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How one lawmaker gave Boeing a boost in tanker contest

Rep. Norm Dicks, a Democrat from Washington state, advocated a change in the way the Air Force evaluated bids from Boeing and rival Airbus, and that helped Boeing win the $35-billion contract.

February 28, 2011|By Rob Hotakainen

Reporting from Washington — When the Air Force awarded a $35-billion aerial tanker contract to Boeing Co. last week, military officials weren't interested in knowing only how much it would cost the federal government to acquire 179 of the combat-ready refueling planes.

They also wanted to know how much it would cost to operate the planes over their entire lifespan, which is estimated at 40 years.

That helps explain why Rep. Norm Dicks (D-Wash.), a 34-year veteran of Congress and a longtime expert on defense issues on Capitol Hill, called Thursday "the happiest day in my professional life."

After the issue of lifespan costs arose at a congressional hearing in 2008, Dicks helped engineer a change in how the Air Force evaluated the bids between Boeing and rival Airbus, which is owned by European Aeronautic Defense & Space Co., or EADS.

"I got them to change the life-cycle costs from 25 years to 40 years," Dicks said in an interview. "When you take 179 planes, and with the Airbus burning 24% more fuel than the Boeing plane, that's a big number. It could range from a $4-billion to $10-billion difference. That had to help them in a big way."

The aerial tankers are essentially flying gas stations that allow other aircraft to refuel in midair rather than by landing at fuel bases. Air Force officials want to replace the aging fleet of 600 or so, built in the 1950s and 1960s. The entire fleet could be replaced in the next 20 years with additional contracts that could push the final price tag to $100 billion.

Boeing's win is a big victory for 70-year-old Dicks, the top-ranked Democrat on the House Appropriations Committee's defense subcommittee. Dicks, known by some on Capitol Hill as "Mr. Boeing," has received tens of thousands of dollars in contributions for his political campaigns from company sources over his career.

Dicks pressed the issue at the 2008 congressional hearing after learning that the Pentagon was using a 25-year time frame to examine costs. After the hearing, the defense subcommittee voted to require the Pentagon to consider the cost of operating the new tankers over a 40-year life cycle.

A year ago, when the Air Force put the tanker contract out for bids, officials made clear that a winning bid would involve much more than price.

"Price is very important, but it is not the only criteria.... It is actually possible to have a higher price and win this competition," Deputy Defense Secretary William Lynn said at the time.

In announcing Boeing's win at the Pentagon on Thursday, Air Force Secretary Michael Donley said the selection process "took into account mission effectiveness in wartime and life-cycle costs as embodied in fuel efficiency and military construction costs."

In a conference call with reporters, a top Boeing official said the life-cycle costs were key to winning the contract, which will produce 50,000 jobs nationwide, many of them in Washington state and Kansas.

Asked specifically about the change that Dicks pushed through, Dennis Muilenburg, chief executive of Boeing's defense, space and security division, said it was "an important part of the overall equation."

The tanker competition has been marked by a major Pentagon procurement scandal and political maneuverings on Capitol Hill. In October 2001, as the airline industry struggled after the Sept. 11 terrorist attacks, the Air Force proposed leasing 100 tankers from Boeing, but that would have cost more than buying the planes outright.

Then Boeing fired Chief Financial Officer Michael Sears for hiring Darleen Druyun, who had been the chief Air Force official overseeing the tanker deal. Druyun was also fired; both eventually served time in prison.

When the aerial tanker contract was put up for bidding in 2006, EADS and U.S. partner Northrop Grumman Corp. won the contract. The EADS-Northrop team said it would build the planes at a new plant in Mobile, Ala. But the Government Accountability Office upheld a protest filed by Boeing and overturned the contract.

In 2009, a year before the Air Force formally put out the request for bids, the World Trade Organization ruled that Airbus had received billions of dollars in illegal subsidies from four European governments. The WTO later ruled that Boeing also had received illegal subsidies, but a much lesser amount.

After 10 years, Dicks said, the Air Force "finally got it right" when it awarded one of the largest military contracts in history to Boeing, which is promising to create at least 11,000 jobs in his home state.

"We were really worried about this, but Boeing made a great bid," Dicks said. "I hope they make some money on it."

Many analysts expected EADS to prevail, which contributed to Dicks' anxiety.

"The Boeing guys did a great job of making it sound like they'd almost given up," Dicks said. "Maybe they fooled Airbus. Maybe that was a great ploy. If it was, they never told me about it."

EADS officials said they would review the decision closely before deciding whether to file an appeal.

Boeing, meanwhile, said it planned to deliver the first 18 aircraft by 2017. The Chicago company has large manufacturing facilities in Washington state, Kansas and Missouri; another plant is slated to open this year in South Carolina. The Boeing tanker will be based on a 767 airframe built at its factory in Everett, Wash., and converted to military use at its Wichita, Kan., facilities.

Hotakainen writes McClatchy.

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