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Boeing gets major boost in Air Force tanker battle

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By Michelle Dunlop, Herald Writer
EVERETT -- The Boeing Co. got the response it wanted Wednesday when government investigators decisively backed the company's protest of an Air Force tanker contract.
"Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman," the Government Accountability Office wrote in a statement.
Boeing won't be building 767-based tankers for the Air Force in Everett just yet. In fact, the Air Force's seven-year attempt to replace its aging fleet of Boeing-built KC-135 Stratotankers likely will drag on for a while longer.
"This is not a done process. Everyone knows that," said Tom Wroblewski, president of the local district of Boeing's Machinists union. "The first quarter is over. We just won."
Shocked by its loss of a $35 billion tanker contract to Los Angeles-based Northrop Grumman and its French partner, EADS, Boeing protested the Air Force's decision to the GAO in March. The initial Air Force contract gives the winner a leg up on a three-part deal worth $100 billion.
In siding with Boeing on Wednesday, investigators recommended the Air Force reopen the competition.
Although the Air Force doesn't have to comply with the GAO, it "really doesn't have a choice," said Richard Aboulafia, an aerospace analyst with the Teal Group.
Reopening the bid means a delay of at least another one to two years in a process that began shortly after the terrorist attacks of Sept. 11, 2001. Boeing supporters, especially those in Washington state, then looked for a means to stem the massive layoffs associated with a downturn in the aviation industry. Boeing won the initial deal but was stripped of its prize due to ethics violations on the part of both Boeing and the Air Force.
The Air Force's prior missteps, along with its need to replace its old, inefficient tankers, should have given the agency good cause to get this tanker contract right, said Scott Hamilton, a local analyst with Leeham Co.
"You would think that having screwed up the competition before and knowing the scrutiny this thing would be under ... how in the world could they screw this up again?" Hamilton said.
Earlier this month, the Defense Secretary Robert Gates fired two top Air Force officials after nuclear mix-ups. Their ousting caused many Boeing supporters to question the Air Force's judgment during the tanker procurement process. It also prompted talk that Congress should intervene.
One outspoken Boeing backer, Rep. Norm Dicks, D-Wash., said following the GAO's ruling that it's still up to Congress to step in and figure out how to meet the "urgent need" to replace the Air Force's KC-135 tankers.
"I believe the Air Force should set aside the agreement it improperly reached with EADS/Northrop Grumman and we should proceed expeditiously to build the best aircraft -- the Boeing KC-767 -- here at home," Dicks said.
Sen. Patty Murray, D-Wash., also suggested that Congress still has a role in the tanker battle.
"It is Congress' job to determine whether major defense purchases meet the needs of our warfighter and deserve taxpayer funding," she said.
Dicks, Murray and other members of the Washington state Congressional delegation took exception to the role of Northrop's partner, EADS, the parent company of Boeing's commercial rival Airbus. Northrop and EADS proposed to assemble a tanker derived from Airbus' A330, in Mobile, Ala. Boeing and Airbus are locked in a trade dispute with the World Trade Organization involving alleged illegal subsidies for the A330.
Winning the tanker deal would offer EADS and Airbus a step into the U.S. defense market as well as a production facility in this country. EADS hopes to deal with a tanking dollar by opening up shop in Alabama with the tanker contract.
"Clearly Northrop Grumman's KC-(30) is the best plane at the best price," said Stephen Nodine, a county commissioner for Mobile. "I think in the end that the planes will be built in Mobile County. We just have to keep on fighting."
When the Pentagon announced Northrop's win Feb. 29, Air Mobility Commander Gen. Arthur Lichte told the media he could sum up the Air Force's rationale for the Northrop tanker in one word: "more."
The larger KC-30 tanker allows for more passengers, cargo, fuel to offload, patients to be carried, "more availability, more flexibility and more dependability," Lichte said.
His comments highlight two major objections that Boeing had to the Air Force decision. Boeing disputed both the assertion that the A330 was the most cost efficient and the claim that it was the right size for the Air Force's needs.
The GAO largely concurred with Boeing's concerns, saying the Air Force misled Boeing by telling the company it met objectives. The Air Force later changed its mind but failed to notify Boeing, the GAO said. In terms of cost, the Air Force "improperly increased Boeing's estimate" and was "unreasonable" in figuring military construction costs associated with the different tanker platforms.
Ultimately, though, Boeing's Mark McGraw, vice president for Boeing's tanker programs, said the company found the Air Force's evaluation process unclear -- a factor that could hinder future bids. "We still do not know ultimately why we were not selected," McGraw said in an interview Wednesday before the GAO's announcement.
McGraw and other Boeing officials said recently that a loss in this tanker contract could keep the company out of the tanker business for decades. Boeing has lost several international tanker competitions to EADS after falling years behind in delivering its KC-767 tankers to Japan and Italy. The GAO's ruling offers some light for Boeing's defense business.
Boeing's stock, which rose nearly $3 in early trading, got only a minor boost, up 27 cents to $74.65 for the day.
Northrop said Wednesday that it would review the GAO's findings before giving extensive comments. "We continue to believe that Northrop Grumman offered the most modern and capable tanker for our men and women in uniform, said Northrop's Randy Belote.
EADS chief executive Louis Gallois expressed disappointment.
"We will support our partner Northrop and remain confident that the KC-(30) is the aircraft best suited to make the Air Force's critical mission requirements," Gallois said.
Air Force officials also said they needed to review the investigators' findings. The service said it will select "the best value tanker for our nation's defense, while being good stewards of the taxpayer dollar."
The Air Force has 60 days to answer the GAO's statement. Should the contract be re-bid, the winner likely would be announced under a new president.
Democratic presidential nominee-in-waiting Sen. Barack Obama lauded the GAO decision and called for a "fair and transparent" rebidding of the contract, according to the Associated Press.
The presumptive Republican presidential nominee, Sen. John McCain, was instrumental in ending Boeing's original contract. He also played a role in striking trade dispute language from this contract, a step that worked in Northrop and EADS' favor.
"I think its unfortunate for the taxpayers, but obviously they need to go back and redo the contracting process again and the awarding of it and I hope that this time they will get it right," McCain said.
Boeing 767 engineer Richard Pedersen also wants to see the Air Force get it right.
"We always thought we had the better airplane," Pedersen said of the GAO ruling. "The most important thing is that the Air Force is getting the best airplane for the job."
Herald reporters Jerry Cornfield and Eric Fetters contributed to this story.



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