Boeing over Northrop

Government auditors say the Air Force made a bunch of errors in awarding a huge contract to the team of Northrop and Airbus parent European Aeronautic, Defence & Space Co. - and that the Air Force should reopen the bidding. It's a huge win for Boeing, which protested the stunning decision (it had been heavily favored), and a huge loss for L.A.-based Northrop. At stake is a $40 billion program to replace a fleet of aerial refueling tankers. The ones now in use date back to the Eisenhower era. From the NYT:

Boeing’s decision to protest the Air Force’s choice was a bold one and risked alienating the company’s biggest customers. At the time of the decision, Air Force officials had sent out strong signals that they hoped Boeing would not take the course that it did, arguing that a protest by the Boeing would only further delay a badly needed program. But Boeing did so anyway, mounting a multimillion-dollar advertising and public relations campaign and rallying members of Congress from areas where Boeing did business and sympathetic to the company’s “Buy America” sentiment. It has run full-page color ads in large newspapers and in trade publications read by members of Congress and Pentagon officials.

While these GAO reviews seldom turn out this way, both companies said last week that the Air Force miscalculated operating costs of the competing aircraft. The Air Force can always ignore the GAO's advice, but that would require going before Congress - and considering how much support Boeing already has in Congress, it's not a likely bet. From Bloomberg:

"While the variance in costs is trivial, it points to a broader erosion in the government's rationale for picking the Northrop-EADS plane,"' Loren Thompson, an analyst at Lexington Institute, an Arlington, Virginia-based public policy research group, said in an e-mail before the announcement. "The outcome of the competition was fairly close, as Boeing has argued in its filings, rather than a decisive win for the Northrop-EADS team as the Air Force asserts."

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The GAO decision doesn't imply that Boeing now has an easy road to reversing the original award and capturing the work for itself, said Jim McAleese of McAleese & Associates, a government contracting and national-security law firm in McLean, Virginia. "To be successful in any potential re-competition, Boeing must demonstrate that it is either technically superior at a reasonable cost/price-premium, or that it is significantly lowest-evaluated-cost," McAleese said in an e-mail before the announcement.

Northrop shares are down about 1.8 percent at last check. Boeing is up 1.2 percent.

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