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U.S. aerospace industrial base causes alarm

The industry has deteriorated, the Air Force secretary tells lawmakers debating the outcome of a refueling tanker bid the Boeing Co. lost.

By Michelle Dunlop
Herald Writer

EVERETT -- America's aerospace industrial base took the spotlight Wednesday in Washington, D.C., as lawmakers try to sort out a disputed U.S. Air Force aerial refueling tanker contract.

The day after the Boeing Co. protested the Air Force's decision to buy 179 aerial refueling tankers from Northrop Grumman and EADS, parent company of Airbus, its supporters pushed Pentagon officials about the issues considered in the process.

"The Air Force seems to be acknowledging that ... there are factors of concern that were outside what was requested by the law to be considered," said Sen. Patty Murray, D-Wash., during a Senate Defense Appropriations hearing.

Since awarding the contract Feb. 29, the Air Force has maintained it followed the law by ignoring certain factors in its decision. Agency officials have said they were not allowed to consider how each competitor's bid would impact jobs in this country.

But on Wednesday, Air Force Secretary Michael Wynne told Murray he shares some of the senator's concerns about preserving the country's aerospace base.

"I worry about the industrial base of the future," Wynne said.

In written testimony, the Air Force reiterated Wynne's point, noting that the industry has "deteriorated" since the early 1990s. The service suggested increased investment in order to reverse the trend.

"As Air Force assets wear out, the U.S. is losing the ability to build new ones," the Air Force wrote.

Murray suggested it was up to Congress to clean up laws that put American manufacturers at a disadvantage. Boeing backers like Murray argue that illegal foreign subsidies put the Northrop-EADS tanker at an advantage over the Everett-built KC-767.

Boeing alleged in its a protest filed with the Government Accountability Office on Monday that "irregularities" in what it described as a close competition led the Air Force to select "the wrong airplane." The government watchdog group has 100 days to review Boeing's complaint.

While the office considers Boeing's points, Congress still holds the purse strings for the contract, worth roughly $35 billion. Analysts believe it unlikely for Congress to overturn the Air Force's decision.

"That would be extremely unusual and problematic," said Richard Aboulafia, an analyst with the Teal Group. "Probably the most they can do is force a rebid."

Or, Aboulafia suggested, Congress could insert a line to fund Boeing KC-767 tanker into the Department of Defense budget. That could result in the Pentagon essentially splitting the contract or buying more tankers than it planned during this initial phase of its three-step plan to replace its entire KC-135 tanker fleet. The entire replacement project is valued at about $100 billion.

Congress already provided more than $300 million in fiscal year 2008 funding for the Air Force refueling tanker program, partly for research and development activity. The Department of Defense asked for $893.5 million for the program in 2009. Its request would cover "tanker development with focus on design and planning activities ... begins ground tests, and funds advance procurement for long-lead time items," according to Pentagon documents. In his budget request to Congress, President Bush boosted tanker funding to $1.4 billion.

In handing out the award, the Air Force said it hoped to have the first Northrop-EADS KC-30 tanker into the test program in 2010. The Pentagon also aimed to have the first fully capable KC-30 operational by 2013. The Air Force has warned that a protest, such as the one filed by Boeing, could delay the delivery of those tanker by as much as 18 months.

Anticipating a lengthy protest, Congress could scale back funding for 2009, said Paul Nisbet, an analyst with JSA Research. And if enough lawmakers deem the wrong tanker was chosen, they could scrap funding altogether, though Nisbet doesn't believe that will happen.

"The Air Force is at the mercy of Congress," Nisbet said.

That's a point Rep. John Murtha, D-Pa., the chairman of the House Defense Appropriations subcommittee, reminded the Air Force of during a hearing last week. One of Boeing's most adamant supporters, Rep. Norm Dicks, D-Wash., serves as the vice chairman of that committee.

"There is the industrial base you have to consider," Murtha said. "The political implications are important. ... This committee funds this program. All this committee has to do is stop the money, and this program is not going forward."

Reporter Michelle Dunlop: 425-339-3454 or mdunlop@heraldnet.com.