Boeing refused to release tanker pricing -Pentagon

Fri Oct 23, 2009 2:00pm EDT

* Pentagon says Northrop not harmed by data release

* Says different pricing required for new competition

By Andrea Shalal-Esa

WASHINGTON, Oct 23 (Reuters) - Boeing declined a Pentagon request to release Boeing's pricing information from the last aerial tanker competition after Northrop raised concerns that it was disadvantaged by the Air Force's release of Northrop's pricing data to Boeing, according to a Pentagon letter.

Pentagon General Counsel Jeh Johnson told Northrop Grumman Corp (NOC.N) in a letter dated Sept. 23, a copy of which was obtained by Reuters, that defense officials did not believe the company was competitively harmed by Boeing Co's (BA.N) knowledge of "some of the prior pricing" and remained convinced that "the integrity of the procurement process will be maintained without the release of additional pricing information."

But Johnson said the Pentagon "actually sought Boeing's permission to release this information, and Boeing declined," according to the letter.

Analysts say the dispute over the release of Northrop pricing information could provide the basis for a future legal protest by the company. That could further delay a weapons program that Air Force officials call a top priority.

One source familiar with the letter, who was not authorized to speak on the record, said Boeing's refusal to release the information was telling. "It must be important if they don't want to release it," said the source.

Northrop declined comment on the letter, saying it did not discuss correspondence sent to or received from its customers.

Boeing could not be immediately reached for comment.

Northrop and its European partner, EADS EAD.PA, say they are concerned about the Air Force's disclosure of pricing data to Boeing when Northrop and EADS won a potential $35 billion contract for new refueling tankers in February 2008. That deal was later canceled.

The Pentagon canceled Northrop's contract one year ago after government auditors upheld a Boeing protest. The Air Force released rules for a new competition between the two teams last month.

In his letter, Johnson told Northrop that the key terms of the solicitation had changed dramatically since the last competition, which would necessitate "dramatically different pricing proposals and strategies" anyway.

He said the Air Force provided both companies with "substantially identical information" regarding its competitor's evaluation prices, but acknowledged that the Air Force gave Boeing "some additional limited information concerning Northrop Grumman's proposed prices under the now canceled prior contract."

However, he said those "dollar amounts are of questionable value since Boeing is unaware of the extent to which the dollar figures provided were rounded up or down, and/or were truncated by hundreds of millions of dollars."

In addition, he said, Boeing did not know whether the disclosed dollar amounts represented all or only some of the line items associated with various contract phases.

"It is the case that Boeing would be at significant risk if it tried to recreate Northrop Grumman's actual contract line item dollar amounts proposed under the canceled procurement, based on the information provided," Johnson said.

"Any attempt by Boeing to estimate this would likely be inaccurate by tens or hundreds of millions of dollars, which could easily cover the cost of one or more of the aircraft."

Johnson said that the pricing would probably be long overtaken anyway by the time that new proposals were submitted for the acquisition since close to two years would have passed since the pricing information at issue was submitted.

"During that time, economic conditions of the commercial aircraft market have changed, and the individual postures of both Northrop Grumman and Boeing have undoubtedly changed," he added. (Reporting by Andrea Shalal-Esa; Editing by Phil Berlowitz)

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