Boeing to challenge tanker decision

Published 11:31 pm Monday, March 10, 2008

EVERETT — The Boeing Co.’s decision Monday to challenge its loss of a $35 billion Air Force tanker contract was well received by Washington state lawmakers and the company’s workforce.

“Our team has taken a very close look at the tanker decision and found serious flaws in the process that we believe warrant appeal,” Jim McNerney, Boeing’s chief executive, said in a statement. “This is an extraordinary step rarely taken by our company and one we take very seriously.”

The company found out late last month that the Pentagon rejected its bid to supply the agency with 179 aerial refueling tankers in favor of a proposal from Northrop Grumman and EADS. The decision has been debated fiercely both in Congress and by the contract competitors in the media. Boeing will file a protest with the Government Accountability Office today.

“I think it’s great — this is what we’ve been sitting on pins and needles waiting for the past week,” said Tom Wroblewski, president of the local district of the International Association of Machinists and Aerospace Workers.

The Machinists, along with Boeing’s engineers, rallied in Everett the day they learned that Boeing’s KC-767 tanker had not been chosen. They’ve continued to lobby members of Congress to block the Air Force’s decision.

Boeing had been favored for the contract, having built the KC-135 Stratotankers the Air Force intends to replace. The loss of the tanker contract wasn’t expected to have a major financial impact on Boeing, though it likely would lead to the shutdown of the 767 production line in Everett. However, the Northop-EADS win is expected to give the duo a leg up on the next round of the Air Force’s tanker replacement competition, estimated to be worth $100 billion.

“Since their beginnings as a small company in Seattle, Boeing has never once protested a contract decision,” said Sen. Patty Murray, D-Wash. “It is my hope that the GAO moves forward with its review in a thorough manner.”

After its briefing from the Air Force on Friday, Boeing said it had “significant concerns” about the bid process and would work through the weekend to decide its next step. The company fueled speculation early Monday that a protest was imminent, saying the Air Force treated some of its bid information differently than that of Northrop-EADS.

“We have serious concerns over inconsistency in requirements, cost factors and treatment of our commercial data,” said Mark McGraw, Boeing’s vice president of tanker programs.

Late in the day, Boeing confirmed that it intended to protest with the Government Accountability Office, which could take up to 100 days to review the case.

The company said it had concerns about Air Force requirements related to capabilities, cost and risk of the proposed tankers. It will elaborate more on Tuesday on its rationale for protesting.

Air Force officials had hoped to avoid a protest, which could prolong the delivery of new aerial refueling tankers by 18 months.

“It’s absolutely important and critical for us to get on with this,” said Air Mobility Commander Gen. Arthur Lichte, during the award briefing Feb. 29. “Anything that would slow down the process has an impact on the war fighter.”

The Air Force’s assistant secretary of acquisitions, Sue Payton, contended the bidding process was fair. The agency outlined for each competitor the strengths and weaknesses of its proposal at various times during the competition, she said.

“I can’t stress enough what an incredibly open and transparent and rigorous first selection we have gone through,” Payton said in late February.

The Air Force briefed Northrop officials on their award Monday. Working with Airbus parent EADS, Northrop plans to assemble its KC-30 tanker in Mobile, Ala.

“Our tanker clearly provides the war fighter with the best capability and at the best value to the American taxpayer,” said Paul Meyer, Northrop tanker program manager. “We are under contract and moving out to get badly needed new tankers into the Air Force fleet as soon as possible.”

Some industry observers also have suggested Boeing should bow out of a protest in order to expedite the delivery of tankers to the Air Force. Local analyst Scott Hamilton, with Leeham Co., has advocated since the Air Force made its choice public that Boeing skip a protest. By forgoing a dispute, Boeing would be able to allocate resources from the 767 tanker to other programs, such as its delayed 787 Dreamliner, he said.

And analyst Paul Nisbet with JSA Research thought Boeing might refrain from protesting because the odds of winning one are slim.

“It doesn’t usually do any good and it always costs money,” Nisbet said. “There are a lot of negatives.”

Protests tend to be expensive not only for the company lodging the protest but also for the involved agency and the initial winner of the contract. Boeing knows the costs involved in a GAO dispute, having been the winner of protested awards, most recently in its win of an Air Force search-and-rescue helicopter contract.

But without a protest from Boeing, the dispute was likely to die down in Congress, Nisbet said.

Several lawmakers — particularly in states such as Washington and Kansas, where Boeing would have built its tanker — have derided the Air Force for not weighing trade subsidies and American job creation in its analysis.

On Monday, Los Angeles-based Northrop adjusted its estimate on the amount of jobs its KC-30 will create. The defense contractor previously predicted its tanker would create 25,000 American jobs but raised that amount to 48,000 direct and indirect positions. Boeing says its KC-767 supports 44,000 jobs.

Lawmakers also have accused the Air Force of changing its requirements midstream in a way that favored the Northrop-EADS tanker. Rep. Norm Dicks, D-Wash., told a House Defense Appropriations committee last week the agency used “bait-and-switch tactics” to keep both competitors in the game. The Air Force initially asked for an aircraft that emphasized its role as a tanker, not as a cargo carrier, Dicks said. The lawmaker contends the Air Force’s criteria led Boeing to believe it should offer a tanker based on the smaller 767 commercial jet rather than its larger 777.

“If the Air Force wanted a larger tanker, Congress was seriously misled because throughout the proposal and source selection process we were continually assured that the competition was for the procurement of medium-sized tankers to replace the existing KC-135 tanker aircraft,” Dicks said on Monday.

Dicks suggests the GAO and Congress should make the final decision in awarding this tanker contract. That’s not a view shared by Rep. Jo Bonner, R-Ala., who said that such a move would be “unprecedented.” In a statement, Bonner said that rumored efforts by members of Congress to overturn the Air Force’s decision “would undermine the very integrity of our military procurement process.”

“I think most Americans would prefer having military professionals pick their equipment, rather than having Congress pick it for them based on political considerations,” he said.

Boeing’s stock dropped $2.22 Monday to close at $74.38, down roughly $10 since the Air Force awarded the tanker contract on Feb. 29. In after hours trading, following Boeing’s decision to protest the deal, Boeing’s shares rose 62 cents.

Visit reporter Michelle Dunlop’s aerospace blog at heraldnet.com to comment on Boeing’s protest efforts.