Thursday, September 24, 2009

Pentagon launches 3rd try to buy refueling planes

September 24, 2009,
WASHINGTON (Reuters) - The U.S. Defense Department said Thursday it was relaunching a competition for a multibillion-dollar fleet of mid-air refueling planes after two botched tries to award the deal.
Boeing Co (NYSE:BA - News) is vying for the contract against a transatlantic team made up of Northrop Grumman (NYSE:NOC - News) and Airbus parent EADS (Paris:EAD.PA - News). The contract is projected to be worth $35 billion for an initial 179 tanker aircraft, the first of three planned acquisition stages that could cost $100 billion over time.
A notice on the Pentagon's website said Deputy Defense Secretary William Lynn would brief reporters on a draft solicitation at 4 p.m. on Thursday along with Ashton Carter, the Pentagon's chief arms buyer, and Air Force Secretary Michael Donley.
U.S. lawmakers also were expected to be briefed on the draft "request for proposal," which will be made public on Friday on, a clearinghouse for federal contracting opportunities greater than $25,000, a Pentagon official said.
The proposed terms of the competition are being closely watched by U.S. lawmakers to see how they may change from the last round.
The deal has pitted Boeing's political backers, chiefly from Washington state and Kansas where the company would do much of its tanker work, against lawmakers and others from Alabama, where the Northrop-EADS team would do final assembly of its planes.
Politicians have been sparring over the impact of a confidential, interim World Trade Organization ruling earlier this month in a long-running dispute between plane-building archrivals Boeing and Airbus.
"This is a battle to the death," said Scott Hamilton, a defense industry analyst with Leeham Securities. "For Boeing, the strategic implications also involve (the threat of) allowing Airbus to get a production foothold on U.S. territory."
The first U.S. attempt to award a tanker contract collapsed in 2004 amid a conflict-of-interest scandal that sent a former top Air Force weapons buyer and Boeing's former chief financial officer to prison. That involved a $20 billion-plus plan to lease and buy modified Boeing 767 aircraft as flying gas stations.
Northrop Grumman and EADS then teamed to win in February 2008 with a plane based on an Airbus A330. The Pentagon canceled that deal in September after government auditors found the Air Force had failed to follow its own rules in evaluating the rival bids. The Air Force then was sidelined while the Pentagon took over planning for the third effort to acquire the planes, which are to start replacing the military's aging KC-135 tankers.
Defense Secretary Robert Gates announced last week that he was putting the Air Force back in charge of the competition, although his office would keep a "robust oversight role."
In giving the Air Force control again, he said the United States "cannot afford the kind of letdowns and parochial squabbles and corporate food fights that have bedeviled this effort over the last number of years."