Northrop CEO writes Pentagon: No RFP changes, no KC-X bid

Northrop Grumman CEO Wes Bush today warned that the company will withdraw from the KC-X competition if the Pentagon refuses to make certain changes to the request for proposal.

The letter is posted below and clearly contradicts a story by StreetInsider.com stating that Northrop has already dropped out of the competition.

More on this later …

[UPDATED: Read Flight's full story.]

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17 Responses to Northrop CEO writes Pentagon: No RFP changes, no KC-X bid

  1. airplanejim 1 December, 2009 at 9:10 pm #

    This is the same stunt that NAD/Airbus pulled in the RFQ and subsequent award that was overturned last year. It worked once let’s see if the Air Force caves in again.

  2. John S 1 December, 2009 at 9:47 pm #

    Without Northrop/EADS bidding, the $35 billion KC-X program will become the $40 billion KC-X program again.

  3. Stephen Trimble 1 December, 2009 at 9:53 pm #

    Actually, one of Northrop Grumman’s objections regards the firm fixed price contract policy. So, theoretically, to the Pentagon, KC-X price can’t go up, even if the contractor takes a haircut.

  4. John S. 2 December, 2009 at 3:31 am #

    If NG/EADS drops out, Boeing can bid whatever it chooses to, no?

  5. Jeff 2 December, 2009 at 5:04 am #

    The fact that the VH-71 contract was a competitive bid didn’t help it. Lockheed and European Helicopter maker August Westland won the contest and then proceeded to spend close to $1 billion a piece to develop the first five operational VH-71 helicopters, this was in all likelyhood the most wastefull Pentagon contract ever.

    Competitive bidding provides no guarantee of having a more successful program or lower final price. Only that the price that is bid will probably be somewhat lower. In this case the Air Force has all of both contractors bid data from last time, so one has to wonder if there really is any advantage to even having a contest. Afterall, the AF should after nearly a decade of failed contests know exactly how much either a 767 based tanker or A330 based tanker should cost.

  6. Royce 2 December, 2009 at 1:55 pm #

    Stephen,

    NG/Airbus can say they are unwilling to commit to a fixed-price contract, but at the same time they’re arguing that the KC-45 is essentially ready to go right into production because it’s been developed for other nations. Something doesn’t fit with this complaint.

    The problem for NG/Airbus is that a selection process that can be summed up as “just meet the minimum requirements and beat the other guy’s price by one percent” is stacked against the maker of a substantially larger aircraft. Boeing can propose a new version of the KC-767 at a low price, and provided it is willing to take on the risks of program screw-ups as it develops the new version, it’s going to beat out the KC-45 and survive a protest tot he GAO.

  7. Stephen Trimble 2 December, 2009 at 2:07 pm #

    Can Northrop really afford to walk away from the competition?? Wouldn’t it make more strategic sense to stay in the bidding, and perhaps protest if they lose?

  8. Tim D-T 2 December, 2009 at 2:31 pm #

    Hmm, threatening your customer – that’s always a good sales tactic!

  9. Royce 2 December, 2009 at 3:02 pm #

    Stephen,

    At this stage I don’t think they have a choice. The difficulty with the new RFP is that it seems to be written to survive a protest. The GAO’s problem with the last competition revolved on the process of weighing factors, if I remember correctly. There was too much room for fudging. Here they’ve got with a strict pass/fail system on listed requirements, and a price. That’s a lot simpler system, and unless the USAF really screws up, it’s going to survive a protest.

    Northrop would like to win the contract, but I think it’s fair to look at the situation with the U.S. defense market. Boeing, Lockheed Martin, and Northrop Grumman are all going to be working with the USAF on various big ticket projects going forward. Lose one today, pick up a new one tomorrow. Foreign makers are all but pushed to one of the three when they want to bid on a major project.

  10. Stephen Trimble 2 December, 2009 at 3:16 pm #

    The last contract was overturned because the GAO said the USAF gave Boeing and Northrop Grumman different stories. So the USAF told Boeing there would be no bonus points for exceeding thresholds for fuel offload, then turned around and awarded the contract to Northrop almost entirely on that basis.

