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Why Taxpayers Lose When Boeing Wins


As Northrop Grumman bows out, the Pentagon writes another blank check.

Last Wednesday, President Obama made a powerful statement about reforming the wasteful manner in which federal defense contracts are awarded: "The days of giving defense contractors a blank check are over," he declared.

It lasted all of three business days.

Yesterday, Northrop Grumman (NOC) dropped out of its decade-long competition with Boeing (BA) to replace Boeing's Eisenhower-era KC-135 refueling tanker fleet, accusing the Defense Department of rewriting the specifications for the $35 billion tanker contract to favor Boeing.

Thus, Boeing -- along with subcontractors Rockwell Collins (COL), Spirit AeroSystems (SPR), United Technologies (UTX), and Honeywell (HON) -- was handed a $35 billion non-competitive contract to supply the US Air Force with a new fleet of refueling tankers.

Northrop Grumman CEO Wes Bush said, "We have a fiduciary responsibility to our shareholders to prudently invest our corporate resources. Investing further resources to submit a bid would not be acting responsibly."

In this instance, Boeing was the one acting irresponsibly, mounting a massively misleading PR effort to convince the public that choosing Northrop Grumman -- who had forged a partnership with EADS, the parent of Airbus -- would be un-American.

Never mind that the Northrop-EADS tanker would have been assembled in Mobile, Alabama.

Senator Jeff Sessions said, "Allegations that this would be a foreign-based aircraft production were simply false. The lead contractor was one of America's finest defense companies, and EADS is based in Europe, the home of our allies and closest defense partners. The aircraft would be built in Alabama, with suppliers employing Americans in all 50 states, employing 48,000 Americans."

In 2001, Boeing got the original tanker contract without a competitive bidding process. It was later canceled after a collusion scandal involving Pentagon procurement official Darleen Druyun and Boeing CFO Mike Sears, both of whom served prison time.
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