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BusinessWeek reports that Boeing Co. (NYSE: BA) has repeated its threat not to bid on the $35 billion competition to supply an airborne refueling tanker to the Air Force. This is a competition that pits a Republican presidential candidate and his lobbyist former finance chair on the dole of a French aircraft company and its Alabama partner against the future prospects of a Democratically controlled Congress and White House that would tend to favor Boeing -- which has many workers in Washington state.
By threatening not to bid, Boeing is taking many big risks. The Air Force may decide to keep the terms of the competition the same -- bids due October 1 -- and contract wrap up before New Year's Day. If Boeing does not bid and the competition proceeds, EADS, parent of Airbus, and Northrop Grumman (NYSE: NOC) -- with many of its workers in the Republican-leaning Alabama -- would win the bid uncontested. If the Air Force extends the process another four months -- which Boeing would prefer -- there is a chance that the Air Force would still end up choosing the French company.
But Boeing is gambling that the odds of a more favorable outcome are greater if it threatens not to bid. Boeing thinks that Congress will not want only one bid for the Tanker and that Congress and the White House are likely to be controlled by the Democratic party in January. With the French lobbyist-backed candidate in the Senate minority, Boeing will be in a better position to shape the Tanker competition in a way that favors its victory.
Northrop has played this no-bid poker in the past and won. BusinessWeek writes, "Last year [Northrop] threatened to pull out of the competition unless the military altered its initial bid request, and the Air Force obliged it. That time the Air Force blinked."
It remains to be seen whether the Air Force will blink for Boeing.
However, it seems to me that Boeing has a reasonable case that it would be in the Air Force's best interest to have two bidders and that it needs more time. Bloomberg News reports that Boeing believes that "the aerial tanker it proposed is no longer a good match because the Air Force is now emphasizing fuel capacity and it deserves six months more to challenge [Northrop's] larger plane."
Bloomberg quoted Boeing spokesperson Daniel Beck who said, "What we proposed 18 months ago would not fit the bill for what the Air Force is looking for. Our 767-200 doesn't fill the bill. We've been looking at other configurations" because the Air Force's "priority is fuel capacity." It reports that Boeing "needs six months to study and prepare its bid based on a different airplane."
Since the Tanker program could last for decades, it does not seem unreasonable for the Air Force to take a few extra months to ensure that it has two solid bids.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
8-22-2008 @ 6:03PM
Ray said...
Russia wanted to buy 5% of Airbus but was denied. Next time they will turn off the gas. Then we will have Russia helping to supply our military hardware.