Pentagon delays $35B Air Force tanker decision

By: AP
By: AP

WASHINGTON (AP) -- The Defense Department has again delayed plans to award a $35 billion contract for Air Force refueling planes, handing a victory to defense contractor Boeing Co. and leaving the politically charged decision for the next president.

Defense Secretary Robert Gates told lawmakers Wednesday that he ended the current round of bidding on the tankers because the Pentagon's plan to pick a winner by the end of the year no longer seemed possible given the complexity of the project and the rancor between Boeing and rival Northrop Grumman Corp. He said a delay would provide a "cooling off" period.

"We can no longer complete a competition that would be viewed as fair and objective in this highly charged environment," Gates said in statement prepared for testimony before the House Armed Services Committee.

The decision represents a major win for Boeing in its lengthy and bitter struggle with Northrop for the lucrative contract for 179 planes that could eventually include the right to build many more. Boeing recently threatened to back out of the bidding, saying the Pentagon's timeline and terms unfairly favored the larger plane proposed by Northrop.

Boeing welcomed the Pentagon's decision, saying it will allow "the appropriate time for this important and complex procurement to be conducted in a thorough and open competition."

The Pentagon has tried and failed for seven years to award a contract to replace its aging fleet of current tankers that refuel military planes in flight. Some of the planes are nearly 50 years old, and senior defense officials have said they need to be replaced soon.

In 2004, Boeing lost the contract amid an ethics scandal that resulted in prison terms for a former senior company official and a former high-ranking Air Force official. A team of Northrop and Airbus parent European Aeronautic Defense and Space Co. was awarded the contract earlier this year, but bidding was reopened after a Government Accountability Office report found serious flaws with the Air Force's decision. The Pentagon had hoped to make a new contract decision by Dec. 31.

But Boeing and its congressional supporters exerted heavy pressure on the Defense Department to defer its decision, with company officials saying they needed at least six months to come up with a new bid. Top Boeing officials met several times with the Air Force and Pentagon after the release last month of a draft version of the latest contract guidelines.

In those discussions it became clear that "one of the competitors would not or could not conform to the timeframes" laid out by the guidelines, according to Pentagon spokesman Chris Isleib. That meant a contract award this year was not possible.

The struggle between the two major defense contractors has been especially bitter, with each waging sharp-edged public relations and lobbying campaigns in Washington. Capitol Hill support also is divided, with lawmakers from Boeing's industrial base in Washington state and Kansas battling their counterparts from Alabama who back Northrop's plans to build a manufacturing plant in Mobile, Ala., that will employ 1,500 people.

Sen. Richard Shelby, R-Ala., said Wednesday that the Pentagon was putting "politics over pilots." Republican Rep. Jo Bonner of Mobile said Pentagon leaders "have an urgent military need yet are simply giving up efforts to address that need."

Northrop spokesman Randy Belote said the company was disappointed in the Pentagon's decision, noting recent statements from senior Air Force officials that cited a pressing need for new planes.

"With this delay, it is conceivable that our warfighters will be forced to fly tankers as old as 80 years of age," Belote said.

But Washington state lawmakers welcomed the delay. Democratic Sen. Patty Murray called it a "reality check on a procurement process that got very complicated and a little muddied." Rep. Norman Dicks, D-Wash., said the extensive changes the Pentagon made to the contract guidelines put Boeing at a disadvantage.

"They didn't have enough time to do it right," Dicks said.

Gates' announcement means it will be left to the winner of this November's presidential election between Democrat Barack Obama and Republican John McCain to sort out the contract. The next president takes office Jan. 20. Neither campaign had an immediate comment on the Pentagon's decision.

Boeing supporters are wary of McCain, who was a critic of the original plans to lease tankers from Boeing, calling it wasteful. He also later helped pressure the Pentagon to make concessions to Northrop over issues such as the plane's size.

Jim McAleese, a Virginia-based defense analyst, said McCain would likely scale back plans, opting instead to refurbish existing aircraft or try to use commercially leased planes for refueling.

"McCain will take it back to the very bare bones," he said.

The Air Force currently flies Boeing refueling jets. For the new plane, Boeing has proposed a version of its 767 commercial jet. Northrop and EADS have proposed a variant of the Airbus A330 passenger jet, which can carry more fuel. Some defense analysts have suggested Boeing may submit a bid using its larger 777 commercial jet.

The Pentagon plans to ask for money it its fiscal year 2009 budget request for maintenance of the current fleet and planned to continue funding those planes through fiscal 2015. Isleib said some money slated for the new tanker contract will be used to maintain the current planes.

Richard Aboulafia, an aerospace analyst with the Teal Group, said the current tankers should be able to continue flying.

"This replacement program has been delayed for decades. Another year or two isn't going to matter," he said.

Share of Chicago-based Boeing fell $2.39 to $61.63 in afternoon trading, while Los Angeles-based Northrop dipped 90 cents to $69.89.

Associated Press Writers Ben Evans and Pauline Jelinek contributed to this report.

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