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Thompson Files: Why Northrop and EADS won

Boeing seeks 'immediate' air force reasons for tanker loss
Boeing on Tuesday said it has asked the US Air Force for an "immediate" explanation for its decision to reject the US aerospace giant's bid for a lucrative aerial refueling contract. The air force late Friday announced its decision to select a team led by Northrop Grumman Corporation and the European Aeronautic Defence and Space Company (EADS) to provide new KC-45A aerial refueling tankers to start replacing its aging tanker fleet Boeing had been heavily favored to win the 35-billion-dollar contract for an initial phase in replacing the air force's aging fleet of Boeing tankers. Its arch-rival in commercial aircraft, EADS subsidiary Airbus, will now assemble the new tankers in Alabama. Boeing said that as of Tuesday, it had not yet received a briefing on the decision and pointed out that the air force had said a briefing would occur on or after March 12, calling the delay "inconsistent with well-established procurement practices." "A delay of this length in the formal debriefing is unusual," said Mark McGraw, Boeing vice president of the 767 tanker programs. "Consistent with past practice and recent experience, we would expect this briefing to occur within days, not weeks, of the selection announcement." Boeing said its request was "more than fair and reasonable" because of media reports containing detailed information on the competing bids. The Chicago-based Boeing hinted Friday that it may protest the decision, which has sparked an outcry among some lawmakers over the spending of tax dollars on a military project that will partly profit a foreign company.
by Loren B. Thompson
Arlington,VA (UPI) Mar 04, 2008
Last week Northrop Grumman and its European partner EADS confounded expectations by beating incumbent Boeing for the contract to build the U.S. Air Force's next-generation aerial refueling tanker.

The initial contract will be for 179 modified wide-body jets, but eventually the entire fleet of 600 Cold War tankers will need to be replaced, making this one of the biggest marketing coups in defense-industry history. However, that is just the beginning of what Northrop Grumman has achieved, because Boeing didn't manage to beat Northrop Grumman in a single measure of merit. Here's how they were evaluated:

First -- Mission capability: Arguably the most important factor, this metric compared the teams on performance requirements, system integration & software, product support, program management and technology maturity. The teams tied in most measures, but the Northrop Grumman offering was deemed to offer superior refueling and airlift capacity at 1,000 nautical miles range and substantially superior refueling and airlift capability at 2,000 nautical miles range. The superior airlift capacity of Northrop Grumman's plane was deemed a "compelling" consideration in giving Northrop Grumman the edge for this factor.

Second -- Proposal risk: This is the sole factor in which Boeing managed to match the appeal of the Northrop Grumman proposal, but it did so only after being pressed to accept a longer development schedule for its tanker. The Boeing proposal was initially rated as high-risk because reviewers felt the company was offering a plane that in many regards had never been built before, and yet claiming it could be built fast at relatively low cost. The company was forced to stretch out its aggressive schedule, adding cost.

Third -- Past performance: The Northrop Grumman team received higher ratings in past performance due to satisfactory execution of half a dozen programs deemed relevant to the tanker competition. U.S. Air Force reviewers had less confidence in Boeing's past performance due to poor execution in three relevant programs. In addition, Northrop Grumman's subcontractors were rated more highly on past performance than Boeing's.

Fourth -- Cost/price: This was the factor in which many observers expected the Northrop-EADS team to shine, because EADS subsidiary Airbus usually underbids Boeing in commercial competitions. But Boeing compounded its difficulties in the eyes of reviewers by failing to adequately explain its assumptions in calculating the cost of developing a tanker. The resulting low confidence in Boeing cost projections undercut its claims of lower life-cycle costs. Northrop Grumman was rated higher.

Fifth -- Integrated assessment: The "integrated fleet aerial refueling assessment" was designed to compare how the competing planes would fare in an operational setting using a realistic wartime scenario. The review found that the Northrop Grumman proposal could accomplish specified missions with nearly two dozen fewer planes than the Boeing proposal, a big advantage.

So Northrop Grumman's victory was not a close outcome. Although both proposals satisfied all performance requirements, the reviewers concluded that if they funded the Northrop Grumman proposal they could have 49 superior tankers operating by 2013, whereas if they funded the Boeing proposal, they would have only 19 considerably less capable planes in that year. The Northrop Grumman-EADS offering was deemed much better in virtually all regards.

(Loren B. Thompson is chief executive officer of the Lexington Institute, an Arlington, Va.-based think tank that supports democracy and the free market.)

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