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Pentagon halts air tanker contest

The move is a setback for Northrop and gives new hope to Boeing.

September 11, 2008|Peter Spiegel | Times Staff Writer

WASHINGTON — Defense Secretary Robert M. Gates on Wednesday canceled a bitter competition to build a new fleet of Air Force refueling tankers, saying the contest had become so acrimonious that picking a winner was impossible before President Bush leaves office.

The unexpected action is the latest setback for the star-crossed $35-billion program, which now has had its selection process started and stopped three times over the last five years.

The move will leave a decision on how to restart the 179-plane program to a new presidential administration, delaying delivery of the much-needed new tanker as much as another year. The Air Force first awarded a contract to build the replacements shortly after the Sept. 11 terrorist attacks.

The decision to scrap the competition is a particularly tough blow for Century City-based Northrop Grumman Corp., which beat Boeing Co. in the most recent contest and was widely expected to have that victory confirmed in the follow-up competition that Gates canceled.

"We are extremely disappointed at the decision to terminate the current tanker competition, especially on behalf of our men and women in uniform who will now be denied a critically needed new tanker for years," Northrop spokesman Randy Belote said.

Northrop has said the contract award would create more than 7,500 jobs for California's struggling aerospace industry, even though the planes would be assembled in Alabama.

Boeing had been pushing for a four-month delay to completely overhaul its bid, and it said in a statement that it welcomed Gates' decision, which would allow for a "thorough and open competition" in the future.

The move gives Boeing new life in one of the last remaining large-scale weapons contracts of its generation, said Richard Aboulafia, an aircraft expert at Teal Group Corp., an aerospace and defense analysis firm. "It sure beats the sudden death they were facing with the existing plan."

The cancellation comes after two months of disarray following a July ruling by government auditors that the Air Force mishandled the selection process that chose Northrop, which was proposing to build its tanker from an Airbus A330 commercial airliner.

In the wake of the Government Accountability Office ruling, Gates took responsibility for the competition away from the Air Force and vowed to run it out of his own office, saying he believed it could be completed by the end of the year.

But Pentagon officials have in recent weeks grown increasingly concerned that Boeing, which has been aggressively pressing its case on Capitol Hill, was about to launch a legal challenge to the Pentagon's revised competition rules, which were due out in a matter of days.

The threat appears to have been part of what convinced Gates that a "cooling-off" period was needed.

"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 told a House committee Wednesday morning. "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."

Separately, the Pentagon announced that it had selected Northrop for a $5.1-billion contract to build the newest Nimitz-class aircraft carrier, the Gerald R. Ford.

In recent weeks, Boeing had become increasingly vociferous in its complaints about the Pentagon over the tanker, threatening to withdraw from the competition altogether because of the rules being put together for the latest round of competition.

According to Defense officials, Northrop was able to beat Boeing's 767 tanker in part because the A330 is larger in size. Boeing said last month that it would take months to reconfigure its bid to deal with what it saw as a new, larger size requirement.

Boeing was in the midst of considering a bid based on a 777 aircraft, which is larger than the A330, but such a move would have required more time to prepare the proposal. Gates' decision gives Boeing more time to prepare a 777 bid or to revise its 767 offering, which Aboulafia said could include proposing an extended version of the plane.

Although Boeing is now back in the game, the change in administrations may not help the company. Republican presidential candidate John McCain had led the charge to cancel the first tanker contract, and his campaign staff has included former lobbyists for Airbus' Franco-German parent company.

After the contract was first awarded to Boeing, McCain contended that Airbus had not been given a real chance to compete for the contract, and a subsequent investigation led by McCain's staff uncovered improper dealings between Boeing and the Air Force.

Democratic candidate Barack Obama has been less vocal on the issue, but he has expressed support for Boeing, which is based in his hometown of Chicago.

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