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<< Previous   of   Next >>   ADVERTISEMENT   Related Stories • Tanker bid: Fast reply a good sign for Boeing? 7/9/08 • Boeing gets major boost in Air Force tanker battle 6/19/08 • Alabama officials hope Air Force tanker award stands 6/19/08 • Everett 767 workers hopeful after GAO weighs in on tanker 6/19/08 • GAO ruling unlikely to resolve tanker debate 6/9/08   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Tuesday, August 12, 2008 Will Boeing walk away from the tanker bid? By Michelle Dunlop Herald Writer EVERETT -- The Boeing Co. will discuss a disputed tanker contract with the Pentagon today, a day after a report suggested it might quit the $35 billion contest. Pentagon officials will meet separately today with Boeing and with its main competitor, Northrop Grumman, at Wright-Patterson Air Force Base in Dayton, Ohio, to discuss new tanker requirements released last week. Boeing supporters have said the revised specifications unfairly favor Northrop's larger tanker. The contest to replace 179 aerial refueling tankers for the Air Force is the first of three-part contract worth $100 billion. Boeing's stock dipped 2 percent in early trading Monday after a report in Aviation Week, citing unnamed sources, said the Chicago-based company may not submit a bid because of concerns over the new request for proposals. Boeing spokesman Dan Beck declined to comment on the report and would not discuss the substance of comments the company gave to the Pentagon on Sunday. A competitor's withdrawal at this stage in the $35 billion tanker contest would create significant problems for the Air Force. "I think that Boeing is probably playing a bit of chicken," said Paul Nisbet, an analyst with JSA Research. Boeing, like Northrop, knows that Congress likely won't sign off on a $35 billion tanker contract unless there is a fair competition for the lucrative deal. Congress nixed an earlier tanker contract to Boeing when Sen. John McCain, R-Ariz., raised the issue of competition. That award eventually unraveled when it was discovered that Boeing unfairly steered the contract its way with promises of jobs to a Pentagon weapons buyer and her family. The Air Force reopened the tanker bid process in 2006. In early 2007, Northrop warned it might drop out of the competition if it thought the Air Force already favored Boeing. The threat paid off, Nisbet noted. The Air Force awarded the $35 billion tanker deal to Northrop and its partner EADS on Feb. 29. During a briefing that day, Pentagon personnel said they picked Northrop's KC-30 because it offered "more," referring to the tanker's fuel capacity and its cargo-carrying advantage over Boeing's KC-767. The Air Force's decision to award extra points to Northrop for its tanker's size was at the heart of Boeing's successful protest to the Government Accountability Office. The government auditors backed Boeing, saying the Air Force told the companies no extra credit would be given for exceeding certain requirements but gave additional credit anyway. At the GAO's prompting, the Department of Defense revised its requirements for an expedited bid process. But the changes the Pentagon made "seem to validate their original selection" of the Northrop tanker, Nisbet said. "If it's clear that the Department of Defense wants a larger aircraft than the 767, I can see where that kind of threat might make the Pentagon (renegotiate) some of the requirements," Nisbet said. Boeing kept its commercial 767 jet line going in Everett throughout the tanker acquisition process, which initially began in 2001. The company could offer the Air Force a tanker based on its larger 777 jet, but industry observers doubt Boeing would do so. The Pentagon's shortened timeline for the rebid also would make offering a different tanker difficult. The Department of Defense took over the competition after the GAO cited numerous errors on the part of the Air Force. Pentagon officials want to have the contract wrapped up by the end of the year. But analysts including Nisbet say the tanker dispute will spill over into the next administration. Boeing's shares closed down $1.24 at $66.62 on Monday. As oil prices fell last week, Boeing's stock climbed, rising $6.50 from the Aug. 4 closing to Friday's closing. The company's stock has been on a bumpy ride for much of the past year. After peaking just shy of $108 in July 2007, the company's stock dropped $47 to a low of $60.77 on Aug. 1, 2008. Despite a bulging backlog, Boeing has yet to put to rest concerns about its delayed 787 Dreamliner jet. As airlines struggle to cope with high fuel costs, industry observers predict fewer aircraft orders, more cancellations and delivery deferrals. Several analysts also have expressed unease about Boeing's upcoming negotiations with its two major labor unions. The Associated Press contributed to this report. Reporter Michelle Dunlop: 425-339-3454 or mdunlop@heraldnet.com.

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