The bidding process to replace the U.S. Air Force's aging fleet of tanker aircraft has been long and fraught with allegations of fraud and favoritism. The bidding process was won by Northrop Grumman in March of 2008, but an appeal by competitor Boeing ended up in the win being overturned.

The new RFP for the tanker contract was published in February 2010 and Northrop Grumman/EADS was fast to complain that the new rules strongly favored the smaller Boeing 767-based tanker. Northrop Grumman went so far at the time to threaten to leave the competition if the RFP wasn't substantially changed. Earlier this month Boeing unveiled its NewGen aircraft that it would be submitting for the tanker replacement program.

Northrop Grumman announced this week that it would in fact pull out of the competition – Northrop Grumman CEO Wes Bush issued a statement saying, "After a comprehensive analysis of the final RFP, Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program. We reached this conclusion based on the structure of the source selection methodology defined in the RFP, which clearly favors Boeing's smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity."

Bush went on to say, "We have decided that Northrop Grumman will not protest. While we feel we have substantial grounds to support a GAO or court ruling to overturn this revised source selection process, America's service men and women have been forced to wait too long for new tankers. We feel a deep responsibility to their safety and to their ability to fulfill the missions our nation calls upon them to perform. Taking actions that would further delay the introduction of this urgent capability would also not be acting responsibly. "

DefenseNews reports that politicians supporting Northrop in Washington were quick to condemn the Pentagon for effectively eliminating Northrop from the bidding process with the final RFP for tanker aircraft. Senator Richard Shelby from Alabama said, "The Air Force had a chance to deliver the most capable tanker possible to our war fighters and blew it. This so-called competition was not structured to produce the best outcome for our men and women in uniform; it was structured to produce the best outcome for Boeing."

According to Reuters, EADS CEO Louis Gallois added, "We have no chance to win in the competition in these conditions." Airbus CEO Tom Enders said, "I leave the political assessment to others. For me it is clear, however, that under the current conditions a bid makes no economic sense for Airbus."

With no formal protest from Northrop Grumman/EADS Boeing will be the only bidder for the lucrative contract expected to be worth $35 billion over the term. Bush said, "We recognize that our decision likely creates a sole-source outcome for Boeing. We call on the Department to keep in mind the economic conclusions of the prior round of bidding as it takes actions to protect the taxpayer when defining the sole-source procurement contract. In the previous round, the Air Force, through a rigorous assessment of our proposal, determined that it would pay a unit flyaway cost of approximately $184 million per tanker for the first 68 tankers, including the non-recurring development costs. With the Department's decision to procure a much smaller, less capable design, the taxpayer should certainly expect the bill to be much less."

It's clear that Bush feels that the less capable aircraft should not cost taxpayers as much as they would have paid for the more capable Northrop Grumman/EADS offering. Bush also pointed out that a win by Boeing with a less capable aircraft would mean that for the first time U.S. allies would have a more capable tanker aircraft than the U.S. Air Force.