Did Boeing lose a $100 billion tanker deal due to its own arrogance?
Posted by: in Latest NewsFiled under: Deals, Boeing Co (BA), Northrop Grumman (NOC)
The New York Times reports that one reason Boeing Co. (NYSE: BA) might have lost the $100 billion contract to build tankers — in-flight refueling aircraft — for the Air Force because the winners — Boeing’s arch-rival, EADS, parent of Toulouse, France-based Airbus and Northrop Grumman (NYSE: NOC) — took a huge risk to demonstrate their commitment to the project.
Specifically, EADS/Northrop made a $100 million bet — by building a state-of-the-art refueling boom that would funnel the fuel from the tanker to the fighter aircraft in the air — with no assurance that it would win the contract. Meanwhile, analyst Loren Thompson said that Boeing seemed arrogant and offered a plan that Air Force officials thought would deliver only 19 tankers by 2013 compared with 49 by EADS/Northrop. Thompson even accused Boeing of being unresponsive and impolite.
Much remains up in the air. EADS/Northrop claims its tanker can carry more fuel than Boeing’s altered Boeing 767. EADS/Northrop believes its bid also offered more flexibility for carrying cargo, transporting troops, airlifting refugees and delivering humanitarian aid. And there’s a dispute about how many U.S. jobs will be created by each. Boeing stated its bid would create or support 44,000 American jobs. EADS/Northrop’s figure was 25,000 jobs in 49 says.
Boeing might decide to appeal this contract award. Then the General Accounting Office (GAO) will have 100 days to rule on the appeal. Meanwhile, the Air Force claims it purchased the better plane.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned and is working on a book on Boeing.
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