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Aerial tanker deal is voided

In a blow to Northrop and the state, Gates calls for new bids and takes the matter out of the Air Force's hands.

July 10, 2008|Peter Spiegel | Times Staff Writer

WASHINGTON — The chronically troubled effort to build a new fleet of aerial refueling tankers for the Air Force was delayed yet again after Defense Secretary Robert M. Gates announced Wednesday that the competition that selected Northrop Grumman Corp. was flawed and would be opened for the third time in seven years.

The decision is a blow to the Century City-based aerospace giant, which was the surprise winner of the $35-billion contract over archrival Boeing Co. in February. It's also a slap to the Air Force itself, which Gates said would be stripped of the authority to choose the airplane.

Northrop had said the contract award would have created more than 7,500 jobs for California's struggling aerospace industry, even though the planes would be assembled in Alabama. Its plan called for building the 179 tankers by modifying Airbus A330 passenger jets made by the European Aeronautic Defense & Space Co., or EADS.

Gates' decision came after a ruling last month by the Government Accountability Office that the Air Force mishandled the year-long competition by giving Northrop's bid more credit than it deserved and failing to reward Boeing, which had offered a tanker based on its 767 airliner, for some of its plane's capabilities.

At a Pentagon news conference, Gates said the competition would not start all over again, but instead Boeing and Northrop would be asked for amended proposals to deal with the GAO's criticisms. Gates said his office, and not the Air Force, would evaluate the new submissions. He predicted a new contract could be awarded by the end of the year.

"Industry, the Congress and the American people all must have confidence in the integrity of this acquisitions process," Gates said.

But the Pentagon's top procurement official, Undersecretary of Defense John J. Young Jr., acknowledged that either company could legally submit a completely revised bid -- which could delay the selection well into next year.

"They will have full license to totally change their proposals in the modification process," Young said.

One former Pentagon acquisitions official predicted the companies would push for a broader reexamination, pointing out that previous Air Force efforts to speed up new competitions have gone awry.

"It's sad because you should be able to do it that way," said the former official, who asked to remain anonymous because of the sensitivity of the competition. "But it hasn't worked before."

A Northrop executive said the company was likely to submit only a slightly revised document. But Boeing has raised the possibility of bidding with its larger 777 because the Air Force is believed to have selected the A330-based tanker for its much larger size.

In a statement, Chicago-based Boeing indicated it had not yet decided how to proceed and raised questions about whether the new process would alter the criteria the Air Force originally used to judge the planes.

"We look forward to working with the new acquisition team as it reopens the competition, but we will also take time to understand the updated solicitation to determine the right path forward for the company," Boeing said.

Northrop shares fell 90 cents to $65.27 on Wednesday, while Boeing lost 33 cents to $65.59.

Gates' decision to strip the Air Force of oversight of the new competition is the latest in a series of high-profile setbacks for the service.

In August, the GAO ordered the Air Force to redo a competition for a search-and-rescue helicopter program, worth $16 billion. Just a month ago, the civilian and military heads of the service were forced to resign.

Gates pushed the two out after an investigation uncovered lax oversight of the Air Force's nuclear arsenal. But the dismissals also came after Gates had criticized the Air Force for months as being too wedded to its high-tech fighter planes and not fully committed to supporting ground forces in Iraq and Afghanistan.

At Wednesday's news conference, new Air Force Secretary Michael B. Donley said he did not believe the service's acquisition process was "fatally flawed," and Gates said he retained confidence in the Air Force's top procurement official, Sue C. Payton.

But Young, the Defense undersecretary, said a team from Gates' office uncovered failures late last year, when it began to sit in on the selection process. He added that he wished officials from outside the Air Force had been brought in earlier.

The tanker competition has also come under intense scrutiny in Congress, with senators from states with a large Boeing presence -- particularly Washington, where the company's commercial aircraft division is based -- threatening to block an award to Northrop and EADS, the Franco-German group that owns Airbus.

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