The government has been trying for years to award a contract to replace the Air Force's aging fleet of planes used for refueling military aircraft midflight, but the effort to build 179 new tankers has been marred by controversy.
Northrop said that the government's requirements did not recognize the value of the larger refueling platform it had proposed and instead favored Boeing's proposal to build a smaller tanker using a prototype of its 767 aircraft.
Wes Bush, chief executive of Los Angeles-based Northrop, said that under those conditions, it no longer made financial sense to stay in the competition.
Northrop team threatened in December that it would walk away unless the Air Force changed its proposal. Northrop said the Air Force's requirements favored Boeing's smaller 767 plane, instead of its larger Airbus A330.
Northrop executives and defense industry analysts have questioned how profitable the tanker contract would be, given the Pentagon's push for setting a fixed price for the contract before design and testing of the aircraft are completed.
"The lesson is, if you push contractors too far they'll lose interest," said Loren Thompson, a defense industry consultant at the Lexington Institute.
Sen. Richard C. Shelby (R-Ala.), in whose state Northrop had planned to build an assembly plant for the tanker if it won the contract, said the Air Force "had a chance to deliver the most capable tanker possible to our war fighters and blew it."
He said that the "so-called competition" was "structured to produce the best outcome for Boeing" and that the Air Force's "refusal to make substantive changes to level the playing field shows that once again politics trumps the needs of our military."
The Buy Boeing Provision
Maybe one of these decades the U.S. Air Force will get to replace its Eisenhower-era fleet of aerial-refueling tankers with planes built after their pilots were born. Until then, the Pentagon's so-called highest priority procurement program can stand as a monument to the dysfunctional politics that drive America's military purchases.
Two years ago, Northrop won the contract in a competitive auction, in an upset over Boeing. Its bid came with a politically toxic catch: The Los Angeles-based company had joined with European Aeronautic Defense & Space Co. to build the planes.
EADS owns Airbus and its major shareholders are Daimler AG and the French, Spanish and Russian governments. Outraged Congresspersons from the Great State of Boeing—er, Washington—cloaked themselves in the American flag as cover for their pork-barreling.
Boeing lodged a protest with the Government Accountability Office, Congress's investigative arm, which soon found the Air Force had made miscalculations in awarding the contract to Northrop and EADS. The Pentagon promised to review the same offers again. But Boeing threatened to pull out and leave the field to Northrop. That was a no-no in an election year. So the Pentagon scrapped that auction and started anew this year. Northrop says the revised specifications insure that Boeing's smaller, cheaper modified 767 aircraft will win.
The protectionist-patriotic claims made on Boeing's behalf have left a bad aftertaste. As a matter of law, Pentagon rules explicitly prohibit the department from considering the impact on domestic jobs of a procurement decision and state that companies from some countries, such as EADS's home bases of France and Germany, are to compete on equal footing with the U.S. That's intended to ensure that U.S. forces get the best possible weapons based on price and quality. After this debacle, every bidder will know those rules can be violated with enough political pressure.