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Boeing Co. loses out on $40 billion contract

Northrop Grumman Corp. and its European partner Airbus were tapped Friday for a $40 billion Pentagon contract to build 179 aerial refueling tankers for the Air Force.

Los Angeles-based Northrop bested rival Boeing Co. in a stunning win that some analysts said upends the Pentagon's long-standing policy of buying weapons systems made by U.S. companies.

The decision to purchase planes that were designed and built in France is likely to rile "Made in America" proponents and lead to a protracted battle in Congress.

The stakes are huge. The contract — potentially worth $100 billion with follow-on orders — is likely to be the nation's last big weapon purchase for at least a decade.

Northrop's win could provide a modest boost to the aerospace industry in California where about 40 companies employing about 7,500 workers would make parts for the plane. The company has estimated that the contract could generate $360 million in economic activity annually.

For supporters of the Northrop-Airbus plane, the contract win marked the latest example of globalization that has blurred nationalistic ties.

The plane, dubbed KC-30, would be a modified version of Airbus' A330 wide-body passenger jet, which is built in Toulouse, France. But Northrop, the defense contractor better known for developing the B-2 Stealth bomber, said it would assemble and modify the tanker in Mobile, Ala., making it in their words an "American-built" plane.

It would be similar to foreign automakers such as Toyota building cars in the United States.

Boeing, considered the odds-on favorite, had planned to assemble its planes, based on its 767 passenger jet, in Everett, Wash., then ship them to Wichita, Kan., to modify them into tankers.

Analysts expect Boeing to protest the decision and appeal to Congress to force the Air Force to reconsider the selection. The congressional delegation from Washington state already had vowed to start a probe if Boeing were to lose the competition.

The award is likely to add to one of the Pentagon's more sordid and tangled procurement yarns that evoked the wrath of a presidential candidate and led to prison sentences for two Boeing executives.

Such a move would entail the Air Force to start another round of reviews and deal another blow to its plans, formulated in 2001, to replace its aging fleet of KC-135 tankers that were built in the late 1950s and early 1960s.

The Air Force eventually wants to buy up to 400 tankers to replace the 530 K-135s in its fleet. But the first effort, a deal to lease 100 planes from Boeing, came under intense scrutiny from Congress, led by Sen. John McCain of Arizona, the leading Republican presidential contender.

Subsequent government probes led to prison sentences for Darleen Druyun, a Boeing executive who had been a top Air Force procurement officer, and Michael Sears, then the company's chief financial officer. The probe revealed that Sears had been recruiting Druyun to work for Boeing while she oversaw the service's procurement decisions including those involving Boeing.

In the wake of the scandal, the lease deal was canceled and the Air Force restarted competition, which prompted Northrop in 2005 to partner with Airbus parent European Aeronautic Defense and Space Co. to bid for the contract.

Northrop's proposal called for modifying the A330 while Boeing kept to its original plans to convert its smaller 767 into a tanker.

Northrop entered the fray lured by the potential to pack the plane with its own high-tech military electronics, as the Air Force considered using the planes for multiple roles including carrying cargo and acting as an aerial command center. Northrop executives estimated that the work on installing the electronic equipment could generate $10 billion in revenue.