Possible win in November for Boeing Could mean 450 jobs for Michigan

September 13, 2010
| By Pete Daly |
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The aerospace world — including some West Michigan manufacturers — will watch closely in November when the U.S. Department of Defense announces who will provide the U.S. Air Force with a new fleet of tankers for in-flight refueling.

Boeing officials said recently that if Boeing gets the contract to replace 179 aging KC-135 tankers, Michigan will benefit from approximately 450 jobs and an estimated $25 million in annual economic impact. Some of those Michigan companies include Eaton Aerospace, GE Aviation Systems and Honeywell. Eaton has its Aerospace Actuator & Controls division in Grand Rapids, GE Aviation would produce the aircraft’s mission control system in Grand Rapids, and Honeywell has a plant in Boyne City that would make the sensors and switches.

There are others close to home, too.

According to Gavin Brown, head of the Michigan Aerospace Manufacturers Association, “big winners on the west side of the state” would also include Parker Hannifin in Kalamazoo and Kaydon in Muskegon, which makes bearings used in aircraft.

The total contract is expected to be worth from $35 billion to $40 billion over the long run, according to Brown.

Boeing’s NewGen Tanker design, based on the Boeing 767 wide-body architecture, is competing against an aircraft design based on the Airbus 330 airliner, which is made in Europe by a consortium of aerospace companies known as European Aeronautic, Defense & Space, or EADS.

Replacement of the fleet of old tankers has been years in the process and marked by bitter controversy involving various manufacturers and departments within the U.S. government.

Seven years ago, the Air Force had decided to begin leasing tankers from Boeing, but the contract was canceled after a procurement scandal resulting in the prosecution and imprisonment of representatives of both Boeing and the Pentagon.

A couple of years ago, the Air Force awarded the contract for new tankers to a partnership of Northrop Grumman and the EADS organization in Europe. Boeing protested vehemently, however, and the contract decision was rescinded after the General Accounting Office provided support to Boeing’s protest when it determined that the Air Force made errors in its evaluation process.

The bid process began again a year ago but Northrop announced March 8 this year that it was throwing in the towel.

"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,” said Wes Bush, CEO and president of Northrop Grumman Corp.

Bush said the proposed Northrop Grumman tanker “represents the best value for the military and taxpayer — a belief supported by the selection of the A330 tanker design over the Boeing design in the last five consecutive tanker competitions around the globe.” He said the Air Force had — after “rigorous assessment of our proposal” — previously decided it would pay 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," he added.

For its part, EADS decided to go it alone after Northrop Grumman dropped out of the bidding.

In July, yet another company, U.S. Aerospace of Los Angeles, filed a protest with the federal GAO after it submitted a bid after the deadline. U.S. Aerospace has alleged that the Air Force deliberately delayed delivery of the company’s bid proposal. A decision on that protest will be made by Nov. 10, according to a GAO representative. U.S. Aerospace said it was intending to buy components for the air tanker from a Ukrainian company but would assemble the planes in the U.S.

The Kaydon Corp. Bearings Division in Muskegon has been involved in aerospace for years and may be involved in the air tanker contract if Boeing wins the bid, according to brief comments made by plant manager Todd Bramer.

Kaydon, a publicly held corporation (NYSE: KDN) with headquarters in Ann Arbor and manufacturing locations in several states, had sales of $121 million in the second quarter, an increase of 23 percent over the same quarter last year. It is known for its extremely high-precision bearings and velocity control products for alternative energy equipment, industry, aerospace, medical and electronic equipment and aftermarket customers. Three years ago, the Bearings Division in Muskegon received the Premier Supplier Award from Bell Helicopter.

Bramer indicated that the Muskegon plant also has been a supplier to Rolls Royce, which supplies engines to Lockheed Martin for its F-35 fighter aircraft. The plant also supplied a critical bearing for the Lockheed Martin Sniper Advanced Targeting Pod, the targeting system employed by the U.S. Air Force on the F-16 fighter.

Defense has long been the company's flagship market. Founder Harold Frauenthal launched the company in Muskegon in 1941 to meet the U.S. Navy's need for large precision gun-mount bearings. Frauenthal's claim to fame had originally been the specialized grinding machines used to make the gears. That part of the business was spun off decades ago and exists today as the Campbell Grinder Co. in Spring Lake.

Parker Hannifin Corp., based in Ohio, has several manufacturing sites in Michigan, including Otsego and Richland, near Kalamazoo. The company makes various types of mechanical controls. Representatives of Parker Hannifin did not return calls from the Business Journal.

Gov. Jennifer Granholm said that defense “is one of the sectors we're growing to diversify Michigan's economy and create jobs."

"We appreciate Boeing's commitment to Michigan, and we have manufacturers and skilled workers eager to contribute further to our national defense," she added.

U.S. Rep. Pete Hoekstra said defense manufacturing “is a major asset to Michigan's diverse and dynamic economy, and Michigan's skilled work force stands ready to continue working alongside Boeing and its partners should it be chosen by the Air Force."

Boeing currently works with more than 280 suppliers/vendors across Michigan, resulting in an estimated $551 million in annual economic impact, according to Boeing officials.

The ultimate decision on who will be the prime contractor for the Air Force tanker “will be known publicly to everyone on Nov. 12,” said Brown.

Nationwide, Boeing’s NewGen Tanker program will support approximately 50,000 total U.S. jobs at Boeing facilities and at more than 800 suppliers in more than 40 states.

Boeing has been designing, building, modifying and supporting tankers for decades. These include the KC-135 that will be replaced and the KC-10 fleet. The company also has delivered four KC-767Js to the Japan Air Self-Defense Force and is on contract to deliver four KC-767s to the Italian Air Force.

Headquartered in St. Louis, Boeing Defense, Space & Security is a $34 billion business with 68,000 employees worldwide.

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