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GAO Backs Boeing On Tanker Deal

June 19, 2008

By Billy House, Tampa Tribune, Fla.

Jun. 19–WASHINGTON — Congressional auditors are recommending that a controversial Air Force decision to award a $35 billion military aircraft program to the rival of Chicago-based Boeing Co. be reconsidered.

Northrop Grumman Corp. and its partner, the European Aeronautic Defence and Space Co., parent of French aircraft maker Airbus, beat Boeing, winning the order to build the aerial refueling tankers that provide fuel to fighter jets and cargo planes in flight.

That decision sparked a “Buy American” backlash in Congress and elsewhere. Some critics also questioned the fairness of the bidding process, and giving a foreign company such a substantial role in the large military project.

“Our review of the record led us to conclude that the Air Force has made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman,” said the Government Accountability Office’s ruling, released Wednesday. “We therefore sustain Boeing’s protest.”

It’s uncertain how the decision would affect Florida companies expecting Northrop subcontracting work.

“This is going to further delay the acquisition of the tankers, which we have needed for years,” said Rep. C.W. Bill Young of Indian Shores, the ranking Republican on the House Appropriations Defense subcommittee.

The new tankers, which may replace some of the 16 aging KC-135 tankers now flown out of MacDill Air Force Base, could mean $500 million a year for Florida companies. That includes four subcontractors in the Tampa Bay area. In all, it could create up to 2,000 jobs in Florida.

Young said he thinks that Boeing’s proposal would have brought in Tampa Bay area contractors as well.

The contract for 179 aerial refueling tankers is the first of three deals worth up to $100 billion to replace the Air Force’s entire tanker fleet.

The GAO found:

— The Air Force, in awarding the contract, did not assess the merits of the competing proposals according to the criteria it listed as necessary.

— The Air Force conducted “misleading and unequal” discussions with Boeing by informing Boeing it had satisfied a key requirement, but later determined the company had only partially done so.

— The record did not demonstrate “the reasonableness” of the Air Force’s decision that Northrop Grumman’s proposed refueling tanker could refuel all Air Force fixed-wing tanker-compatible aircraft.

— The Air Force’s evaluation of military construction costs in calculating the proposals was unreasonable.

The Air Force is not bound by the GAO review, but it is likely to give critics of the Air Force’s decision more ammunition to unravel the deal.

Boeing had argued that the contract was awarded improperly and asked the GAO to look into whether the bidding process was fair. Boeing has mounted a campaign to sway support, saying the project will cost American jobs and put national security at risk.

Northrop had said parts of the plane will be made overseas. But 60 percent of the tanker was to be American-made through Northrop’s suppliers in Florida, Alabama and 47 other states. The company said 230 U.S. companies and as many as 48,000 U.S. jobs would be involved in the work.

Congressional critics have threatened to kill the deal if any evidence is found that Boeing was treated unfairly.

House and Senate committees that set the budgets for the Defense Department and Air Force say that they can turn off the funding spigot for the contract.

“I cannot believe that in the most highly scrutinized procurement in the history of the United States Air Force, the GAO found so many errors,” said Sen. Richard Shelby, a Republican from Alabama.

Republican presidential candidate John McCain, an instrumental figure in the Pentagon’s long attempt to complete a deal on the aircraft, said the day’s turn of events were “unfortunate for the taxpayers, but they Air Force officials need to go back and redo the contracting process and the rewarding of it and hopefully they will get it right.”

McCain had helped block a scandal-marred tanker contract with Boeing in 2004 and pressed the Pentagon in 2006 to change proposed bidding procedures opposed by Northrop Grumman and Airbus.

The Air Force had no immediate reaction to the GAO findings, saying it is aware of the report and will review it.

Information from The Associated Press was used in this report.

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