GAO backs Boeing on tanker pact

Agency says Air Force should reopen the bidding

June 19, 2008|By New York Times News Service

The Government Accountability Office has backed Boeing's protest of the awarding of a multibillion-dollar contract for refueling tankers to Northrop Grumman and a European partner, saying the Air Force made errors during the process.

The GAO, the investigative arm of Congress, recommended yesterday that the Air Force reopen the bidding and obtain revised proposals.

The $40 billion tanker program is the Air Force's No. 1 priority, intended to replace a fleet of aerial refueling tankers - which provide fuel to fighter jets and cargo planes in midair - that date back to the Eisenhower administration and which are being stressed in wars in Iraq and Afghanistan.

It is one of the modern military's most lucrative contracts, but it is more than a battle over planes. It has become a trans-Atlantic battle involving controversy, delays, politics and cries over jobs and national pride. Three global military contractors were the chief players - Boeing on one side and Northrop Grumman and its partner, European Aeronautic Defence and Space, on the other.

The decision in February to award the tanker contract to the partnership of Northrop and EADS, the parent of the plane maker Airbus, was a stunning upset for Boeing and quickly made headlines around the world.

The decision was a sign of the growing influence of foreign suppliers within the Pentagon and tangible evidence that the Pentagon was as willing to buy products from foreign countries as it was to ensure that American military contractors sold their goods overseas.

Northrop Grumman-EADS has said the contract would create 25,000 jobs involving 230 suppliers in 49 states. Northrop employs nearly 11,000 in Maryland. According to its Web site, the tanker contract will generate work at its Electronic Systems unit in Linthicum, General Electric Co.'s Middle River Aircraft Systems and PerkinElmer Fluid Sciences in Beltsville.

The award broke a decades-long relationship between the Air Force and Boeing Co., which had built the bulk of the existing tanker fleet and was thought to have the inside track on the deal. Besides most of the current tanker fleet, Boeing was a main provider of any number of other cargo planes, fighter jets, helicopters and other aerial vehicles.

Boeing's decision to protest the Air Force's choice was a bold one and risked alienating the company's biggest customers. At the time of the decision, Air Force officials had sent out strong signals that they hoped Boeing would not take the course that it did, arguing that a protest by the Boeing would only further delay a badly needed program.

But Boeing did so anyway, mounting a multimillion-dollar advertising and public relations campaign and rallying members of Congress from areas where Boeing did business and sympathetic to the company's "Buy America" sentiment. It has run full-page color ads in large newspapers and in trade publications.

Boeing's main argument is that the Air Force's decision-making process was flawed and that its own offering - a revamped Boeing 767 - would cost less over the life of the plane than the EADS-Airbus tanker. The Air Force had miscalculated when it concluded that the costs of the two planes were about equal, Boeing said.

In addition, Boeing said its product would be a lower-risk choice because it would be produced on an existing assembly line and not a new one to be constructed for the tanker, as with Northrop-EADS.

Boeing also said that its plane, which is smaller than the Airbus A330 that would be used for the EADS tanker, would give the Air Force more flexibility. Even more, Boeing said it was led to believe that the Air Force was in the market for a smaller plane.

In Congress, "Buy America" proponents led the charge for Boeing, deriding the EADS plane as a "French tanker," even though it would be assembled in Mobile, Ala.

Northrop and EADS responded with a nearly daily e-mail barrage, saying its tanker provided better value for the Air Force and criticizing Boeing for causing additional delays in the program.

For the Air Force, the tanker decision was also about its own reputation and ability to run a fair and honest competition after a previous decision to award the tanker contract to Boeing, through a leasing arrangement, collapsed amid a controversy.

Evidence of a pattern of pro-Boeing favoritism within the Air Force led to congressional hearings and the jailing of a former senior Air Force procurement official and a former senior Boeing executive.

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