Timeout on tanker a victory for Boeing

Published 1:56 am Thursday, September 11, 2008

The Defense Department is calling for a do-over in the competition to win a $35 billion aerial-refueling tanker contract, a move that gives new hope to the Boeing Co.’s chances.

Defense Secretary Robert Gates said Wednesday that he decided to cancel the scheduled rebid on the airplane contract — set to be decided by year’s end — because it no longer seemed likely the Pentagon could make a decision that quickly.

Gates added that restarting the contest under the next administration would also provide a “cooling off” period in what has become a rancorous fight between Boeing and its rival, Northrop Grumman-EADS.

Boeing had asked for more time to revise its bid after the Pentagon issued specifications for the plane that appeared to favor Northrop’s larger tanker.

“The Boeing Company welcomes the Defense Department’s decision and believes that it will best serve the warfighter in allowing the appropriate time for this important and complex procurement to be conducted in a thorough and open competition,” Boeing said in a Wednesday statement. “This will assure delivery of the right tanker to the Air Force and serve the best interests of the American taxpayer.”

Northrop had a more pointed response, emphasizing the urgency to replace the aging tanker fleet.

“Northrop Grumman entered this competition in good faith and proposed the most modern, most capable tanker available, at the best value to the American taxpayer,” spokesman Brandon “Randy” Belote said in a statement. “While we understand, we are greatly concerned about the potential future implications for the Defense acquisition process.”

Earlier this year, Northrop and its tanker contract partner, French-based EADS, the parent company of Airbus, won the Air Force’s contract to build 179 tanker planes to replace the fleet, which dates back nearly 50 years.

In that decision, the Air Force picked a tanker based on Airbus’ A330 commercial jet over Boeing’s model, which was based on the Everett-built 767 commercial jet.

But Boeing protested the decision, claiming it was flawed. The Government Accountability Office agreed in its review of the contract, saying the Air Force made “significant” errors that could have cost Boeing the contract. That led the Defense Department to reopen the bidding last month.

So soon before a presidential election and given the time the bidding would take, however, Gates said Wednesday it makes more sense for the next administration to handle the tanker contract.

“We want a restart to this, because that’s better than a false start,” said Sen. Maria Cantwell, D-Wash., who hailed the Pentagon’s delay in rebidding. A chorus of Washington politicians from Gov. Chris Gregoire down echoed that sentiment.

Republican Sen. Richard Shelby from Alabama, where Northrop and EADS plan to assemble their tanker, blasted the delay as “misguided” and “irresponsible.”

Outside Boeing’s plant in Everett, striking Machinists had little to say about the delay. They were more focused on the wage, benefits and outsourcing issues they’re picketing over.

Al Meyer, who usually works on Boeing’s 777 production line, agreed the delay should help Boeing. “Probably it will give the company more time to organize a better proposal,” he said.

But he added that with Boeing’s backlog in orders, especially for the 777 and the new 787, winning the tanker contract doesn’t seem as crucial as it did a few years ago.

Aerospace analyst Richard Aboulafia of the Teal Group agreed.

“This is a victory, but I don’t think it’s ever been a big deal for Boeing Commercial. It’s much less important than it is for Boeing’s defense division,” he said.

As to whether Boeing might decide to offer a tanker based on its larger 777 model, Aboulafia said he thinks that’s unlikely.

“It’s a lot of airplane, and very expensive to buy and operate,” he said, adding his bet is that Boeing will offer a tanker based on its longer-range 767-400ER jetliner.

Shares of Boeing lost $2.31 on Wednesday to close at $61.71. Northrop Grumman’s stock fell 80 cents to close at $69.99.

The Associated Press contributed to this story.