Northrop-EADS beats Boeing to build U.S. tanker

By Jim Wolf and Andrea Shalal-Esa

WASHINGTON (Reuters) - Northrop Grumman and Airbus parent EADS won a $35 billion U.S. Air Force refueling plane deal on Friday in a surprise blow to Boeing, until now the Pentagon's sole supplier of aerial tankers.

Northrop Grumman Corp (NOC.N) and EADS (EAD.PA), "clearly provided the best value to the government," Sue Payton, the Air Force's top acquisition official, told reporters at a briefing.

The Air Force plans to buy 179 tanker aircraft over the next 15 years to begin replacing its KC-135 tankers, on average 47 years old, that were built by Boeing Co (BA.N).

The decision, which could still be challenged by Boeing or its backers in Congress, caps for now a saga that included a canceled Boeing order and the Pentagon's biggest procurement scandal in decades -- with jail terms for an ex-Air Force weapons buyer and Boeing's former chief financial officer.

Shares of Northrop, the Pentagon's No. 3 supplier after Lockheed Martin Corp (LMT.N) and Boeing, rose as much as 6.5 percent in extended trading on Friday. Shares of Boeing, which was widely expected to win the job, fell as much as 5 percent before paring their losses to be down 3 percent.

"A major reversal of fortunes, and a truly surprising outcome," said Richard Aboulafia, of the TEAL Group aerospace consultancy, about Boeing's loss.

Boeing said it was disappointed with the outcome and would weigh its options after a detailed Air Force briefing on the reasons for the decision.

"We believe that we offered the Air Force the best value and lowest risk tanker for its mission," Boeing said.

The initial contract for the newly named KC-45 tanker, a modified Airbus A330 airliner, covers four test aircraft for $1.5 billion. With plans to buy 175 more planes, it would be worth $35 billion overall, the Air Force said in a statement.

NORTHROP'S EDGE

Gen. Arthur J. Lichte, commander of the Air Force's Air Mobility Command, said the Northrop plane offered many advantages over Boeing's proposed 767-based tanker.

"More passengers, more cargo, more fuel to offload, more patients that we can carry, more availability, more flexibility and more dependability," he said, listing Northrop's edge.

The program marks the first stage of a multi-decade plan to replace more than 500 KC-135 tankers used to extend the range of fighter jets and other warplanes. The United States hopes to start operating the new tankers in 2013.

Including follow-on orders and in-service maintenance, it could be the second costliest military aircraft purchase in coming decades, topped only by Lockheed Martin's F-35 Joint Strike Fighter.

Future phases of the tanker renewal plan could bring the costs to more than $100 billion, although the winner of this competition is not assured of capturing the next contracts.