5 reason: TANKER COMPETITION: NORTHROP WON BY A WIDE MARGIN

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TANKER COMPETITION: NORTHROP WON BY A WIDE MARGIN
Loren B. Thompson, Ph.D.
Issue Brief
Mar 3, 2008

Last week Northrop Grumman and European partner EADS confounded
expectations by beating incumbent Boeing for the contract to build the
Air Force's next-generation aerial refueling tanker. The initial
contract will be for 179 modified wide-body jets, but eventually the
entire fleet of 600 cold-war tankers will need to be replaced, making
this one of the biggest marketing coups in defense-industry history.
However, that is just the beginning of what Northrop Grumman has
achieved, because Boeing didn't manage to beat Northrop in a single
measure of merit. Here's how they were evaluated...

1. Mission capability. Arguably the most important factor, this
metric compared the teams on performance requirements, system
integration & software, product support, program management and
technology maturity. The teams tied in most measures, but the
Northrop offering was deemed to offer superior refueling and airlift
capacity at 1,000 nm. range and substantially superior refueling and
airlift capability at 2,000 nm. range. The superior airlift capacity
of Northrop's plane was deemed a "compelling" consideration in giving
Northrop the edge for this factor.

2. Proposal risk. This is the sole factor in which Boeing managed to
match the appeal of the Northrop proposal, but it did so only after
being pressed to accept a longer development schedule for its tanker.
The Boeing proposal was initially rated as high-risk because reviewers
felt the company was offering a plane that in many regards had never
been built before, and yet claiming it could be built fast at
relatively low cost. The company was forced to stretch out its
aggressive schedule, adding cost.

3. Past performance. The Northrop Grumman team received higher
ratings in past performance due to satisfactory execution of half a
dozen programs deemed relevant to the tanker competition. Air Force
reviewers had less confidence in Boeing's past performance due to poor
execution in three relevant programs. In addition, Northrop's
subcontractors were rated more highly on past performance than
Boeing's.

4. Cost/price. This was the factor in which many observers expected
the Northrop-EADS team to shine, because EADS subsidiary Airbus
usually underbids Boeing in commercial competitions. But Boeing
compounded its difficulties in the eyes of reviewers by failing to
adequately explain its assumptions in calculating the cost of
developing a tanker. The resulting low confidence in Boeing cost
projections undercut its claims of lower life-cycle costs. Northrop
was rated higher.

5. Integrated assessment. The "integrated fleet aerial refueling
assessment" was designed to compare how the competing planes would
fare in an operational setting using a realistic wartime scenario.
The review found that the Northrop Grumman proposal could accomplish
specified missions with nearly two dozen fewer planes than the Boeing
proposal, a big advantage.

So Northrop Grumman's victory was not a close outcome. Although both
proposals satisfied all performance requirements, the reviewers
concluded that if they funded the Northrop Grumman proposal they could
have 49 superior tankers operating by 2013, whereas if they funded the
Boeing proposal, they would have only 19 considerably less capable
planes in that year. The Northrop-EADS offering was deemed much
better in virtually all regards.

On Mar 5, 1:38*am, Herbert Viola wrote:
In article
,

*Mike wrote:
4. *Cost/price. *This was the factor in which many observers expected
the Northrop-EADS team to shine, because EADS subsidiary Airbus
usually underbids Boeing in commercial competitions. *But Boeing
compounded its difficulties in the eyes of reviewers by failing to
adequately explain its assumptions in calculating the cost of
developing a tanker. *The resulting low confidence in Boeing cost
projections undercut its claims of lower life-cycle costs. *Northrop
was rated higher.

What happens when the dollar continues its fall against the Euro?

We tell Boenig to go build more moon rockets,
Since Boeing are not only retards, they're GM-7 retards.

What happens when the dollar continues its fall against the Euro?

Will depend upon the proportion of Euro-denominated content.

Recall that much of the finished product will be assembled and configured in the US. Final assembly will be done in the Mobile, AL area. The analogy is the many Japanese automakers who have set up shop (literally) in the US. Hondas produced at the Marysville, OH plant are overwhelmingly US content, and of course are assembled by US labor.

--
Mike Kanze

"As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly sight."

- Warren Buffett, Chairman, Berkshire Hathaway, in his 2007 letter to shareholders

"Herbert Viola" wrote in message ...
In article
,
Mike wrote:

4. Cost/price. This was the factor in which many observers expected
the Northrop-EADS team to shine, because EADS subsidiary Airbus
usually underbids Boeing in commercial competitions. But Boeing
compounded its difficulties in the eyes of reviewers by failing to
adequately explain its assumptions in calculating the cost of
developing a tanker. The resulting low confidence in Boeing cost
projections undercut its claims of lower life-cycle costs. Northrop
was rated higher.

What happens when the dollar continues its fall against the Euro?

In article ,
Herbert Viola wrote:

In article
,
Mike wrote:

4. Cost/price. This was the factor in which many observers expected
the Northrop-EADS team to shine, because EADS subsidiary Airbus
usually underbids Boeing in commercial competitions. But Boeing
compounded its difficulties in the eyes of reviewers by failing to
adequately explain its assumptions in calculating the cost of
developing a tanker. The resulting low confidence in Boeing cost
projections undercut its claims of lower life-cycle costs. Northrop
was rated higher.

What happens when the dollar continues its fall against the Euro?

If.

There's noise coming out of European economists that the Euro is
becoming badly over valued, and their starting to worry.

There's noise coming out of European economists that the Euro is becoming badly over valued, and their starting to worry.

Maybe that Paris vacation will become affordable once again. g

--
Mike Kanze

"As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly sight."

- Warren Buffett, Chairman, Berkshire Hathaway, in his 2007 letter to shareholders

"Steve Hix" wrote in message ...
In article ,
Herbert Viola wrote:

In article
,
Mike wrote:

4. Cost/price. This was the factor in which many observers expected
the Northrop-EADS team to shine, because EADS subsidiary Airbus
usually underbids Boeing in commercial competitions. But Boeing
compounded its difficulties in the eyes of reviewers by failing to
adequately explain its assumptions in calculating the cost of
developing a tanker. The resulting low confidence in Boeing cost
projections undercut its claims of lower life-cycle costs. Northrop
was rated higher.

What happens when the dollar continues its fall against the Euro?

If.

There's noise coming out of European economists that the Euro is
becoming badly over valued, and their starting to worry.