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Originally published February 24, 2010 at 8:16 PM | Page modified February 25, 2010 at 11:59 AM

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Final plan for Air Force tanker bids plays to Boeing's advantages

The Air Force's final outline for bidding on the long-delayed $40 billion refueling tanker appears to heavily favor Boeing's Everett-built 767 plane over the rival Airbus A330.

Seattle Times aerospace reporter

The final Request for Proposals (RFP) for the long-delayed $40 billion Air Force refueling-tanker contract issued Wednesday appears to heavily favor Boeing's Everett-built 767 plane over the rival Airbus A330.

The big question is whether Northrop Grumman and EADS, the companies proposing the Airbus jet, will even submit a bid — or whether they will pull out of the competition and leave Boeing the sole contender.

Pentagon officials, acutely aware of Northrop's earlier complaints that last fall's draft document favored Boeing by scoring bids mostly on some basic capabilities, insisted the RFP isn't simply geared toward the least expensive plane.

"This is not a price showdown" based on initial purchase price, said Ashton Carter, undersecretary of defense procurement.

But analysts noted that only in very limited circumstances will extra credit will be given for extra capabilities.

The much larger Airbus A330 can deliver more fuel per trip than the Boeing 767 and carry extra troops and cargo. But the evaluation process will credit those extras only if the two bids are within 1 percent of each other on cost.

With that setup, "this becomes nothing more than a cost competition, and a bigger plane costs more," said Loren Thompson, a defense-industry analyst with the Lexington Institute. "It's Boeing's competition to lose. This is playing out just the way Northrop feared."

Northrop CEO Wes Bush threatened in December to withdraw from the competition if the final RFP didn't differ substantially from the draft issued last fall. The details revealed Wednesday show it doesn't.

Still, Northrop's decision is likely to take some time as the company scrutinizes the details of the RFP and weighs its political options.

The tanker competition has been heavily politicized as a fight over American jobs. Boeing's congressional supporters have complained bitterly about the prospect of granting such a massive contract to a consortium offering a European airplane.

Boeing estimates that winning the tanker could secure about 2,000 direct jobs in Everett and as many as 6,000 statewide including jobs at suppliers and indirect support jobs. Thousands of other jobs are at stake nationwide.

But Northrop/EADS claims it also will deliver thousands of U.S. jobs. It has won congressional support from Southern states by promising to ship aircraft sections across the Atlantic and assemble the tankers in Mobile, Ala., along with commercial A330 freighter jets.

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Boeing was awarded the first round of the contract without competition in 2001; that was later canceled due to revelations of criminal collusion in the procurement process.

Northrop/EADS won the second round two years ago this month. That was canceled after Boeing cited lack of transparency in the evaluation process and successfully protested the award.

Third try

On this third attempt, the Pentagon laid out Wednesday a new timeline: The two competitors will have 75 days to submit their bids, and a decision is expected in mid-September.

The initial contract is for 179 tankers, estimated to be worth about $40 billion. But with follow-on contracts to replace other Air Force tankers in addition to foreign sales, that prize could swell substantially.

Jim Albaugh, in a message to employees last September soon after he became Boeing Commercial Airplanes CEO, laid out the high stakes:

"This is the kind of franchise program that comes along only once every several decades."

If Northrop chooses not to compete, its options may be limited. In recent months, its political supporters seemed to have given up thoughts of winning outright and instead have focused on lobbying to split the contract between the two competitors.

But Secretary of Defense Robert Gates has repeatedly rejected that option. In a news conference Wednesday, his deputy, William Lynn, reiterated that position: "We think it would cost the taxpayers more and we oppose it."

Industry analyst Richard Aboulafia said the recent death of Rep. John Murtha, D-Pa., who chaired the House Appropriations Defense Subcommittee, means the idea of a split buy lacks a champion and is likely "not viable any more."

Rep. Norm Dicks, D-Bremerton, a vociferous Boeing supporter, is expected to succeed Murtha at the helm of the subcommittee. Asked this week about the possibility of splitting the contract, Dicks replied: "I won't stand for it."

Northrop declined substantive comment on the RFP, pending a detailed review.

Boeing issued a statement expressing "disappointment" that two of its complaints about the draft RFP had not been acted on.

The Pentagon rejected Boeing's argument that it should penalize the A330 offering because of an interim World Trade Organization ruling that Airbus had received illegal subsidies from European governments. It said an Airbus countersuit against Boeing at the WTO must be settled before that could be factored into any Pentagon decisions.

The government also left unchanged its method of adjusting the bid price to account for the cost of fuel over the 40-year life cycle of the tanker fleet and the military construction costs incurred at airfields to accommodate the airplanes.

'Real-world costs'

Though Boeing argued that the larger A330's greater fuel burn and higher airfield expenses would add billions of dollars to the Air Force costs over many years, the government insisted its evaluation methods will allocate "real-world costs" to cover the difference.

Despite the opinion of most independent observers that the contract is now tilted Boeing's way, Deputy Secretary of Defense Lynn declared Wednesday the Pentagon has "steered right down the middle."

"Northrop has a choice to make," Lynn said. "We're hoping Northrop chooses, with its European partner, to bid."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Seattle Times Washington bureau reporter Kyung Song contributed to this report.

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