Northrop nearing decision on tanker bid

WASHINGTON/PARIS Wed Mar 3, 2010 12:45am GMT

U.S. Secretary of Defense Robert Gates speaks during a press briefing at the Pentagon in Washington, July 9, 2008 file photo. REUTERS/Molly Riley

U.S. Secretary of Defense Robert Gates speaks during a press briefing at the Pentagon in Washington, July 9, 2008 file photo.

Credit: Reuters/Molly Riley

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WASHINGTON/PARIS (Reuters) - Northrop Grumman Corp (NOC.N) said on Tuesday it was still reviewing the Air Force's final terms for a multibillion-dollar aerial tanker competition but was "getting closer to a decision" on whether to submit a bid with its European partner EADS EAD.PA.

"We continue to conduct a thorough review of the final RFP (request for proposals) and I will acknowledge that we are getting closer to a decision. However, we are deferring further comment until our analysis is completed," Northrop spokesman Randy Belote told Reuters.

He declined to comment on exactly when the company was likely to decide whether to submit a renewed bid.

Northrop and EADS won the last competition in February 2008 with an Airbus A330-based tanker plane, but the deal, valued at around $35 billion, was later cancelled after government auditors upheld a Boeing Co (BA.N) protest.

Northrop told the Pentagon in December it would not submit a bid in this follow-on competition unless there were significant changes to the Air Force's draft rules, which it said clearly favoured Boeing's smaller 767 airplane.

A European source said EADS, anxious to add to its defence portfolio and gain a bigger foothold in the United States, was backing a new bid despite its concerns over the possibility of being locked once again into a rigidly priced contract.

"It looks like (they) are going for it. EADS can't afford not to," said the source, who was not authorized to speak publicly.

EADS declined to comment.

Some of Northrop's backers in Congress last week said they thought the final terms released by the Air Force contained only minor changes and still appeared to favour Boeing, but said they were encouraging Northrop to submit a renewed bid given the large number of jobs the program would generate.

Northrop's new chief executive, Wes Bush, is under pressure from lawmakers and EADS to proceed, but his shareholders may be wary of investing up to $100 million in another bid that promises uncertain profits, given that the Pentagon is insisting on fixed-rate contract terms over 18 years.

"Northrop and its European partner are struggling to find a plausible business case for bidding in a competition where they think Boeing may have an advantage and the profitability of the winner is by no means clear," said defence analyst Loren Thompson of the Virginia-based Lexington Institute.

Pentagon officials insist the revised rules will allow both teams to bid and win the winner-takes-all contest.

Air Force Secretary Michael Donley told defence reporters on Tuesday that he and other Pentagon officials met on Wednesday with Northrop Chief Executive Wes Bush and Paul Meyer, the Northrop official running the tanker bid, but had not received any communication with the company since then.

"Northrop indicated that they were appreciative of the changes that we made on the business side of the RFP and that they would take a careful look at the content," Donley said.

"We hope to have a good competition from this RFP and ... we're awaiting bidders," he said.

EADS had planned to begin producing not just the A330-based tankers, but a freighter version of the plane in the United States, after winning the tanker contract.

The company is just finalizing a 3.5 billion euro bailout from seven governments to help it repair massive cost overruns on the delayed Airbus A400M airlifter.

But it still faces billions of euros of losses due to a fixed-price contract on the A400 plane, which is aimed at making Europe less reliant on Lockheed Martin (LMT.N) and Boeing transport planes.

EADS is also anxious to maintain momentum in the market for tankers outside the United States. EADS won the last five competitions against Boeing but faces a potentially tougher marketing pitch if the U.S. tender sets a different standard.

(Reporting by Andrea Shalal-Esa in Washington and Tim Hepher in Paris; Editing by Steve Orlofsky, Gary Hill)