Pentagon knows there is no wiggle room. It's time to go back and hold a truly transparent competition that does our war fighters and taxpayers justice."

And it quotes Senator Richard Shelby, a Republican from Alabama, where the Northrop Grumman plane would be assembled, as saying he would support the bidders submitting revised proposals instead of a "full recompetition" to speed the process along. "It is important to remember that the GAO's concerns were with procedural flaws in the Air Force's process, not with Northrop Grumman's product."

I expect Gates to encourage a rebid. But who will win remains up in the air (pun intended).

Update. The New York Times reports that Gates announced that the competition for the Tanker would be reopened. Boeing shares are up 1% and Northrop's are down 6 cents.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He is working on a book about Boeing and has no financial interest in the securities mentioned.

Tags: aerospace, BA, boeing tanker protest, BoeingTankerProtest, defense stocks, DefenseStocks, featured, NOC, pentagon

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Reader Comments (Page 1 of 1)

7-09-2008 @ 1:49PM

Richard Cromie said...

What a load of unsupported rubbish! The accusations unsuported by truth are a great offense to anyone who thinks about what is going on. It is a direct attempt to soil the reputation of Senator McCain in an election year. Quit it!!!

7-09-2008 @ 5:54PM

Claude Foutch said...

Mr. Cromie, you protest in vain. McCain has been documented voluminously as a Boeing antagonist. He is such a flip-flopper on darned near everything that noone should ever consider his positions based on immutable values; however, his Boeing position very likely remains steadfastly negative and decidedly pro Grumman-Northrup. Now Boeing gets another bite of the apple. Lets hope they know which side works best. A tiny Boeing stockholder.