Contest for Air Force refueling tanker contract again hits turbulence

An artist's rendering of a Northrop-Airbus tanker plane in action. Politicians and others have taken sides as Boeing and Northrop Grumman vie for the Air Force contract. (Associated Press / March 1, 2008)

When the U.S. Air Force recently launched its third attempt to award a $35-billion contract for aerial refueling tankers, Pentagon officials said the competition would be fair and transparent.

But it was only a matter of days before the process was under attack.

Interest groups, politicians and the contenders -- Boeing Co. and Northrop Grumman Corp. -- began blasting the way the bids were evaluated, prompting some defense industry analysts to question whether the Air Force would ever get its much-needed tankers.

"I don't see how either of these two companies walk away being the sole winner of the contract," said Loren Thompson, defense policy analyst for the Lexington Institute in Virginia. "The Pentagon says the competition will be objective, but that's going to be hard. It's a very complicated framework."

Handing out one of the largest military contracts in U.S. history hasn't been easy for the Pentagon. Twice it has held a competition to replace its fleet of 415 Eisenhower administration-era Air Force refueling tankers, and both times it has failed amid accusations of underhanded politics and discriminatory rule-making. The process first started in 2001.

The tankers, modified Boeing 707 passenger jets, have enabled the U.S. to project its military might all over the world because they can refuel bombers, fighters and cargo planes in midair.

Last month, the Pentagon unveiled the new criteria it would use to award the contract.

Just days later, Century City-based Northrop complained that the latest competition was flawed because its pricing information from the previous tanker bid was provided to Boeing by the government but it had not been given Boeing's pricing information.

"It is fundamentally unfair, and distorts any new competition, to provide such critical information to only one of the bidders," said Paul K. Meyer, Northrop's vice president and general manager of advanced technology and programs.

The Pentagon immediately fired back, saying that "it created no competitive disadvantage because the data in question are inaccurate, outdated and not germane to this source-selection strategy."

Then a collection of eight leaders from conservative groups went on the offensive for Chicago-based Boeing.

They collaborated on a letter that was sent to each member of Congress, asking them to factor in a recent World Trade Organization ruling that found that European Union governments illegally subsidized Airbus, whose parent company, European Aeronautic Defense & Space Co., is teamed with Northrop in the tanker contest.

"The illegal trade subsidies were specifically intended to enable Airbus to underbid its chief rival Boeing," said Kerri Toloczko, senior vice president for policy at the Institute for Liberty. "If the only way you can win is by cheating, what does it say about your team? I don't think the American taxpayer wants their hard-earned dollars going toward a company like that."

The latest scuttlebutt has added to the nearly decade-long controversy that the Pentagon had hoped would end when it awarded a contract last year.

Boeing won the first contract in 2004, but it fell apart because of an ethics scandal that resulted in prison terms for a former senior Boeing executive and a former high-ranking Air Force official.

The competition was relaunched and in 2008 Northrop took home the $35-billion contract to build 179 tankers based on a modified Airbus A330 passenger jet.

It was a huge upset since Boeing had built all of the tankers in the current fleet.

Northrop said the contract award would have created more than 7,500 jobs for California's struggling aerospace industry, even though the planes would be assembled in Alabama.

But the decision was overturned after the Government Accountability Office found that the Air Force mishandled the yearlong competition by failing to credit Boeing, which had offered a tanker based on its 767 airliner, for some of its plane's capabilities.

Defense Secretary Robert Gates was hoping to avoid similar problems, said James McAleese, a lawyer in McLean, Va., who specializes in defense contracts.