NEW YORK (MarketWatch) -- In a major upset, the Air Force on Friday tapped Northrop Grumman Corp. and EADS to build 179 of its next-generation airborne refueling tankers, a deal worth at least $35 billion.
Aftermarket revenue for parts and maintenance could easily add another $60 billion to their coffers, making it one of the largest defense contracts on record. It could also grow to include eventual replacement of the Air Force's 500 Stratotankers, many of which are already more than 40 years old.
The contract was originally estimated to be worth $40 billion, but the deal Northrop and EADS finally agreed to was $5 billion less.
The first phase of the work calls for developing four test KC-45 aircraft for $1.5 billion. The plane had been dubbed the KC-30 through the bidding process.
Once the basic design has been hammered out, the contract calls for delivery of 64 more aircraft at a cost of about $10.6 billion.
The deal strengthens Los Angeles-based Northrop's chance of landing future airborne tanker orders and expands EADS' role in supplying the U.S. military. The partners have said the plane would be built at facilities in Mobile, Ala., creating 5,000 new jobs in the process.
Defense industry analysts had widely expected Boeing Co. to submit the winning bid, using a converted 767 commercial airliner as the platform for the new military tanker. The KC-767 is smaller than the converted A330 aircraft offered by Northrop and built by the Airbus unit of EADS (FR:005730) , the acronym for the European Aeronautic Defence and Space Co.
Boeing will be briefed on the decision on or after March 12. The Chicago-based company is likely to file a protest with the Government Accountability Office. The Air Force wouldn't provide details as to why Boeing was not chosen, but stressed its decision process was well documented.
"The records are clear and well documented, and Boeing has known all along where they stand in the process," said Sue Payton, assistant secretary of Air Force Acquisition in a news conference announcing the deal.
Once the protest is filed, the GAO has 100 days to either dismiss Boeing's complaint or find in favor of the company.
During the conference, Air Force General Arthur Lichte said the Northrop bid was chosen because its aircraft could carry more passengers, cargo, and fuel while also offering more flexibility and dependability over Boeing's offer.
"Overall, Northrop was strong in aero refueling and airlift, as well as in past performance, and offered great advantage to the government in cost," added Payton.
Later Payton added that the creation of American jobs was not a factor in choosing the Northrop, EADS offer.
The KC-45 is based on the Airbus A330 tanker that has already won four awards in Australia, Britain, the United Arab Emirates, and Saudi Arabia.