Published: Monday, March 10, 2008
Boeing sets stage for protest of tanker award
By Joelle Tessler
Associated Press
WASHINGTON -- Boeing Co. on Monday inched closer to formally protesting a $35 billion Air Force tanker award it lost, saying it has "serious concerns" about the fairness of the competition.
Boeing was debriefed by Air Force officials on Friday about why European Aeronautic Defence and Space Co. and Northrop Grumman Corp. won the high-stakes deal to replace 179 air-to-air refueling tankers. The award is the first of three major Air Force contracts to replace its entire fleet of nearly 600 aging tankers over the next 30 years.
"We have serious concerns over inconsistency in requirements, cost factors and treatment of our commercial data," Mark McGraw, Boeing vice president and program manager for tanker programs said in a statement.
Boeing has until Wednesday to decide whether to formally protest the decision to the Government Accountability Office. A protest could delay execution of the tanker contract by nearly a year, according to Loren Thompson, a defense analyst with the Lexington Institute, a think tank.
The Air Force selection of EADS, the European parent of Boeing rival Airbus, and Northrop Grumman of Los Angeles came as a major surprise to lawmakers, investors and defense industry insiders. Boeing, which has been supplying refueling tankers to the Air Force for nearly 50 years, had been widely expected to win the award.
The decision has triggered a fierce backlash on Capitol Hill, led by lawmakers from Washington, Kansas, Connecticut and other states that would have gained jobs from a Boeing win. Many are questioning why the Air Force would award such an important, high-value contract to a European company over an American one.
Richard Aboulafia, an analyst with the aerospace consulting firm Teal Group, said a Boeing protest is likely in part because it would "give politicians something to work with when they go to bat for the company in Congress."
In congressional testimony and statements to reporters over the past 10 days, Air Force officials have indicated that the larger size of the tanker offered by the EADS/Northrop team helped tip the balance in its favor. They have also stressed that they considered the capabilities and the cost of the two tankers -- but not the impact on jobs -- in selecting the winning proposal.
Top Air Force officials -- including Air Force Secretary Michael Wynne, Air Force Chief of Staff T. Michael Moseley and Sue Payton, the Air Force's assistant secretary for acquisition -- are scheduled to testify more about the tanker contract at a series of congressional hearings this week.
Thompson, for one, said the Boeing proposal lost by a wide margin, which could make a successful protest difficult. But in its statement on Monday, Boeing said "this competition was much closer than has been reported."
The company also took issue with reports that it did not provide enough commercial pricing data to the Air Force and hinted that it believes its pricing data may have been evaluated differently than the data provided by the EADS/Northrop Grumman team.
In addition, Boeing rebutted reports that it misread the requirements the Air Force had set out for the new tankers.
"We stand by our offering and believe that it did, and continues to, best meet the requirements," McGraw said.
Still, at a Wall Street conference last week in New York, Jim Albaugh, head of Boeing's Integrated Defense Systems unit, said the company had a different reading of the Air Force request for proposal than the Air Force did. "We didn't think they wanted a bigger plane," Albaugh said last Wednesday. "We thought they wanted a replacement for the KC-135," the current Boeing-made fleet.
He added that this is why Boeing based its offering on a similarly sized plane, the 767, and noted that "we were discouraged from offering the 777," a bigger aircraft that would have been more comparable to the winning bid.
Meanwhile, Northrop Grumman ramped up its own public relations campaign on Monday, calling its tanker "America's tanker." In a statement, the company also said the Air Force had not established size as a criteria in the tanker competition and maintained that the contest was "the most rigorous, fair and transparent acquisition process in Defense Department history."
Boeing's shares were down $1.30 at $75.30 Monday. And shares of Northrop Grumman were up 11 cents at $79.12.
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