Pentagon delays $35 billion tanker competition

/ Source: The Associated Press

The Defense Department will push back its decision on a $35 billion tanker contract to the next administration, delaying again the hotly disputed competition between Boeing and Northrop Grumman to replace the Air Force's aging aerial refueling fleet.

Defense Secretary Robert Gates told lawmakers Wednesday that he decided to cancel the current round of bidding on the plane — a competition that has stretched seven years — because the Pentagon's plan to award the contract by the end of the year no longer seemed possible given the complexity of the project and the rancor between the two companies. He said a delay would provide a "cooling off" period.

"We can no longer complete a competition that would be viewed as fair and objective in this highly charged environment," Gates said in testimony before the House Armed Services Committee.

The Pentagon was expected to release its formal set of guidelines as early as Aug. 15 for the last round of bidding for the right to build 179 new planes, but that target has continued to slip. The deal would be the first phase of what could eventually be a much larger fleet and much more lucrative contract. Many of the Air Force's current airborne tankers are around 50 years old.

The decision to delay the award until after the next president takes office in January is a victory for Boeing Co., which had threatened to back out of the competition because of a timeline and terms that it said would unfairly hinder its chances. Boeing had asked for as much as six more months to submit its new bid after the Pentagon issued specifications for the plane that the company said appeared to favor Northrop's larger jet.

Boeing welcomed the Pentagon's decision, saying it will allow "the appropriate time for this important and complex procurement to be conducted in a thorough and open competition."

Northrop Grumman Corp., which has partnered with Airbus parent European Aeronautic Defense and Space Co., was awarded the contract earlier this year, but Boeing protested and a subsequent Government Accountability Office review found major flaws with the way it was awarded. The Pentagon reopened the bidding in August.

Boeing said the new competition was tilted against its smaller plane, a version of the commercial 767 jet. Northrop and EADS have proposed a variant of the Airbus A330 passenger jet, which can carry more fuel.

Northrop spokesman Randy Belote said the company was disappointed in the Pentagon's decision, noting recent statements from senior Air Force officials that cited a pressing need for new planes.

"With this delay, it is conceivable that our warfighters will be forced to fly tankers as old as 80 years of age," Belote said.

The struggle between the two major defense contractors has been especially bitter, with each waging sharp-edged public relations and lobbying campaigns in Washington. Capitol Hill support also is divided, with lawmakers from Boeing's industrial base in Washington state and Kansas battling their counterparts from Alabama who back Northrop's plans to build a manufacturing plant in Mobile, Ala.

Sen. Richard Shelby, R-Ala., called the Pentagon's decision "unacceptable" and said it "clearly places business interests above the interests of the warfighter."

"We are a nation at war, sending our pilots into battle on planes that are largely older than they are," Shelby said. "This approach is irresponsible, shortsighted and harmful to both the warfighter and the nation."

But Washington state lawmakers welcomed the delay. Democratic Sen. Patty Murray called it a "reality check on a procurement process that got very complicated and a little muddied." Rep. Norman Dicks, D-Wash., said the extensive changes the Pentagon made to the contract guidelines put Boeing at a disadvantage.

"They didn't have enough time to do it right," Dicks said in an interview.

Gates' decision is a major win for Boeing, giving it more time to garner political support and revamp its bid for the next round, said Richard Aboulafia, a defense analyst for the Teal Group Inc. The pause also will allow for a more objective review of the contract, said Loren Thompson, a defense analyst for the Lexington Institute.

"The pace of the protest and re-competition happened so fast, there hasn't been an opportunity for policy makers to step back and deliberately be objective," Thompson said.

Aerial tankers carry fuel that allow military planes to refuel without landing. The current Air Force tankers are Boeing planes.

The tanker program has been on hold since late 2004 after Boeing lost the contract amid an ethics scandal that resulted in prison terms for a former senior company official and a former high-ranking Air Force official.

The Pentagon said it planned to ask for money it its fiscal year 2009 budget request for maintenance of the current fleet and planned to continue funding those planes through fiscal 2015. In deciding to again delay the new contract award, the military concluded its planes could continue to fly for "the near future," according to a statement.

Air Force officials, however, have warned that any further delays could force the service to fly its existing tankers for several more decades.