Northrop gets boost from tanker bid
Shares of Northrop Grumman Corp., the third-largest U.S. defense contractor with a facility in Rolling Meadows, rose the most in more than four years Monday after the company beat Boeing Co. for an Air Force tanker order valued at as much as $35 billion.
Northrop climbed $3.96, or 5 percent, to $82.57 in New York Stock Exchange composite trading, the biggest gain since July 28, 2003.
Chicago-based Boeing, the No. 2 defense company, fell $2.12, or 2.6 percent, to $80.67, the biggest decline since Jan. 15.
The victory, announced after markets closed Friday, adds a new line of business for Los Angeles-based Northrop, which hadn't previously built tanker aircraft, and gives partner European Aeronautic, Defence & Space Co. its biggest win in the world's largest defense market.
Northrop and EADS won an initial contract of $1.5 billion for development and design of four test aircraft and five options valued at $10.6 billion to build 64 aircraft. The order was the first step to replacing more than 500 KC-135 aircraft, with two more competitions still to come.
EADS, based in Paris and Munich, jumped 9.2 percent to 19.04 euros in Paris, the biggest increase since March 13, 2003.
Boeing, which built the KC-135 tankers the Air Force has been using since 1956, had been the unanimous pick to win the new contract in a Bloomberg News survey.
"Boeing didn't manage to beat Northrop in a single measure of merit," Loren Thompson, an analyst at the Lexington Institute, a think-tank in Arlington, Va., wrote in a note Monday based on his discussions with U.S. Air Force officials.
The Air Force considered mission capability, proposal risk, past performance, cost and integrated refueling in judging the competing bids, Sue Payton, assistant secretary of the Air Force for acquisitions, has said.
Boeing may still choose to protest the award, which could delay the program about four months to the end of June, Walton wrote. He anticipates "little success" for Boeing if it attempts a protest due to the high level of oversight of the award process by Air Force and Pentagon officials.
Northrop's win also faces opposition from the International Association of Machinists and Aerospace Workers, which issued a statement Monday calling the Air Force decision "misguided" and pledging to seek legislation to block the contract. The union represents nearly 720,000 members, including 35,000 Boeing workers.
The tanker aircraft will be assembled by EADS at a plant in Mobile, Ala. As team leader, Northrop will have responsibility for installing the refueling system and other defense electronics and making final delivery of the aircraft to the customer.
Lockheed Martin Corp. is the world's largest defense company.