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Northrop to bid for Air Force project

February 09, 2007|From the Associated Press

Northrop Grumman Corp. on Thursday said that it would bid on a revised $40-billion contract to replace 179 Air Force refueling planes, expressing satisfaction that the armed service had addressed concerns the company had raised.

As recently as last week, the Century City-based defense contractor said it might bow out of the competition and leave rival Boeing Co. as the only bidder. Northrop sought language in the contract that would allow for planes with significant cargo space and thereby justify the higher price of its aircraft compared with Boeing's.

Had Northrop declined to compete, the Air Force probably would have faced scrutiny from Congress, analysts said, and that may have given defense officials enough incentive to try to satisfy Northrop's concerns.

The tanker program has been on hold for three years, after Boeing lost the contract amid an ethics scandal that resulted in prison terms for a former senior company executive and a former high-ranking Air Force official.

"The Air Force needs a competitor to Boeing in order to get this contract underway," said Paul H. Nisbet, an aerospace analyst at JSA Research Inc. in Newport, R.I.

But the Air Force also held some leverage over Northrop, Nisbet said. The company is vying for an estimated $100-billion contract to upgrade the Air Force's fleet of B-2 bombers.

"They didn't want in any way to jeopardize their position with the Air Force by backing out and causing a delay in the tanker program," Nisbet said.

Northrop spokesman Randy Belote said that "the Air Force has addressed the vast majority of our team's concerns."

The company is partnering on the project with European Aeronautic Defense & Space Co., parent of plane maker Airbus.

Boeing spokesman Bill Barksdale declined to comment on Northrop's decision to bid on the contract but said the Chicago-based aerospace giant would disclose Monday which of its aircraft it planned to use in the competition.

Defense analyst Loren Thompson of the Lexington Institute in Arlington, Va., said Northrop's decision to pursue the contract might signal its willingness to offer its aircraft at a discount. Or, he said, executives might be entertaining the outside chance that the Air Force would purchase refueling tankers from both Boeing and Northrop.

The Air Force previously has said there would be only one winner in the competition.

The $40-billion contract to replace 179 refueling planes is just the first part of an expected three-phase deal that calls for more than 500 planes and is worth an estimated $100 billion.

The Air Force has said the project is one of its highest-priority contracts, replacing a portion of the military's older fleet of KC-135 aircraft, a medium-size refueling plane made by Boeing and crucial to military operations in Iraq and elsewhere.

"We aim to provide as level a playing field as possible ... in order to provide for fair and open competition," Michael W. Wynne, secretary of the Air Force, said in a statement.

Rep. Jo Bonner (R-Ala.), who represents the district in which Northrop has said it would build the plane, called Northrop's decision "a tremendous opportunity."

Boeing has said it would manufacture the planes in Washington state.

The deadline for contract bids is April 2. The Air Force will make its decision after a six-month review at the end of October.

Northrop shares rose 76 cents to $74.39, and Boeing fell 83 cents to $89.52.

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