UPDATE 1-Northrop, AgustaWestland skip US rescue copter contest

Tue Dec 11, 2012 12:46pm EST

* Sikorsky still plans to bid, Boeing weighing response

* Northrop says it decided to opt out after thorough review

By Andrea Shalal-Esa

WASHINGTON, Dec 11 (Reuters) - Northrop Grumman Corp and Italy's Finmeccanica SpA have decided not to bid for a $6.84 billion contract to build 112 new combat search and rescue helicopters for the U.S. Air Force, Northrop said on Tuesday.

Northrop, which teamed up with Finmeccanica's AgustaWestland in September for the rescue helicopter contract, said the decision would not affect the team's pursuit of a separate U.S. Navy competition for a new presidential helicopter using AgustaWestland's AW101.

Northrop spokeswoman Margaret Mitchell-Jones said the two companies decided to skip the Air Force competition after a thorough analysis of the service's final request for proposals, or RFP, which was published in October. Bids are due Jan. 3.

"We've reached this conclusion based on an extensive evaluation of customer requirements under the current RFP," Mitchell-Jones said in a statement.

Northrop's decision comes amid growing industry unease about the way the Air Force has structured the competition - one of few new programs to be started in coming years - and other companies may opt to skip the expense of preparing a bid.

The Air Force rules for the competition say no company will be considered if its total bid is evaluated to cost more than $6.84 billion.

The Air Force's previous attempt to start replacing its aging fleet of Sikorsky HH-60 Pave Hawk helicopters with CH-47 Chinook helicopters built by Boeing Co - a 2006 deal valued at around $15 billion - was cancelled in 2009 after multiple protests by the losing bidders.

The service released a narrowly written draft request for proposals in March that was conceived as a "best value" competition, but left some industry executives concerned about whether the rules would allow them to win the bid, or make much profit if they did.

Sean O'Keefe, chief executive of EADS North America , told Reuters in July that his company might not bid unless the Air Force dramatically revamped rules that would have knocked its aircraft out of the running because it was not U.S. certified, although it is in service in NATO countries.

Sikorsky Aircraft, a unit of United Technologies Corp that has teamed up with Lockheed Martin Corp, is expected to bid for the contract. Sikorsky declined to comment on Northrop's decision.

Boeing, whose CH-47 won the initial competition in 2006, is still considering how to respond to the Air Force request for proposals, said spokesman Damien Mills.

Boeing and its partner on the V-22 tiltrotor, Bell Helicopter, a unit of Textron Inc, had also expressed interest in the competition early on, but the cost of that aircraft make it an unlikely contender to replace the HH-60 given the Air Force's focus on affordability, according to analysts.

The Air Force revamped its approach to the rescue helicopter program to put a premium on lower costs, since it is facing huge outlays in coming years for new refueling tankers being built by Boeing, F-35 fighter planes built by Lockheed Martin and a new long-range bomber that it wants to start developing.

"The Air Force budget is under tremendous pressure," said defense consultant Jim McAleese. "The tanker, F-35 and bomber are critical priorities. Every other program must justify the incremental gain in combat capabilities relative to its cost."

In October, the Air Force said it was pursuing a "capability-based, best-value approach," with a big push to use aircraft and training systems that are already in production.

Some analysts said the terms of the competition appeared to be tailored to Sikorsky's Black Hawk helicopter.

The service said its approach had been carefully reviewed by top Pentagon leaders to ensure a low-risk, executable process that "will deliver the warfighter a product that meets the requirement at an affordable price."

No immediate comment was available from the Air Force on Northrop's decision.

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