Outsourcing of America Continues

Boeing loses out in $40bn US deal

The owner of Airbus, EADS, and US firm Northrop Grumman have won a contract to build refuelling aircraft for the US Air Force, worth up to $40bn (£20bn).

The companies put in a joint bid to compete against Boeing for the lucrative deal to build 179 new aircraft over the next 10 to 15 years.

The winning plane will be assembled in Alabama. Parts including the wings will be built in the UK by Airbus.

The deal is a huge blow to Boeing, which had been widely expected to win. America has around two-thirds of all such aircraft in use anywhere, and a senior figure in the company said recently if it lost this contract it could be out of the refuelling market totally for years.


'Outsourcing' of America continues
The Pentagon contract is one of its largest in recent years.

The BBC's Adam Brookes in Washington says awarding such a massive deal to a consortium that includes overseas manufacturers will be contentious in the United States and it is likely that Boeing will appeal against the decision.


It is the first step in our critical commitment to recapitalise our ageing fleet to move, supply and position assets anywhere
Air Force Gen Duncan McNab

Boeing spokesman Jim Condelles said the company was disappointed. It will decide whether to appeal after hearing from the Air Force why it picked EADS, he said.

"We had two very competitive offers in this competition," Sue Payton, assistant secretary of the Air Force for acquisition said.

"Northrop Grumman clearly provided the best value to the government," she said.

Home-grown

Boeing had been emphasising its home-grown credentials while lobbying for the contract.


"The best for America's war fighters and America's workers," Boeing claimed in advertising running in the days leading up to the announcement.

But EADS and Northrop Grumman emphasised that the assembly work would be carried out in the United States, where the project would create or support 25,000 jobs.

"They don't come along at this scale very often," Northrop Grumman Chairman and CEO Ronald Sugar said.

The winners said their KC-30 plane had a "longer range", with the ability to carry 45,000 more pounds of fuel than it competitors.

"It is the first step in our critical commitment to recapitalise our ageing fleet to move, supply and position assets anywhere," said Air Force Gen Duncan McNab.

"In this global air force business, the critical element for air bridge, global intelligence, surveillance and reconnaissance, and global strike is the tanker," he said.

The initial contract for the tanker, to be called the KC-45A, is to develop four test aircraft for $1.5bn, the US Air Force said.

"The KC-45A will provide significantly greater air refuelling capabilities than the current fleet of Eisenhower-era KC-135s it will begin replacing," the Air Force said in a statement.

The KC-45A will be able to refuel both Air Force and Navy aircraft on the same flight, which is not possible with the existing KC-135 Stratotankers.

It will also be able to refuel two aircraft simultaneously mid-flight and have defensive systems that will enable it to operate in the more dangerous environments that existing refuelling tankers have to avoid.

McCain helps Boeing lose out in $40bn US deal


For Airbus's parent company, the European Aeronautic Defence and Space Company (EADS), it is a long-desired and potentially crucial breakthrough into the US market, our correspondent says.

Replacing America's ageing KC-135 refuelling planes - which date back to the 1950s - has proved controversial, he notes.

In 2002, the Air Force negotiated a $23bn deal with Boeing for 100 tankers to be based on the Boeing 767.

But that deal was declared invalid after allegations of fraud.

Two Boeing executives went to jail and eventually Boeing's chief executive resigned.
Political pressure on the Air Force over the deal was led by Sen John McCain, the front-runner to win the Republican nomination for the presidential elections this year.

Our correspondent adds that two further contracts are expected later as the US Air Force replaces the rest of its ageing fleet of refuelling craft.

The Air Force expects the new aircraft to begin testing in 2010, before going into operation in 2013.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7272129.stm