* Says changes needed to terms of competition
* Northrop concerned current terms favor smaller aircraft
* Also cites contractual and financial burdens
(Adds reaction from EADS, lawmaker, byline)
By Andrea Shalal-Esa
WASHINGTON, Dec 1 Northrop Grumman Corp (NOC.N)
told the Pentagon's chief weapons buyer on Tuesday that it
would not compete against Boeing Co (BA.N) to build new aerial
refueling planes unless the Defense Department significantly
changed the terms of the competition.
Northrop President Wes Bush told Ashton Carter, defense
undersecretary for acquisition, technology and logistics, in
letter dated Dec. 1 that the company would not submit a bid in
the competition as currently structured.
Bush said Northrop remained concerned that the current
terms of the competition showed a preference for an aircraft
smaller than the A330-based tanker it had offered previously
with Europe's EADS EAD.PA.
"The department's responses to date to our submitted
questions suggest that the department is not planning to
substantially address our concerns in the final release of the
RFP (request for proposals)," Bush said.
"As a result, I must regrettably inform you that, absent a
responsive set of changes in the final RFP, Northrop Grumman
has determined that it cannot submit a bid to the department
for the KC-X program," he said in the letter, which was
released by the company.
Bush said Northrop weighed its decision carefully because
it was convinced that the A330-based tanker would provide the
best capability for the U.S. military and taxpayers.
"Furthermore, we are aware of how important it is to the
credibility of the ultimate KC-X tanker award that it can be
arrived at competitively," he said.
Copies of the letter were also sent to Air Force Secretary
Michael Donley and Deputy Defense Secretary William Lynn.
Northrop said it remained concerned that the Pentagon's
approach favored a smaller plane like the 767 offered by
Boeing. As written, the terms also imposed a structure that
"places contractual and financial burdens on the company that
we simply cannot accept," Bush said.
Defense analyst Loren Thompson of the Virginia-based
Lexington Institute said both tanker teams were concerned about
the Pentagon's request for a fixed-price development contract
that stretched over 18 years.
"To ask people to bid fixed prices on things that may not
materialize until 18 years in the future is simply absurd," he
said. He said Boeing officials saw Northrop's letter as "some
sort of a maneuver," but they shared the concerns about the
amount of risk the contractors were expected to carry.
Industry officials have also criticized the Pentagon's
decision to set 373 mandatory requirements, 10 times those in
the last competition, with no scale to rank the importance of
items such as fuel offload versus a toilet's flow rate.
Bush said he hoped the Pentagon would modify the terms in a
way that would allow Northrop to join the competition.
EADS spokesman Guy Hicks said his company fully supported
Northrop's decision not to bid unless the terms were changed.
Senator Richard Shelby, a Republican who joined other
Alabama lawmakers in criticizing the Pentagon's tanker
competition rules last month, said as written, the competition
amounted to a "sham" and a "sole-source contract to Boeing."
"If the Air Force wants a true competition -- one that aims
to procure the best product for our warfighter -- it must
fundamentally alter the current framework," Shelby said.
No immediate comment was available from the Pentagon.
Northrop threatened to drop out of the last competition as
well, prompting key Republican lawmakers like Senator John
McCain to weigh in on the company's behalf and ensure that
there was competition for the new tankers.
But this time, Northrop might not have as much leverage,
since its supporters were mostly Republicans, who no longer
hold a majority in Congress, Thompson said.
(Editing by Tim Dobbyn and Steve Orlofsky)
((email@example.com; + 1 202 354 5807;
Reuters Messaging: firstname.lastname@example.org))