Northrop Returns Fire

The aerospace giant responds to Boeing in what's turning out to be an epic PR battle over a $35 billion Air Force tanker contract

Northrop Grumman and Boeing have turned up the heat in the tanker war.

In full-page advertisements that ran in major newspapers last week, Boeing (BA) trumpeted "The Tanker Decision: Why It Doesn't Add Up" over a photo of an airborne refueling plane. Boeing's version of that plane lost out to the one built by Northrop Grumman (NOC) and European partner EADS (EAD.PA) in a $35 billion Air Force contract awarded Feb. 29. Northrop responded by turning its corporate Web site over to the issue, plastering the words "It DOES Add Up" over a huge picture of its winning plane.

Officials of the Los Angeles-based Northrop held a conference call Apr. 1, part of a counteroffensive they say is designed to "set the record straight" about the American jobs and national security concerns raised by Boeing and its supporters.

Decision Appealed

Boeing's political allies have argued that the Feb. 29 award to Northrop and EADS—the parent of Airbus, which makes commercial jets that compete with those built by Boeing—replaces U.S. jobs during an economic downturn and delegates a sensitive military assignment offshore. But like a couple of nerdy engineering students duking it out on the school grounds, the heat of this battle quickly becomes mired in an exchange of complicated claims arising from the arcane nuances of the military procurement process.

Officials of Chicago-based Boeing claim that a "selection process flawed by countless irregularities" was skewed to favor Northrop/EADS, through changes the Air Force made in its bid requirements and the models it used to judge the two entries. In a discussion that is available on Northrop's Web site, Paul Meyer, program manager for the company's tanker program, said he was surprised that Boeing would say the Air Force favored Northrop, given that Boeing didn't raise such objections during the years-long evaluation process. "I'm a little shocked at the assertion directed at the customer," he said.

Boeing appealed the Air Force decision to the General Accounting Office on Mar. 11. A decision from GAO is due three months from the date of the appeal.

Northrop's Rebuttal

The PR battle clearly isn't aimed at the GAO, though. The real audience is members of Congress and the general public, where issues of American vs. European jobs more easily resonate. Northrop's version of the plane, designated the KC-45, is built around the frames of Airbus A330s. After the award, the first A330 was flown from Toulouse, France, where Airbus frames are assembled, to a facility in Dresden, Germany, to begin the conversion to a military tanker. That first plane also is destined for Spain and a final stop in Florida for its final outfitting with military equipment. But Northrop argues that its project will involve 230 U.S. suppliers in 49 states, and will support 48,000 American jobs as production is shifted to a plant to be built in Mobile, Ala. Already, local officials there have launched a "Save Our Tanker" campaign.

As for the question of military information heading offshore, Northrop says there are numerous examples of trans-Atlantic cooperation on far more sensitive technologies. Foreign suppliers play essential roles in the F-35 Joint Strike Fighter and the VH-71 Presidential Helicopter. Moreover, no sensitive military technology will be exported to Europe, Northrop says, because it will handle all of the planes' critical military technology.

Some critics of the Air Force decision have zeroed in on the European government subsidies received by EADS and Airbus, claiming that gave the company an unfair advantage. However, Northrop cites a Defense Dept. determination that trade disputes between the two commercial jet builders will be resolved by the World Trade Organization and aren't relevant to the tanker competition.

Boeing's appeal triggered a stop-work order by the Air Force, which means EADS and Northrop can't be paid until the issue is resolved. So for now, the only work being done on the tankers is on the publicity front.

Crown is a senior correspondent for BusinessWeek and BW Chicago. Epstein is a correspondent in BusinessWeek's Washington bureau.

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