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Northrop/EADS Upsets Boeing

Northrop Grumman and Airbus' parent teamed up to beat out the odds-on favorite for a $40 billion contract to supply refueling tankers to the U.S. Air Force
The Northrop-EADS refueling tanker is based on the same frame as the commercial Airbus A330.
The Northrop-EADS refueling tanker is based on the same frame as the commercial Airbus A330. Northrop Grumman

An alliance of Northrop Grumman (NOC), the No. 3 defense contractor and European Aeronautic Defence & Space (EADS), pulled off a major upset on Feb. 29, besting Boeing (BA) to win a $40 billion U.S. Air Force contract for refueling tankers. The decision represents a major coup for a European aviation behemoth—and a major blow for Boeing, considering that the business was firmly in its grasp four years ago but slipped away in a scandal that led to the departure of the company's chief executive.

The Air Force tanker award is considered the largest defense contract since the Joint Strike Fighter (JSF) program of a decade ago. That competition between Boeing and Lockheed Martin (LMT) was ultimately nabbed by Lockheed. The tanker deal comes at a critical time as the Bush Administration defense buildup tapers off over the next several years. The Air Force contract calls for the supply of 179 new refueling tankers to be delivered at a rate of about 15 a year. With the lives of tankers stretching to half a century, maintenance and upgrades could make the value of the contract as much as $100 billion, says Paul Nesbit, a defense industry analyst with JSA Research. "Everyone told us we were crazy, that we had no chance," Northrop CEO Ron Sugar said in an interview. "But we took a big swing and in this case, we hit a home run."