("=Northrop Wins $3.8B Air Force Tanker Fleet Maintenance Pact," at 1:26 p.m. ET, misstated details about the current fleet in the second paragraph. The corrected version follows:)
By David Benoit
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- The U.S. Air Force Thursday evening awarded to Northrop Grumman Corp. (NOC) a $3.8 billion maintenance contract for its aging fleet of airborne refueling tankers, a contract that had belonged to Boeing Co.'s (BA).
The contract, to service the KC/KDC-10 Extender, is a nine-year program to provide maintenance for the tanker fleet, 59 aircraft in all. The aircraft were first delivered 28 years ago, and the Air Force is in the middle of another attempt to award a lucrative contract to replace the fleet, but for now Northrop will care for the aircraft.
"We are very excited to work shoulder to shoulder with the Air Force to keep these important aircraft in the air supporting our most vital assets," Leah Smith, spokeswoman for Northrop, told Dow Jones Newswires.
Northrop was teamed with a handful of partners on the bid, including AAR Corp. (AIR), Chromalloy Gas Turbine LLC, TIMCO Aviation Services Inc. and the maintenance unit of MTU Aero Engines Holding AG (MTUAY).
Analysts said that while the contract is an important win for Northrop, the amount is barely a drop in the $34.5 billion in sales Northrop expects to record in 2009 and therefore means little in financial terms for the giant defense contractor.
"It's maybe one percent of sales," said Oppenheimer analyst Myles Walton.
But it does mark a win over one of its biggest rivals, Boeing, which had previously been in charge of the maintenance.
"Obviously we are disappointed," Boeing spokeswoman Deborah VanNierop told Dow Jones Newswires. "We feel very strongly that we have had outstanding performance on this contract, which we have been supporting for over a decade providing 24/7 global readiness to the fleet."
Morgan Keegan analyst Brian Ruttenbur said he would expect Boeing to protest the award, as that means the contract will stay in Boeing's hands until the protest is heard.
"That's a negative for Boeing," Ruttenbur said. "I'd be surprised if there wasn't a protest."
Boeing's VanNeirop said it was premature to comment on whether the company would be fighting the award adding, "We are waiting to go through the briefings to find out exactly why the Air Force made the decision that they made."
Northrop, meanwhile, said it believed the process was sound.
"We think the Air Force conducted a very fair, very open and very thorough search," Smith said.
The Air Force's tanker fleet has already been a sore subject between the defense contractors, after the Pentagon has tried twice to award a contract to build a new fleet and has been forced to withdraw from the process each time. Last week the Air Force launched its third attempt to award the $40 billion contract.
Northrop, and its partner European Aeronautic Defence & Space Co. (EADSY), had won the previous award in February 2008 but Boeing successfully protested. The contract is closely watched by Washington given the jobs at stake.
Both Northrop and Boeing said Friday they didn't attach any underlying meaning to the maintenance award, only saying that they were concentrating on the current fleet.
Northrop shares were recently down 2 cents to $50.08, while Boeing was down 1.4% to $51.39. Northrop partner AAR was up 2.7% to $22.01.
-By David Benoit, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com