Pricing Northrop’s KC-X bid: how low is too low?

We may never know how Northrop Grumman’s price compared to Boeing’s offer because the loser never has to say.

Neither may we ever learn exactly how price factored into the US Air Force’s surprise selection of the KC-30, which is based on a modified Airbus A330-200 passenger airliner. USAF officials merely said that price was among the lesser of five evaluation categories.

But — thanks to the commercial background of the KC-X competition — we can be certain that Northrop’s bid gave the USAF a great bargain on price.

Airbus doesn’t regularly publish list prices for A330s, but some of their customers do. In June, for example, aircraft lessor Aircastle quoted an average list price for a new A330-200F, which is a pure freighter. That figure was $173.3 million per aircraft.

Of course, Northrop is not offering the A330-200F precisely. Instead, the USAF is buying a passenger A330-200, which is then coverted to a freighter. The difference is subtle, but it means the list price for the KC-X (er, now KC-45A) type should be roughly equivalent to the A330-200F.

That figure — $173 million per aircraft — does not include any tanker-unique equipment or systems, such as the refuelling boom, refuelling pods, remote operating controls, etc., etc.

So what was Northrop’s price?

The USAF revealed that Northrop is promising a $10.6 billion price to deliver 64 new tankers during the production phase. My calculator says that amounts to average price of about $166 million per aircraft.

If you wish, throw in Northrop’s $1.5 billion price tag to deliver four additional test aircraft and the average price rises to $178 million.

Of course, no airline customer pays list price for a new aircraft, but by any measure the USAF is still getting a good bargain.

Some may fairly ask whether Northrop low-balled the government. The history of military acquisition is filled with examples of balloning costs based on unrealistic price offers. It will be Northrop’s responsibility to prove the critics wrong.

One Response to Pricing Northrop’s KC-X bid: how low is too low?

  1. GM Cassel AMH1(AW) USN RET 8 March, 2008 at 5:25 pm #

    Whatever the price, it’s still a piece of junk.

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