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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Thursday, August 7, 2008 New rules in tanker contest produce no clear favorite Specifications both help and hurt Boeing's chances By Michelle Dunlop, Herald Writer EVERETT -- The Pentagon released its revised specifications for a $35 billion tanker contract Wednesday with the hopes of putting an end to the battle between the Boeing Co. and Northrop Grumman and EADS by year's end. But few think the competition to supply the Air Force with aerial refueling tankers will end soon. The expedited competition comes in response to criticism from government auditors of the Air Force's initial contest, won by Northrop and EADS. Boeing quickly protested the award to the Government Accountability Office, putting the deal on hold. The revisions address the GAO's key points and make it easier for the competitors to "fully understand what the priorities are," Shay Assad, who directs procurement for the Defense Department, said at a press conference. The Pentagon said it would give "positive consideration" to extra fuel capacity, a move that favors Northrop and EADS' larger KC-30 tanker. But the Defense Department also extended its life-cycle outlook to 40 years from 25, a revision that could give Boeing's KC-767 an edge. Both bidders will meet with the Defense Department next week and are expected to submit proposals Oct. 1. Local aerospace analyst Scott Hamilton, with Leeham Co, deemed the Pentagon's changes "offsetting." Industry observers have found the prolonged tanker contest surprising at every turn. Initially, Boeing was favored heavily to win. Therefore, Hamilton thinks the competition is still up for grabs, but he gives Northrop and EADS a slight edge. The Air Force awarded the contract to Northrop and EADS on Feb. 29. But the GAO sided with Boeing, saying that Air Force errors hurt Boeing's chances at winning the lucrative contract. This competition to replace 179 aerial refueling tankers could give the winner an advantage in a series of tanker bids worth $100 billion. Government auditors recommended that the Air Force reopen the competition. After firing key Air Force officials, Defense Secretary Robert Gates stepped into the contract dispute last month and announced that his office would conduct an expedited re-bid between the two competitors. The Pentagon hopes to have the contest wrapped up by early next year at the latest. But that doesn't rule out another protest. Either party could take its case back to the GAO, depending on the outcome of the new competition. Both Boeing and Northrop said Wednesday that they were reviewing the new contract terms. Items of contention: Size and capacity The GAO faulted the Air Force for giving extra credit to Northrop for exceeding fueling capacity after saying it would not give such credit. On Wednesday, the Pentagon's Assad said the Air Force had always intended to reward competitors for a higher capacity. The revamped terms clarify the Air Force's wishes. The change benefits Northrop and EADS and has been the focus of Boeing backers' anger. Boeing officials warned last month that they may protest the revisions to the GAO if the Pentagon made significant changes. "The Defense Department now apparently intends to award greater credit for having the ability to carry more than the 'threshold requirement' contained in the previous solicitation," said U.S. Rep. Norm Dicks, D-Wash. The revised requirement "contains vague language about how the fuel burn rate would be calculated -- potentially diminishing the additional $25 to $30 billion cost of purchasing the 179 A330 versus that number of Boeing 767s." The Pentagon said last month that Boeing still could offer a tanker based on its larger 777 commercial jet rather than its medium-sized 767 aircraft. Observers, however, have shot down the prospect, saying Boeing's 777 likely would be too large for the Air Force. And the timeline laid out by the Pentagon would make that difficult. Tanker lifetime costs The Pentagon said Wednesday that it increased its longevity expectations of the tanker to 40 years rather than the 25 indicated in the initial bid. "We are going to measure life-cycle costs on a 40-year basis," Assad said. A fleet of Boeing's smaller KC-767s would use less fuel over the course of four decades than Northrop's KC-30, giving the Chicago-based Boeing an advantage in the lifetime-costs category. Aerospace industrial base Last week, in its markup of the 2009 Defense appropriations, a House subcommittee interjected language that instructs the Pentagon to consider the aerospace industrial base when it decides the tanker contract. The move by Rep. John Murtha, D-Pa., could bolster Boeing's case. Boeing would assemble its KC-767 in Everett with military installation work completed in Wichita, Kan. Northrop and EADS would assemble their KC-30 in Mobile, Ala. The duo's tanker is based on an Airbus A330 jet. EADS is the parent company of Toulouse, France-based Airbus. But the Pentagon's Assad said the Defense Department didn't alter its requirements in this regard, saying the industrial base is always considered when an agency begins the procurement process. Boeing supporters in Congress immediately raised concerns about the tanker rebid. "I have questions about the increased weight given to fuel offload capability," said Rep. Rick Larsen, D-Wash., in a statement. "I also have questions about the lack of consideration given to our industrial base. American taxpayers and Boeing workers deserve answers to these questions." Alabama's congressional delegation remained upbeat about Northrop and EADS' chances of keeping the contract. "I am hopeful that this draft (request for proposal), while addressing the concerns of the GAO, will maintain a level playing field for both competitors, and I look forward to seeing the Northrop Grumman tanker reaffirmed as the more-modern, more-capable aircraft," said Rep. Jo Bonner, R-Ala. Reporter Michelle Dunlop: 425-339-3454 or mdunlop@heraldnet.com.

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