  11. aeroxavier 2 December, 2009 at 5:37 pm #

    i hate see this nationalist comportment. usaf say the northrop-airbus plane was better. and boeing will not lose this contract make national card in the table …only in usa

  12. Jeff 2 December, 2009 at 9:18 pm #

    Stephen,

    “Can Northrop really afford to walk away from the competition?? Wouldn’t it make more strategic sense to stay in the bidding, and perhaps protest if they lose? ”

    Does it really make any sense for Northrop to stay? The question I have is exactly what is this contest worth to NG’s bottom line? After all the tanker is built by NG’s subcontractor EADS, NG really doesn’t do a lot of work on it other than paint it and do some of the militarization and electronics work on it. It seems to me most of the money for the KC-30 would go to EADS with Northrop taking a fairly small cut given their minor role in it’s actual construction. Plus as the prime contractor they are taking on awful lot of risk, if the KC-30 goes over budget under the current fixed price contract Northrop would be responsible as prime, not EADS.

    Unless EADS is letting Northrop take a very hefty cut of the money from the contract it hardely seems worth the political and bidding cost for Northrop given the limited upside from this contract. After all it’s not like Airbus is giving them a helping hand in entering the civilian airframe market and Northrop doesn’t even share in the revenue from export versions of the KC-30 either. Ron Sugar the fomer CEO of NG said earlier there was a limit to how much Northrop would spend in money and political capital to win this contract. Northrop may just have reached that limit. EADS on the other hand has a much bigger stake in the KC-30 and given their desire to take a bigger slice of the large military airframe market it would likely be really hard for them to walk away.

    If NG walks away from this, they will go back to building radars, RPVs, electronics systems and their core business, and it might be more profitable for them not to compete. If EADS walks away they are essentially turning over the global large military aircraft market to Boeing for the foreseeable future. This might simply be an easy way for NG to cut itself loose from a potentially money loosing contract with little upside for them. Just interested in your opinion.

  13. Stephen Trimble 2 December, 2009 at 9:32 pm #

    I really can’t see Northrop walking away from this. It’s a strategic move into the mobility market for Northrop, and they can’t just leave a contract like this on the table. Northrop also knows that OSD can’t just give the contract to Boeing. There must be a competition. So the withdraw threat could box OSD into a corner. Or maybe OSD believes Northrop needs them before more. Either way, the next few weeks will be interesting.

  14. mcfly0570 4 December, 2009 at 4:42 pm #

    Considering that at first, the contract was given to Boeing, before John McCain (future presidential candidate) put his finger on somem irregularities, which ended up by revealing “some corruption problems”…

    Then, there was a competition, and EADS/NG won it.

    What happened there? basically, EADS/NG proposed a US version of an existing tanker, which production could be started quickly, whose costs are known, and who performed better than boeing’s product on which, seemingly, boeing has just thrown a bunch of pieces together tomake solthing that wouldn’t cost them too much and would earn them lots of cash…

    When they lost, they complained that, if they knew USAF wanted a bigger plane, they could’ve done with the 777 as a basis for it… yeah, they could have, but they haven’t… That should be the endo of stiry, and would be in any “normal competition”…

    Still, the GAO ordered a new competition and it seems obvious that the only result that would be accepted by politicians is boeings win. In that perspective, what’s the point for EADS/NG to continue to play? They’ll only loose time and money since the final result must not reflect products qualities but politicians will.

    EADS was supposed to bring 4 fuselages built in europe for the first 4 planes, and the rest would have been built entirely in the USA, as soon as the factory would be ready, and not only that, but all A330 cargo aircraft would have been built in the same factory, in the USA.

    For an “imported plane”, it seems the US had a unique deal there…

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  16. charlesbrooks 23 January, 2010 at 10:04 am #

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  17. John 4 February, 2010 at 4:30 pm #

    What’s the big deal if one side drops out! It might add a little bit to the purchase price but not much. First of all these are both commercial airframes with over 1,000 sales, the Pentagon knows very well what the airframe prices is and second of all we have already had 2 previous contests which have already established what a fair and reasonable price is for each airframe. Any sole source bid from Boeing would be scruttinized against the large amount of available pricing data and if Boeing tried to gouge the USAF both the USAF and congress would be all over it.

    Over the life of the program you are talking $40 billion to purchase the aircraft which is around 20 percent of the lifecycle costs, so maybe the total program is worth is $200 billion in current dollars over 40 years, and in order to save at most $500 million or 0.25% of the total program costs we need to rewrite our requirements, and open up this process to potential challenges and failure. The last contest costs us a lot more than $500 million, that’s just nuts! The idea of competing two vastly different air frames in a 50/50 contest was always crazy and in the big picture it would never save a dime! We’re a lot better off just having the USAF establish it’s requirements and getting the best possible deal it can vs. going through some sort of phony, make believe competition.

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