Boeing loses tanker contract

WASHINGTON -- Northrop Grumman and the maker of Airbus planes beat out Boeing Co. to win a $35 billion government contract to build up to 179 military refueling planes, the Air Force said Friday.

The selection of Los Angeles-based Northrop Grumman and its European-based partner, European Aeronautic Defence and Space Co., came as a surprise to industry and government officials.

It is a big blow to Chicago-based Boeing, which has been supplying refueling tankers to the Air Force for nearly 50 years and had been widely expected to win the deal.

The contract positions EADS to break into the U.S. military market in a big way. And it opens up a huge new business opportunity for Northrop Grumman, which has operations in Rolling Meadows.

The Air Force has estimated the tanker contract will be worth between $30 billion and $40 billion over 10 to 15 years. It is the first of three deals that could eventually be worth as much as $100 billion over 30 years to replace the entire Air Force fleet of nearly 600 refueling tankers.

Boeing spokesman Jim Condelles said the company is disappointed but has not yet made a decision about whether to appeal the award. Boeing will phase out its 767 line at a factory in Everett, Wash., Condelles said.

The EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, Ala., although the underlying plane would mostly be built in Europe. And it would use General Electric engines built in North Carolina and Ohio.

Northrop Grumman, which is based in Los Angeles, estimates a Northrop/EADS win would produce 2,000 new jobs in Mobile and support 25,000 jobs at suppliers nationwide.

As the winners of the first award, EADS and Northrop will be in a strong position to win the two follow-on deals, analysts believe.