Northrop Drops Out of KC-X Acquisition

Politics matter.

The WSJ reports that Northrop Grumman will withdraw from competition for the Air Force's $40B contract to build a new KC-X fuel tanker.

It's been a long and twisted battle to this point. Boeing originally won the contract in 2002, but Sen John McCain then complained that the Air Force would get a better deal buying the planes versus leasing. By 2003 two senior executives at Boeing (including a former Air Force acquisitions official) headed to prison on charges of illegal job negotiations. The acquisition restarted in 2006 and resulted in a win for Northrop Grumman and partner EADS. Boeing quickly protested. The latest solicitation has been out since Feb 2008, and Northrop has complained that the new scope greatly favors Boeing.

From WSJ:

"We are disappointed by Northrop's decision not to submit a bid for the...program," Deputy Defense Secretary William Lynn said. "We strongly believe that the current competition is structured fairly and that both companies could compete effectively."

The decision also dismayed many lawmakers from regions that stood to benefit from a Northrop win. "I am deeply disappointed that Northrop Grumman was unable to submit a bid for the KC-X tanker program. Frankly, I am outraged at the Defense Department's bungling of this contract for what is now the third time," Rep. Jo Bonner (R., Ala.) said in a statement. Northrop had planned to build an assembly plant in Alabama.

Normally the reader comments on an article like this are unbearably moronic, but in this case there is some decent & substantial discussion if you click over to that. A couple operators that seem to know what they are talking about and some comments on what this bungled acquisition means in terms of larger strategic priorities. Good stuff.

Northrop to Sell TASC Advisory Business

The Washington Post reports that Northrop Grumman wants to sell its consulting unit TASC. Carlyle, who purchased Booze-Allen's Government advisory business at a similar price tag, could be a buyer but likely not any other big defense firm.

"Wall Street analysts, who estimated the unit's value at up to $2 billion, said it is unlikely that Northrop's competitors -- such as Boeing, Lockheed Martin and Raytheon -- will be potential buyers, given a new law President Obama signed in the spring. It requires defense contractors to set up clearer lines separating their work as advisers to the government and as sellers of hardware and weapons systems."

It seems firms like Northrop don't want their consulting businesses getting in the way of big awards in the future, especially in a shrinking landscape for major programs. This could also be a sign simply that the technical services/advisory sector is a crowded one where Northrop is not much of a player.