Aerospace & Defense industry review Q1-2008; RSM EquiCo Capital Markets

Key Trends: Boeing Loss to Northrop Creates Stir

The $1.5 billion initial U.S. Air Force ASC award to Northrop Grumman for the new KC-45 refueling tanker has created ripple effects on the U.S. supplier base that are being intensely debated. The award, which has the potential to grow to $35 billion, not only puts Northrop in a favorable position on future transport aircraft, but it also has given Airbus an important foothold in the U.S. market, since the winning proposal featured the European designed A330.

Following the decision, both Boeing and politicians on Capitol Hill protested that the award will sacrifice American jobs and opportunities. The validity of that point is debatable, since the new KC-45 will be assembled at manufacturing facilities in Mobile, Ala. by 25,000 American workers. This issue highlights the ongoing trend towards globalization of aerospace and its associated pains.

On one hand, this award, based on a stringent set of technical specifications, will provide U.S. troops with the best possible equipment at the lowest cost to the American taxpayer. On the other, Department of Defense dollars will directly benefit a non-U.S. company. While the overall net effect is uncertain, it is clear the issue of globalization will continue to dominate headlines and directly affect future contract awards. Read complete report.