UPDATE 2-New US tanker deal could be up to 4 years away

(Adds comments on tanker decision complexity, helicopter competition, in final paragraphs)

By Andrea Shalal-Esa

WASHINGTON, Sept 15 (Reuters) - U.S. Air Force Chief of Staff Norton Schwartz said a new contract for aerial refueling aircraft could be awarded within 8 to 12 months, but depending on how the new administration decides to proceed, it could up to 36 to 48 months.

The Pentagon last week canceled a $35 billion revamped competition, which pits Boeing Co (BA.N) against a team of Northrop Grumman Corp (NOC.N) paired with Europe's EADS (EAD.PA), after concluding it could not pick a winner by January.

Northrop and EADS won the competition in February, but the Pentagon decided to redo the competition after the Government Accountability Office (GAO) said Boeing might have won if not for significant errors in the Air Force's handling of the process.

Revised terms for the competition were announced in August, but Boeing said those changes basically disqualified the 767 tanker variant it had bid, and threatened to quit the competition unless it got six months to prepare a new bid.

Schwartz told reporters at the annual Air Force Association meeting on Monday that Air Force officials were preparing a wide range of options for the next administration -- ranging from a "cold, cold start," with a new analysis of requirements, to a modification of the existing request for proposals.

He said his projections for awarding of a new contract would begin once the administration decided how to proceed.

Acting Air Force Secretary Michael Donley said the Air Force supported last week's decision by Defense Secretary Robert Gates to cancel the competition for now, but the Air Force and Pentagon would ultimately have to "circle back."

"There was a lot of heat and smoke in this process. I don't think it was all healthy," Donley told reporters.

He said he was in the process of scheduling a meeting with Northrop to discuss termination of its existing contract for work on 179 tankers, but declined to give any details on the size of the expected termination fee.

In a speech to the Air Force booster group, Donley said "seven years of history on this program have culminated in a missed opportunity."

"My personal view is that this experience has not been a healthy one for the Air Force or (the Department of Defense), or for the contractors, or the Congress," Donley said in his speech. "We're going to need a new approach going forward."

Donley said Air Force officials would meet with the GAO to discuss ways to better document the decision-making process to avert protests in the future.

In addition, the Air Force planned its own internal review of what went wrong in the tanker competition, and there would be an independent assessment by a federally funded think tank.

Schwartz said it might be possible to remove some of the complexity from the tanker competition, which involved over 800 criteria, some of which were "inherently judgmental."

Regardless of what approach the next administration took, Schwartz said it was important to reform the overall acquisition system so that the military requirements remained the "prime consideration." Asked if requirements should trump concerns about industrial policy or trade subsidies -- some issues raised in the tanker competition -- Schwartz said yes.

Donley said there had been much scrutiny of another controversial competition, the $15 billion contest for new search and rescue helicopters which was redone after the GAO upheld two protests, which is nearing contract award now.

Boeing won the first round of the competition, but Lockheed Martin Corp (LMT.N) and Sikorsky Aircraft, a unit of United Technologies Corp (UTX.N), won their separate protests and hope to prevail this time around.

"My immediate focus with acquisition community is getting lessons learned out of the tanker process, so we make sure we can get though any possible protest that comes after this," Donley said.

He said expected a decision in the helicopter competition within a few months, before the Bush administration leaves office in January. (Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn)