Air Force chooses Boeing for $30 billion tanker contract
Michael O'Leary / The Herald
Boeing 767 machinists Dale Flinn (left) and David Muellenbach react happily to the news that Boeing won the Airforce tanker contract while at the Machinist Union Hall in Everett Thursday afternoon.
Sarah Weiser / The Herald
Senator Patty Murray speaks at the News Conference held to discuss the tanker announcement at the Puget Sound Regional Council Offices in Seattle Thursday afternoon. She is joined by Sen. Maria Cantwell (left) and Rep. Jay Inslee (right_.
Dan Bates / The Herald
People in a mood for celebrating, spread cheer from the car as they leave Boeing at the 2:30 p.m. shift change, having just heard the news.
Dan Bates / The Herald
Having just heard the good news, a man leaving the plant in his car during the 2:30 p.m. shift change help spread the = news. Dozens more honked horns, raised thumbs and fists in victory.
Dan Bates / The Herald
Having just heard the news, people leaving the Boeing plant during the 2:30 p.m. shift change show their reaction.
"Boeing was a clear winner," William Lynn, Deputy Secretary of Defense, said in announcing Boeing's win of a $30 billion tanker contract Thursday.
Considered the underdog in the Air Force contest, Boeing bested its rival EADS for the deal supplying the Air Force with 179 tankers. The company's Everett employees could get work shortly building the 767-based tankers, with the first tanker scheduled to take flight in 2015.
Boeing chief executive Jim McNerney said the company is honored to build the next generation of tankers, which replace KC-135 tankers built by Boeing in the 1950s and 1960s. The Air Force has dubbed Boeing's 767 tanker the KC-46A.
"Our team is ready now to apply our 60 years of tanker experience and to develop and build an airplane that will serve the nation for decades to come," McNerney said.
Boeing shares shot up 3.6 percent in after-hours trading following the announcement, closing at $73.35 a share.
"This was a good news day that all of us have waited and prayed and worked for 10 years," said Sen. Patty Murray, D-Wash.
Three years ago, the Air Force selected EADS' tanker over Boeing's for a deal that was later called off by the Pentagon when government auditors found flaws in the process. In the days leading up to Thursday's announcement, analysts saw EADS as the favorite.
Rep. Norm Dicks, D-Wash., said an aggressive bid by Boeing made a difference. This time around, the Air Force looked at costs of operating the 179 new tankers over a 40-year-life span, rather than 25. That, said Dicks, may have tilted the decision toward Boeing and its more fuel-efficient tanker.
"It's the happiest day in my professional life, if you want to know the truth," Dicks added. "To finally win this thing, after 10 years of struggle ... How sweet it is."
Richard Aboulafia, analyst with the Teal Group, agreed with Dicks on cost.
"These are tough times," Aboulafia said. The Defense Department's budget is being pinched, so cost was likely a big factor.
Boeing has accused Airbus of getting illegal handouts from European governments to develop aircraft like the A330. As a result, the company and its congressional backers suggested EADS would be able to undercut Boeing.
EADS likely did put in a lower bid up front, Aboulafia said. But the Air Force also adjusted the competitors' prices based on lifelong operating costs and war fighting capability, giving Boeing the edge.
Last year, the contract was valued at $35 billion and more, but Air Force officials said Thursday it was worth $30 billion with the final amount depending on upgrades and other options.
"There was a lot riding on the competition," said Sen. Maria Cantwell, D-Wash. "The psyche of the aerospace industry in the Northwest would have taken a severe hit. What (winning) shows is that we will continue to be the world's leader in industrial aerospace supply chain."
Boeing's win not only provides job security for 767 workers in Everett but also keeps Boeing's arch-rival, Airbus, from building airplanes on U.S. soil. EADS is the parent company of Airbus and had planned to build both its A330-based tankers and A330 freighters in Mobile, Ala.
