The Boeing Co.’s rival for a $35 billion tanker contract said Wednesday it trimmed the price of its final offer submitted to the Air Force last week.
EADS, the parent company of Airbus, is challenging Boeing for the contract to supply the Air Force with 179 aerial refueling tankers. Final bids were due last Friday. Cost will be a major factor in the Pentagon’s decision, which is expected in March.
Although he declined to give specifics, EADS North America Chairman Ralph Crosby said that he hoped the company’s reduced price will be “just enough to win,” according to a Wall Street Journal report Wednesday.
Boeing is offering the Air Force a tanker based on its 767 commercial jet built in Everett. Last week, Boeing chief executive Jim McNerney called his company’s bid “aggressive,” but said Boeing’s investors would still consider the offer financially responsible.
McNerney and Boeing’s political backers have voiced concerns about the pricing of the Airbus A330-based tanker. Boeing has alleged that Airbus developed the A330 commercial jet using illegal subsidies from European governments. On Tuesday, Washington Gov. Chris Gregoire and Kansas Gov. Sam Brownback urged President Barack Obama to instruct the Pentagon to consider subsidies “that unfairly lower the price of every airframe that Airbus sells.”
Airbus and Boeing have lodged complaints with the World Trade Organization over the subsidy issue. The Air Force has said it will not take the initial WTO rulings over subsidies into account, given that appeals are pending.
Barring any political interference, the Air Force has outlined a contest that weighs cost heavily. To be considered for the contract to replace 179 Eisenhower-era KC-135 tankers, the competitors first have to meet 372 requirements. If both EADS’ and Boeing’s tankers meet those requirements, then price comes into play.
The Air Force will take each bidder’s proposed price and adjust it — up or down — based on three elements, including fuel use and efficiency. Another element the Air Force will consider: each tanker’s performance in a computer model that simulated refueling scenarios.
It’s the same data the Air Force accidentally mixed up and provided each bidder with the other’s information last November. The Air Force believes it resolved the data disclosure enough to move forward. But analysts believe the Pentagon handed the losing bidder fodder for a protest.
After cost adjustments, the Air Force will consider the tankers tied unless the price of one tanker is 1 percent lower than the other. In the case of a tie, the Air Force will factor in how the tankers stack up based on 93 additional requirements.
The Air Force’s choice, however, doesn’t mean the contest is over. This is the Air Force’s third attempt at awarding the tanker contract in a decade.
In 2008, Boeing protested the Air Force’s initial decision to give the contract to EADS and its then-partner Northrop Grumman. Government auditors found enough wrong with the Air Force’s contest that the Pentagon eventually threw out EADS’ contract and started over.
On Wednesday, EADS’ Crosby said his company won’t protest if Boeing wins unless there’s an “egregious process error.” But analysts believe Boeing already is laying the foundation for an appeal.
To resolve the tanker contest once and for all, “a split buy is the best course, strategically, tactically and it is the only solution politically,” noted local analyst Scott Hamilton, with Issaquah-based Leeham Co.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
