Northrop stays in running for refueling planes--but barely.

The Air Force unveiled the final terms in its $40 billion competition to find a new fleet of aerial refueling tankers last week, and though concessions were made to keep Northrop Grumman Corp. in the running, it remains unclear if the Los Angeles contractor has a much better chance of winning the colossal bid.

Currently, the bidding is between Boeing Co., which already is making a tanker converted from a Boeing 767 jet for Italy and Japan, and a team of Northrop and Airbus, which could have a version of its tanker, the Airbus A380, ready quickly for the Air Force. Airbus currently makes similar tankers for Australia and the United Kingdom. The tankers transport fuel, typically.

In January, Northrop said it was considering pulling out of the running for the contract because, it claimed, the terms of the deal gave an advantage to Boeing.

"I wouldn't be surprised if Northrop was wishing they never got involved in this project," Paul Nisbet, an analyst with Newport, R.I.-based JSA Research, said.

Northrop's concerns Stem from the bidding guidelines that favor price. Boeing's jet is about $40 million cheaper. Northrop feels that though its version is more expensive, the old guidelines did not consider how the Air Force would evaluate extra capabilities. The A380 can hold more fuel, has a longer range and can carry more cargo and passengers than Boeing's smaller 767. The Air Force has made a push to make all of its aircraft more multipurpose and Northrop argues that the A380 fits that role better than the 767.

Dark horse

"The Air Force tanker is essentially an off-the-shelf item for both companies, so it's not a question of who can build it faster," Nisbet said. "But because of the price difference and the politics involved, Boeing seems to have the edge. But a lot can happen between now and when the contract is awarded."

Northrop executives would not comment for this article.

The Northrop/Airbus team does have Sen. John McCain in its corner. McCain led the charge in 2000 against two Boeing executives for their roles in seeking cushy jobs after a non-compete contract the Air Force awarded to Boeing to lease 100 of the tankers was complete.

McCain ripped the Air Force for awarding an important contract without putting it up for bid and has since appeared to align with Northrop. The Air Force does not want Northrop to drop out, which would put it in the position of awarding the contract to Boeing by default.

In an apparent nod to Northrop, the Air Force added guidelines to its request for proposals and said it will consider capabilities other than refueling (the primary use of the tanker). It said it could possibly award the contract to the "higher priced" bidder if its extra benefits "outweigh the cost difference."

However, there were no specifics as to how the Air Force will grade extra capabilities, a stipulation Northrop has requested from the beginning.

"You're talking paying $40 million more each for 179 bigger, faster jets. That's a lot of extra money for capabilities the Air Force hasn't said it has a want for," Nisbet added.

Northrop and Airbus have 60 days to announce if they will bid.

Northrop might have another rough spot. Rep. Duncan Hunter, R-San Diego, has been very vocal about his opposition to the Northrop/Airbus contract because he fears it will send manufacturing jobs to Europe. Airbus is a European consortium based in France.

"I will fight strongly to see that tens of thousands of aerospace jobs are not sent to France to manufacture Airbus as the next tanker for the United States Air Force," he said in an interview in December.

Northrop has maintained that more than half of the work will be done in the United States, at a facility in Alabama, if it wins the contract.

Northrop's stance is also complicated because its threat to walk away from the contract could sour its relationship with the Air Force, Nisbet said.

"Northrop gets a substantial amount of its business from the Air Force," he said. "So if they just walk away from the tanker bid, they leave the Air Force in a precarious situation. That probably will not bode well for them in the long run."