Northrop Grumman Corp. has been awarded a $40 billion contract to build the next generation of aerial refueling tankers for the Air Force, unexpectedly ending Boeing Co.'s long stranglehold on the market.
The Los Angeles-based defense contractor, which has teamed with European Aeronautic Defence and Space Co., the Netherlands-based parent of Airbus, will build up to 179 of the aircraft based on the Airbus A330 commercial jet.
"We are excited to partner with the Air Force for their number one acquisition priority, the KC-45A Tanker," said Ronald Sugar, Northrop's chairman and chief executive, in a statement. "Northrop Grumman's vast expertise in aerospace design, development and systems integration will ensure our nation's warfighters receive the most capable and versatile tanker ever built. The Northrop Grumman KC-45A tanker will be a game changer."
The announcement comes as a surprise to an industry that had considered Boeing a huge favorite to replace the aging KC-135 tankers, which allow fighter jets and other aircraft to refuel without landing.
The Chicago-based plane maker, the nation's second-largest defense contractor, has built tankers for the Air Force for almost 50 years. But Air Force officials said the Northrop plane, which is larger and can carry more fuel than Boeing's, was a better value because it will allow the Defense Department to purchase fewer aircraft.
The announcement will give Northrop, the nation's third-largest defense contractor, a boost, and help EADS expand its presence in the U.S. defense market.
The contract is the first of three orders to replace more than 500 planes, for a total program value that could top $100 billion.
Ending a high-stakes, months-long competition, Air Force officials determined a winner at a private meeting earlier in the week but withheld the announcement until officials could sign off on the acquisition and the bidders notified. It's expected that Boeing will challenge the award, which could delay the program.
Boeing had won a $23 billion contract to replace the tankers, but that deal fell apart in 2003 amid a procurement controversy that sent former Boeing executives to prison for conflicts of interest and led to the resignations of several Air Force officials.
Northrop won the new deal despite the fact that Congress and Boeing openly questioned whether the Pentagon should award such an important military contract to a joint bid that includes a foreign company.
Much of Northrop's plane will be built in Europe, but the company plans to use hundreds of U.S. suppliers and do the final assembly in the United States, supporting 25,000 American jobs. The first planes are expected to enter service in 2013.
Los Angeles County and California also benefits more from Northrop's proposal than Boeing's. Northrop said its program will support 7,500 jobs in the state and generate $360 million for the state's economy. It's presumed the majority of those jobs will be in the county. Boeing said its program would have supported 4,000 California jobs and contributed some $175 million.
The news is a boon for L.A.'s aerospace sector, which can use all the new jobs it can get after decades of decline. Local aerospace manufacturing now boasts less than 38,000 jobs less than a third of the total in 1990.
Shares of Northrop were up $5, or 6 percent, to $83.61 in after-hours trading.
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