September 30, 2008 / 4:30 PM / 11 years ago

Tanker move sends chilling message: Northrop

WASHINGTON (Reuters) - The Pentagon’s decision to cancel a $35 billion aerial refueling competition and punt it to the next administration came after an unprecedented “political and propaganda attack,” and sends a chilling message to the entire defense industry, Northrop Grumman Corp (NOC.N) Chief Executive Ron Sugar told Reuters on Tuesday.

Northrop Grumman Chief Executive Officer Ron Sugar speaks to reporters on his $30 billion global defense and technology company at the Reuters Aerospace and Defense Summit in Washington December 3, 2007. REUTERS/Mike Theiler

Northrop and its industrial partners in the competition, including Europe’s EADS EAD.PA, remain committed to competing against Boeing Co (BA.N) for the lucrative contract — and winning it again, Sugar said.

He said Northrop would examine and support a congressional recommendation urging the Pentagon to consider accelerating the planned purchases of new tankers and buying tankers from both companies, if that were the next administration’s wish.

“This company put a significant effort into playing this game by the rules. What we ended up with was clearly ... the best tanker,” Sugar said in an interview.

Northrop and EADS in February won the competition to start replacing the Air Force’s fleet of old KC-135s, aircraft used to refuel fighter jets and other military aircraft in mid-flight. But the Government Accountability Office in June upheld a Boeing protest after finding what it called significant errors in the Air Force process.

The Pentagon first tried to redo the competition, but then decided to hand the issue to the next U.S. presidential administration, saying that any rushed decision before the January change in government would probably be protested again.

Sugar said the Air Force errors found by the GAO were minor procedural mistakes and said the delay was unfortunate for the U.S. military, especially given that Northrop’s price for the first 68 airplanes was $3 billion lower than Boeing’s.

The Northrop bid was also less risky, he said. The Airbus A330 tanker had already been built and flown, unlike Boeing’s 767 tanker variant.

Sugar said the Air Force procedure was fair and resulted in the selection of the best tanker, but said the process became too politicized.

“It’s like ‘Mr. Toad’s Wild Ride’ ... What we had was a political and propaganda attack which set the thing back to start again,” he said. “I think this sends a chilling message ... to everybody involved in the defense acquisition process.”

In the past, defense companies competed to provide the best technology to the Pentagon at the best price, but now company executives must be mindful of other factors such as the strong views of influential lawmakers, Sugar said.

“Everybody in the industry is looking at what this means in terns of going forward and I don’t like what I see. Frankly most of my peers — CEOs who run this industry — don’t like what they see as a result of this,” he said.

Boeing mounted a massive advertising and lobbying campaign after it lost the initial competition, and its supporters in Congress weighed in heavily with the Pentagon.

“We and our tanker team are prepared to compete and win again. We’re going to do that as many times as it takes,” he said, noting that the current delay was a “tragedy” for the U.S. military, which still urgently needs to replace its fleet of KC-135s, which are 45 years old on average.

He said he would not oppose a proposal backed by Rep. John Murtha, the Pennsylvania Democrat who heads the House Defense Appropriations subcommittee, urging the Pentagon to explore buying more tankers each year from both companies.

“If they go to dual award, which would mean not splitting the award, but actually ordering one a month from each company, obviously we would look at that and be supportive of whatever the government wants to do,” Sugar said.

“Anything that gets good tankers to our airmen fast is probably a good thing,” he said.

Reporting by Andrea Shalal-Esa, editing by Gerald E. McCormick

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