By LESLIE WAYNE
WASHINGTON — The Air Force, in a stunning upset against the Boeing Company, awarded a $40 billion contract for aerial refueling tankers on Friday to a partnership between Northrop Grumman and the European parent of Airbus, putting a critical military contract partly into the hands of a foreign company.
The contract, one of the largest at the Pentagon, is initially valued at $40 billion but has the potential to grow to $100 billion. It is also a sign of the growing influence of foreign suppliers within the Pentagon and breaks a relationship that has lasted decades with Boeing, which had built the bulk of the existing tanker fleet and had fought hard to land the new contract.
Under the contract, Northrop and the European Aeronautic Defense and Space Company would build a fleet of 179 planes, based on the existing Airbus 330, to provide in-air refueling to military aircraft, from fighter jets to cargo planes. It gives a huge lift to Airbus, whose commercial aviation program has suffered a number of setbacks in recent years. While final assembly of the craft would take place at an Airbus plant near Mobile, Ala., parts would come from suppliers across the globe.
At a news conference, Air Force officials said that the creation of domestic jobs was not a factor in the decision. In response to questions about possible negative reaction to the deal in Congress, Gen. Arthur J. Lichte, head of the Air Force’s Air Mobility Command, said, “This will be an American tanker, flown by American airmen with an American flag on its tail and, every day, it will be saving American lives.”
Reaction from some in Congress, however, was swift.
“We are outraged that this decision taps European Airbus and its foreign workers to provide a tanker to our American military,” the Washington State delegation said in a joint statement. Boeing planes are assembled outside of Seattle. “This is a blow to the American aerospace industry, American workers and America’s men and women in uniform,” the statement added.
For its part, Boeing, which had been considered the strong favorite to retain the contract, said it was “very disappointed” in the outcome. But it did not say whether it would file a formal protest — something that Gen. T. Michael Moseley, chief of staff of the Air Force, has said that he hoped the losing bidder would not do because it would only further delay the tanker replacement program.
In its statement, Boeing said, “We believe that we offered the Air Force the best value and lowest-risk tanker for its mission.” The company added that only after a debriefing by the Pentagon would the company “make a decision concerning our possible options, keeping in mind at all times the impact to the warfighter and the nation.”
A Boeing victory was considered so certain that many Wall Street analysts had already factored the contract into their economic forecasts for the company. One senator, Kay Bailey Hutchison, Republican of Texas, sent out a press release prematurely praising Boeing for its victory.
“This isn’t an upset,” said Loren B. Thompson, a military analyst at the Lexington Institute, a Washington-area research group. “It’s an earthquake.”
The Air Force decision is also a surprise ending to a protracted contracting process that went on for nearly a decade and became mired in scandal and international politics.
Senator John McCain, the presumptive Republican presidential nominee, scuttled an earlier attempt by the Air Force to award the contract to Boeing, opening the door for the Northrop-Airbus bid.
Senator McCain’s campaign spokeswoman referred calls to his Senate office, which could not be reached for comment.
Representative Norm Dicks, a member of the defense subcommittee of the House Appropriations Committee and a Democrat from Washington State, said he was attending an anticipated victory party at Boeing’s offices in Washington when the mood suddenly darkened.
Mr. Dicks added: “Here we are in the middle of a recession, and we give this to Airbus? That is not going to go down well.”
Ronald D. Sugar, the chief executive of Northrop Grumman, said in a telephone interview that he expected members of Congress would have a “variety of views” depending on whether their districts would be gaining or losing jobs under the deal.
Mr. Sugar said that 60 percent of the content of the new tanker would come from the United States and that it would create 2,000 jobs in Mobile and 25,000 over all in the United States.
“This is more about the capability that we will give to the kids fighting the wars and the cost to the taxpayer,” Mr. Sugar said.
Backing Mr. Sugar’s view was Senator Richard C. Shelby, an Alabama Republican who hailed the decision as “great news for Alabama.”
The Alabama and Mississippi delegations had lobbied hard in Congress to polish the image of Airbus. In Paris, at the annual air shows, Airbus officials and these politicians proudly displayed the proposed European tanker offering and made the argument that if the United States wanted to sell its weapons to European countries, it should also open its doors to foreign suppliers.
In terms of the craft itself, the Airbus 330 is far larger than the 767 that Boeing proposed using. The Air Force said it was attracted by the plane’s larger fuel capacity, its cost and its ability to also carry cargo and passengers.
The deal is the first phase of a multidecade program to replace the aging aerial tanker fleet, which dates to the Kennedy and Eisenhower eras. The fleet, which now numbers about 535 refitted Boeing 707s and DC-10s is one of the largest but oldest fleets of jets in the world.
Replacing these tankers has been the Air Force’s top priority since 1996, when the government first proposed obtaining new planes. The first 179 tankers will be acquired at a pace of about 15 a year. But it is expected that over time, nearly 400 new refueling planes will be needed, which could bring the program’s total cost to $100 billion.
For more than a decade the Air Force’s effort to modernize the fleet has been thwarted by global politics, Washington scandals and an aggressive attack by Mr. McCain, a member of the Senate Armed Services Committee.
In the end, a procurement scandal led to the departure of Philip M. Condit, the chief executive of Boeing; the resignation of James G. Roche, the Air Force secretary; and the imprisonment of two Boeing executives, one of whom had worked on the program as a Pentagon acquisition official.
The Air Force, short on cash and wanting to acquire the planes as fast as possible, proposed an arrangement to Congress in late 2001 under which the Pentagon would lease the Boeing 767s in a sole-source contract that would keep Boeing’s aging 767 production line alive.
But just as the Air Force was about to sign that deal, it came under sharp attack from Senator McCain, a former Navy pilot. He denounced the deal as a sweetheart arrangement between Boeing and the Air Force that would shortchange the taxpayer and that was arranged with insufficient scrutiny and oversight.
Soon afterward, it was reported that the Air Force’s No. 2 weapons buyer, Darleen A. Druyun, had been promised jobs for herself, her daughter and son-in-law in return for steering the tanker contract and billions of dollars of other Air Force business to Boeing.
Soon after she joined the company in a $250,000-a-year post, Ms. Druyun and Michael M. Sears, Boeing’s former chief financial officer, pleaded guilty and received prison terms.
The weight of the scandal caused the Boeing deal to collapse in 2004 and opened the door to competition from Boeing’s archrival EADS, which teamed up with Northrop.
Each side spent millions to sharpen its proposal, hire lobbyists and former generals to argue its case and wage extensive advertising efforts in Washington and at military gatherings.
David M. Herszenhorn contributed reporting.
http://www.nytimes.com/2008/03/01/business/01tanker.html?exprod=myyahoo
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