IE 11 is not supported. For an optimal experience visit our site on another browser.

Washington to decide this week in tanker contest

By Andrea Shalal-Esa
/ Source: Reuters

By Andrea Shalal-Esa

WASHINGTON (Reuters) - The government is due to pick the winner this week in a huge warplane competition that pits No. 2 U.S. defense contractor Boeing Co against a team made of No. 3 Northrop Grumman Corp and its European partner, Airbus parent EADS .

Closely watched on both sides of the Atlantic, the battle involves one of the largest airplane orders expected for years to come. Each of the teams has spent tens of millions to hone its proposal, advertise it widely, and enlist high-profile former generals to underscore the merits.

Most defense analysts expect Chicago-based Boeing to win the contract for 179 new aerial refueling tankers, valued at $30 billion to $40 billion over the next 10 to 15 years, but Northrop insists it has a fighting chance.

Boeing built the fleet of over 500 KC-135 tankers now used by the Air Force as flying gas stations to extend the range of fighter jets and other warplanes.

The Air Force had already previously chosen Boeing's 767 tanker in a controversial $23.5 billion leasing plan -- put together shortly after the September 11, 2001, attacks -- that later collapsed amid the biggest procurement scandal since the1980s.

Lawmakers are being especially vigilant, given the history of the earlier proposal, which eventually sent two former Boeing executives to prison for conflict of interest and prompted the resignation of two top Air Force officials as well as Boeing's chief executive at the time, Phil Condit.

Air Force officials have made a concerted effort to keep this competition as transparent and scandal-free as possible, meeting repeatedly with the rival bidders to explain the strengths and weaknesses of their respective proposals.

But defense officials and analysts still expect that the losing side will protest the award, given its massive scope and a spate of recent decisions faulting the Air Force's handling of other acquisition programs.

While considered a long shot, a win by Northrop and EADS would constitute a major upset, and move EADS into the top ranks of foreign suppliers to the Pentagon, second only to Britain's BAE Systems PLC , said defense analyst Loren Thompson of the private Lexington Institute research group.

The contract award could also spark congressional action, given lawmakers' keen interest in securing new jobs for their states. The contest has led to heated exchanges among governors and other politicians in the regions competing for the work, even generating charges of discrimination and racism.

Boeing would build its 767 tanker at its long-established Everett, Washington plant, then adding a refueling boom and other military components at a plant in Wichita, Kansas. It says it would support 44,000 jobs in total.

Northrop and EADS offered a modified Airbus A330 airliner that would be built largely in France, but assembled at a new plant in Mobile, Alabama. Northrop says its plane would create more than 1,500 U.S. jobs while supporting 25,000 others.

Announcement of a winner could come as early as Monday afternoon following a 2 p.m. meeting of the Pentagon's Defense Acquisition Board. But two defense officials said they did not expect any word until Tuesday evening at the earliest.

Air Force acquisition chief Sue Payton, the "source selection authority" for the contract, and other officials met at Wright-Patterson Air Force Base in Dayton, Ohio, last week to select the winner. More than 150 Air Force officials were involved in evaluating the bids over the past year.

The competing planes were judged against five main criteria: how they would accomplish the refueling mission, proposal risk, past performance, cost, and finally, a complicated assessment of how the tankers would work together with the existing fleet in a classified war scenario.

Analysts say replacing the Air Force's total fleet of over 540 KC-135 tankers could eventually cost over $100 billion.

Air Force officials plan to buy tankers in three separate competitions over the next decades, which means the loser of this first contest could still have a shot at the next one.

Lt. Gen. Donald Hoffman, the Air Force's top uniformed acquisition official, said the service could even decide to split the second competition, an option scrapped this time because it would have doubled development and maintenance costs at a time when the Air Force is already facing large bills for other programs, including the F-35 Joint Strike Fighter.

Hoffman said the Air Force expected to gradually ramp up to spending of $3 billion a year on the first group of tankers, acquiring 12 to 18 tankers each year.

He said the service hoped to win congressional approval for a multi-year procurement agreement once the program was underway, which could help to generate some savings.

(Reporting by Andrea Shalal-Esa; editing by Gunna Dickson)