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Decade-long fight over aerial tanker contract set to end

The Air Force is expected to award the $35-billion contract to either Boeing or Airbus parent EADS. No matter which company wins, it will be an economic boon for Southern California's aerospace industry.

February 23, 2011|By W.J. Hennigan, Los Angeles Times
  • An aerial tanker built by EADS North America refuels an F-16 fighter jet in midair.
An aerial tanker built by EADS North America refuels an F-16 fighter jet… (EADS North America )

One of the most hotly sought-after military contracts in U.S. history is expected to be issued Thursday, perhaps the finale in a scandal-ridden bureaucratic nightmare that has pitted two global aerospace titans in a high-stakes competition for a decade.

At issue is a $35-billion prize purse to replace the Air Force's fleet of Eisenhower administration-era aerial tankers, which refuel warplanes while in flight. The Pentagon has twice awarded the contract, only to see its decision overturned amid accusations of underhanded politics and discriminatory rule-making.

No matter which company wins — Boeing Co. or its archrival, Airbus parent European Aeronautic Defense & Space Co. — it will be an economic boon for Southern California's aerospace industry. Millions of payroll dollars are expected to pour in to help build the 179 flying fuel-carrying behemoths, even though the planes ultimately would be assembled elsewhere.

Follow-on tanker contracts could involve building 300 to 400 additional tankers valued at more than $100 billion over several decades, analysts said.

Chicago-based Boeing said if it won the competition, it would mean 4,500 jobs and $233 million for California. European Aeronautic Defense & Space's unit, dubbed EADS North America, said its bid would mean about 5,200 jobs for around 40 companies in the state.

"One way or another, there's a lot of money coming through California when this contract is handed out," said Loren Thompson, defense policy analyst for the Lexington Institute in Arlington, Va. "A very large portion of the contract will be given to sub-tier contractors who make engines, electronics and landing gear for the aircraft."

The decision has national implications and strong political overtones. Both companies have boisterous contingents in the halls of Congress pushing for one side or the other because of the huge number of jobs at stake nationwide. For example, if Boeing wins, the bulk of assembly work would be done in the Seattle area. EADS has plans for an aircraft production plant in Mobile, Ala.

But much of the work is slated for California, with airplane parts being manufactured across the Southland. Take Parker Aerospace in Irvine. It's set to be a supplier on either EADS North America's offering of a modified Airbus A330 passenger jet or Boeing's contender, which is based on its 767 airliner.

Once the tanker money is handed out, Parker will make hydraulic power equipment, fuel systems and primary flight controls. The program will help support Parker's 1,900 employees spread over the company's three massive facilities in Irvine and Camarillo.

"There is a huge trickle-down effect with a contract like this," said Cheryl Flohr, a Parker Aerospace spokeswoman. "Parker and its suppliers would make scores of products, which would provide stability in California's aerospace industry. It's very significant."

Dozens of other local aerospace companies also stand to benefit, depending on the outcome, including Raytheon in El Segundo, Alarin Aircraft Hinge Inc. in the City of Commerce and Lamsco West Inc. in Santa Clarita.

But getting to work on the program hasn't been easy. It's been a decade-long affair for the Air Force to replace the oldest planes in its fleet. Many of the planes — based on 50-year-old heavily modified Boeing 707s — are run-down, rusty and corroding.

The military depends on the tankers all over the world because they refuel bombers, fighters and cargo planes in midair beyond America's shores. Still, the Pentagon has been unable to award the contract.

"I don't think you can write a soap opera that has been this dramatic," said Michel Merluzeau, managing partner of aerospace consultant G2 Solutions in Kirkland, Wash. "It seems like it will never end."

Efforts to replace the tankers started in 2001. Boeing won the first contract in 2004, but it fell apart because of an ethics scandal that resulted in prison terms for a former senior Boeing executive and a former high-ranking Air Force official.

When the Pentagon relaunched the competition in 2007, Northrop Grumman Corp. of Century City decided to team up with France and Germany-based EADS, despite facing political backlash for joining with a foreign entity.

Its gamble paid off — briefly. Northrop took home the contract in 2008 in a huge upset, because Boeing had built all of the 415 tankers in the current fleet.

But the decision was overturned after the Government Accountability Office found that the Air Force mishandled the yearlong competition by failing to credit Boeing for some of its proposed plane's capabilities.

The latest specifications were released last February. Less than a month later, Northrop dropped out and abandoned EADS after newly minted Northrop Chief Executive Wesley G. Bush said the odds were stacked against its plane.

EADS decided to go at it alone working through its U.S. unit, which was set up in 2003. And it may be a wise move because many insiders in the defense industry believe that EADS will be named the winner.

But the fight might not end there. Last fall, Pentagon officials accidentally mixed up addresses and inadvertently gave the two companies confidential information on each other's bid. That could prompt an appeal from the losing bid.

"It's the most politicized nightmare ever to hit the defense budget," said aviation analyst Richard Aboulafia of Teal Group Corp. "The saga has been going for so long that it's hard to imagine we are nearing the end."

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