Pentagon cancels Air Force tanker competition (Roundup)

Sep 10, 2008, 20:11 GMT

A handout illustration provided by EADS/Northrop Grumman showing a tanker aircraft KC-30 (R) during the refuelling of a US B2 bomber in the air. EPA/EADS/NORTHROP GRUMMAN

Washington - The Pentagon announced Wednesday the competition between Boeing and the Northrop Grumman-EADS partnership for the 35-billion-dollar contract to build the next generation of Air Force tanker refuellers has been cancelled.

The Defence Department on Wednesday notified Congress of the plans to scrap the competition after Defence Secretary Robert Gates determined it was too politically charged and cannot be completed before President George W Bush's administration ends in January.

Gates issued a statement acknowledging the Pentagon's mistakes in managing the lengthy competition that was thrown into disarray in June, when a congressional oversight agency upheld a Boeing protest and ruled the Air Force erred in awarding the contract to Northrop- EADS.

The next administration will be better suited to handle the contract objectively, Gates said.

'Over the past seven years the process has become enormously complex and emotional - in no small part because of mistakes and missteps along the way by the Department of Defense,' Gates said.

The congressional Government Accountability Office (GAO) in June concluded the Pentagon should start a new competition after determining the Boeing proposal was not fairly reviewed when the contract was awarded to Northrop and the European Aeronautic Defence and Space Company in February.

In July, Gates announced he had accepted GAO's findings and would rehold the competition to build the 179 KC-X tankers. The contract was the first of three that when combined could reach a value of 100 billion dollars over 30 years.

The contract was the focus of intense political scrutiny from members of Congress who opposed handing the contract to a European firm at a time when the US economy was struggling. Congressional battle lines were drawn between members whose districts would have benefited from a Boeing award and those aligned with Northrop-EADS.

EADS planned on building a factory in Alabama to assemble the aircraft from components manufactured in Europe.

'It is my judgment that in the time remaining to us, 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 KC-X,' Gates said.

Gates had originally planned to announce a new winner in December through an expedited process to replace the Air Force's aging fleet of KC-135 refuellers, which has been a top priority for the Pentagon. Boeing had reportedly complained the the timeframe was too for submitting a new proposal.

Northrop spokesman Randy Belote said his firm was 'extremely disappointed' by the cancellation.

'With this delay, it is conceivable that our warfighters will be forced to fly tankers as old as 80 years of age' before the new planes are ready, Belote said. 'Northrop Grumman entered this competition in good faith and proposed the most modern, most capable tanker available, at the best value to the American taxpayer.'

Boeing welcomed the decision, saying it provides more time to ensure the Air Force receives the best possible plane.

'This will assure delivery of the right tanker to the Air Force and serve the best interests of the American taxpayer,' Boeing said.

GAO ruled the Air Force overlooked key aspects of the Boeing proposal that could have tilted the contract in the aerospace giant's direction, and failed to inform Boeing it was interested in a larger plane before selecting the Northrop-EADS bid.

While the GAO decision was not binding, a failure by the Pentagon to embrace the decision could have brought fresh scrutiny from congressional lawmakers who control the defence budget.

The GAO auditors found Boeing offered to meet more non-mandatory requirements than Northrop and that the Boeing version could have come at a cheaper price over the life cycle of the programme. EADS is the parent company of Boeing rival Airbus.

Boeing complained that the Air Force chose the EADS version based on an Airbus 330 after being told that its 767 met the Air Force requirement. Boeing said it could have proposed its 777 instead had it been adequately told of the Air Force's needs.

The Pentagon said the KC-135 fleet was capable of meeting the Air Force's needs in the near future and that it has requested funding from Congress in the 2009 fiscal year budget to continue work on the replacement KC-X programme.

In Berlin, a German economic official said the contract dispute was tainted by the November 4 presidential election and expressed confidence EADS has designed the best plane for the US Air Force.

'I'm convinced that the quality of product from Airbus remains so good that the next administration in Washington will also pick it in a fair comparison,' Peter Hintze told Deutsche Presse-Agentur dpa.