September 11, 2008

Pentagon Announces Big Delay in Tanker War

By Leslie Wayne

Caroline Brothers contributed reporting from Paris.


Saying that the competition had become too "highly charged," the Defense Department announced Wednesday that it was postponing a decision on a $35 billion contract to replace the air force's aging tanker fleet until the next administration.

The competition, which has stretched on for seven years, has pitted Boeing and an international partnership headed by Northrop Grumman in a fierce lobbying battle. After the decision was announced by Robert Gates, the defense secretary, it was immediately praised by Boeing and criticized by Northrop.

"We can no longer complete a competition that would be viewed as fair and objective in this highly charged environment," Gates said. "The resulting 'cooling off' period will allow the next administration to review objectively the military requirements and craft a new acquisition strategy" for the tanker program.

In addition, Gates said the seven-year acquisition process had become "enormously complex and emotional," blaming "mistakes and missteps along the way" by the Pentagon.

Gates's decision is an about-face from his announcement in July to restart the stalled bidding between the two companies and complete the procurement process before the next administration, perhaps as early as this December. Once that July announcement was made, Boeing began a highly visible lobbying campaign to delay the competition, even going so far as to threaten to withdraw from it completely.

The contract in question would provide 179 new airplanes to replace an aging fleet of aerial refueling tankers that provide fuel in flight to a variety of military craft. The Pentagon was expected to issue new guidelines for the competition between the two companies in August. At one time, the contract was awarded to Boeing, only to be overturned and handed to the Northrop-lead partnership, with that decision quickly challenged.

For its bid, Northrop partnered with European Aeronautic Defense & Space, the parent company of Airbus. An Airbus plane had been selected by the Air Force in March for a contract that could ultimately rise to $100 billion as more planes were acquired. But as soon as that decision was announced, it was challenged by Boeing. A subsequent study by government auditors found that the bidding process awarding Northrop the contract was flawed, which opened up the whole process again.

Boeing praised Gates's decision. "Boeing Company welcomes the Defense Department's decision and believes that it will best serve the war fighter the appropriate time for this important and complex procurement to be conducted in a thorough and open competition," the company said in a statement.

Politicians who have been supporting the Boeing bid quickly echoed the same sentiments. "This pause is a reality check," said Senator Patty Murray, a Democrat from Washington State. "It gives the Pentagon enough time to work with our war fighters to meet their needs."

But Boeing's competitor assailed the decision.

"We are extremely disappointed by this decision, which represents a major failure of the defense acquisition system," said Ralph Crosby, the chairman and chief executive of EADS North America.

"If the special interests of one contractor have prevailed over the highest priority needs of the U.S. armed forces, it is a terrible precedent," Crosby added, in a comments relayed by a spokesman.

Crosby continued: "We continue to support our prime contractor, Northrop Grumman, and are convinced that the source selection of the KC-45 was the right choice for the U.S. Air Force, as it was for the United Kingdom, Australia, United Arab Emirates, and Saudi Arabia. The Air Force needs a new tanker and it's clear that the KC-45 is the most modern and capable tanker in the world."

The Airbus plane was going to be built at a new facility in Alabama. Governor Bob Riley, an Alabama Republican, said, "I strongly disagree with this decision and find it absolutely bewildering."

He added that "another delay does nothing except put our war fighters at greater risk. For that reason alone, I can't understand why anyone would make this decision."

Lawrence Korb, a senior fellow at the Center for American Progress in Washington and a former assistant defense secretary, said Gates's decision "indicates how badly the Pentagon has managed this procurement process. This is a failure of management at the Pentagon."

Korb added that Boeing has been adept at arguing that more jobs would be created in the United States if it won the contract. "Boeing basically knows the majority of those on the Hill would like to see them get the contract."

Originally published by The New York Times Media Group.

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