"Only Chicago politics could tip the scales in favor of Boeing's inferior plane," said Sen. Richard Shelby, R-Ala., in a statement. "EADS clearly offers the more capable aircraft. If this decision stands, our warfighters will not get the superior equipment they deserve."
EADS' chairman, Ralph D. Crosby Jr., was less outspoken, saying he was disappointed by the Air Force's decision and looked forward to finding out more from Air Force officials soon. That meeting could help EADS determine whether it will launch a protest, which could delay Boeing's tanker contract.
"I would be surprised if EADS protests," said Scott Hamilton, with Issaquah-based Leeham Co.
The European company has praised the Air Force for its integrity over the course of the lengthy contest, he said. The Air Force wanted EADS to compete even after its original U.S.-based partner, Northrop Grumman, dropped out last year, Hamilton said.
"You have to know that they generated some goodwill with the Air Force," he said.
Rather than squander that goodwill with a protest, EADS officials might want to bank it for future defense contests.
Comments by Sean O'Keefe, chief executive of EADS North America, gave weight to Hamilton's theory. O'Keefe said that EADS had "learned much through this process, developed a world-class organization in the U.S. and have earned the respect of the Department of Defense."
"Though we had hoped for a different outcome, it's important to remember that this is one business opportunity among many for EADS in the United States," O'Keefe said.
Analyst Aboulafia suggested EADS could be pressured into a protest by its political allies. EADS' backers in Congress, including Shelby, also could try to block funding for Boeing's tanker contract.
Rep. Rick Larsen, D-Wash, said Boeing's friends in Congress will be on the lookout for such maneuvers by EADS backers. He thinks the likelihood of that happening is low.
"There's a lot of pressure to move forward," Larsen said.
If no protests or political meddling come to pass, one question remains: Can Boeing handle this?
"They're going to be really stretched," Hamilton said.
Even without the tanker, Boeing has plenty on its plate. It has yet to deliver on its 787 or 747-8 programs; it's mulling a replacement for its popular 737; and Boeing may need to upgrade its 777.
Dennis Muilenburg, president of Boeing's defense division, said the company can use the resources of its defense and commercial airplanes divisions.
"We are very confident we'll have enough engineers," he said.
Tom McCarty, president of the Society of Professional Engineering Employees in Aerospace, said Boeing workers are ready to do their part.
"We are ready to build those Air Force refueling tankers for years to come," he said.
Dale Flinn, a 23-year Boeing employee, just happened to stop by the Machinists' hall in Everett after his shift Thursday. The 56-year-old Everett resident said it was important to him that the Air Force's tankers be built in America and the news of Boeing's win would generate positive energy in the factory.
"My daughter also works for Boeing," Flinn said. "This is the sort of news that gives me hope that one day her son might work for Boeing, too."
DETAILS ON THE DEAL
• U.S. Air Force tanker contract's estimated value: $30 billion
• Supplying: 179 aerial refueling tankers.
• Replacing: Eisenhower-era KC-135 tankers.
• Competitors: The Boeing Co. offered a 767-based tanker, which would be assembled in Everett and modified in Kansas. EADS offered an Airbus A330-based tanker, which would be assembled in Mobile, Ala.
The aging fleet
• The existing KC-135 tankers were built by Boeing when Presidents Dwight Eisenhower and John Kennedy were in office and were first used to refuel B-52 bombers in mid-air.
• More than $500 million is invested annually to upgrade, repair, replace and maintain the existing fleet.
• There are 415 KC-135s.
• The Air Force has been trying to replace the KC-135 for at least a decade.
• The $30 billion contract would pay to replace 179 tankers. More contracts will follow.
• Within 10 days, the Air Force will brief the losing bidder.
• After that, EADS has 10 days to protest the decision.
• 100 days: the time the Government Accountability Office has to consider a filed protest.
• 2015: Delivery of first tanker due to Air Force.
• 2017: Delivery of 18 tankers expected by the Air Force.
Herald reporters Debra Smith, Gale Fiege and Jerry Cornfield contributed to this story.
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