Might Northrop still bid on the tanker project? It may be that “all the evidence suggests otherwise,” as one journalist who has been covering the competition for years put it to me yesterday. The requirements in the RFP strongly favor a 767 over an A330, in that the evaluation process will penalize a larger aircraft for higher operating costs, but not reward it for higher fuel and cargo capacity. That may be the USAF’s business, but it is what it is. Northrop Grumman has therefore repeatedly declared its disinterest; according to Amy Butler of Aviation Week, the company’s “officials have apparently informed lawmakers that they predict a 96 to 98 percent chance of not bidding.”
But why say 96 to 98 percent? Why not just say, this is lame, we’re done, we’re going home? Is Northrop—or are Northrop and EADS—leaving open the possibility of a last-minute bid? It’s a reasonable idea. Frankly, if I were advising either company—and I’m not—I would suggest thinking about it, for four reasons:
Not bidding could really irritate EADS. As I am not privy to the marketing agreement between the two companies, I do not know if EADS would be precluded from bidding on its own if Northrop decided to pass. To win with this RFP, whoever is coming with an A330 would need to bid aggressively. EADS might see value in bidding at cost—the whole point of the project, then, would be to get the USAF to pay for Airbus to facilitize production in the dollar zone. With sales denominated in dollars, but costs substantially in euros, Airbus is subject to considerably more currency exchange rate risk than Boeing. Northrop lacks this strategic interest, and probably wouldn’t see much value to another big business making no money. (The company has enough of that problem on the Gulf Coast.) However, if EADS is for some reason precluded from bidding on its own, then Northrop’s refusal to proceed would pretty much sunder the already tense relationship between those companies. The KC-Y competition would certainly be an EADS-only affair.
Bidding would build goodwill with the customer and the community. That KC-Y and KC-Z competitions will come along, and EADS has known for some time that it has a much better opportunity at winning the replacement for the KC-10s. Thus, there may be value in playing the game now just to build some goodwill for the next rounds. EADS and Northrop might warm some hearts in Alabama if they brought in a bid at the last moment, just because they "owed it to the communities that had supported them" (or something to that effect.) EADS has done this once before. The company put in a bid back in 2003 even as several senior USAF officials were trading electronic hate mail about French airplanes. The point was to show the rational people within the customer organization and the congress that EADS was a team player, a good corporate citizen, and a responsive potential supplier. This time around, the USAF would at least appreciate that they were willing to be a stalking horse.
The costs could be limited. Contrary to what a few pundits have claimed, bidding need not be a hugely cost endeavor. The bidders only have 75 days to respond, and they know what they're bidding, so assembling a package shouldn't be outrageously expensive. They've had these program offices in place for years, and it’s not as though they need to disperse the staffs next week. They might as well do something before they all wrap up. If it’s really just supposed to prod Boeing into bidding aggressively, then the bid can be merely perfunctory. Indeed, the less aggressive the bid, the less care needs to go into writing it. A bigger margin can hide ex ante errors.
Boeing could get greedy. Then again, if they were willing to submit a sharp bid, or even one at cost, there's always the possibility that Boeing will assume that there’s no Airbus on offer, and bid with a fat margin. That could be made more likely by these repeated disavowals of any interest in the process. In that case, even the cost-disadvantaged A330 might come through. It did last time. Moreover, trying to explain to the shareholders why Northrop took its marbles and went home after all these years of competing could be difficult.