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Boeing may end bid for Air Force contract

August 23, 2008|From the Associated Press

WASHINGTON — Boeing Co. says it is considering bailing out of a politically charged competition for a $35-billion contract to build aerial refueling tankers for the Air Force if it does not receive an additional four months from the Pentagon to assemble its offer.

Boeing lost the initial contract in February to Century City-based Northrop Grumman Corp. and its partner, Airbus parent European Aeronautic Defense & Space Co.

The competition was reopened after government auditors found "significant errors" in the Air Force's decision. The revamped competition will focus on eight areas where the Government Accountability Office found problems with the initial process.

Even if it remains in the competition, Chicago-based Boeing said Friday that it might also file a protest on the final bids request -- expected to be released early next week by the Pentagon -- which could further delay an award. No final decision will be made until Boeing has a chance to review the final request, company spokesman Daniel Beck said.

"It's very clear to us this is a new competition," Beck said. "Clearly, the requirements have changed and the Defense Department is essentially asking for a different kind of plane from the first competition."

Wes Bush, Northrop's president and chief operating officer, criticized Boeing's request for additional time to revise its offer, saying it would cause more delays and higher costs for the taxpayer.

"We've both had more than three years to put forth our very best tanker design," Bush said. "By coming out and saying, 'We need another six months,' Boeing seems to be openly admitting that their tanker does not measure up to what the Air Force needs."

Boeing's tactic nearly replicates an approach taken by Northrop during the early stages of the first competition. In 2007, Northrop threatened to walk away from the table unless the Air Force revised its requirements so the competition did not favor Boeing.

A Boeing decision not to submit another bid could jeopardize Pentagon efforts to maintain a two-team competition to replace 179 Eisenhower-era refueling planes. The deal -- one of the largest in Pentagon history -- is the first of three contracts worth as much as $100 billion to replace nearly 600 refueling tankers during the next 30 years.

"This is a strange situation moving forward," said Richard Aboulafia, an analyst for Teal Group Corp. in Virginia. "The Pentagon is quite mindful that Congress is more likely to go to bat for Boeing if this becomes a sole-source contract. I can't imagine Boeing losing anything from taking this approach."

Based on its review of the draft request for bids, Boeing said it was clear that the Air Force was looking for larger aircraft with greater cargo capacity and better fuel offload capabilities.

The company contends that it is seeking additional time only to put together its offer, and not asking the Pentagon to change its requirements. Boeing declined to specify what kind of changes it would make in a new bid.

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